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git-law/dtd/uslm/previous/sample-files/CFR-2019-title12-vol3-uslm.xml
Paul Payne c9e3d68979 Snapshot of US dtds.
2025-08-11 08:00:11 -07:00

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<?xml version="1.0" encoding="UTF-8"?>
<?xml-stylesheet type="text/css" href="uslm.css"?><cfrDoc xmlns="http://schemas.gpo.gov/xml/uslm" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance" xmlns:dcterms="http://purl.org/dc/terms/" xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:xhtml="http://www.w3.org/1999/xhtml" xsi:schemaLocation="http://schemas.gpo.gov/xml/uslm https://www.govinfo.gov/schemas/xml/uslm/uslm-2.0.4.xsd" xml:lang="en">
<meta style="-uslm-sgm:FMTR">
<docPublicationName>Code of Federal Regulations</docPublicationName>
<dc:title><!-- style="-uslm-sgm:TITLEPG" -->Title 12 Banks and Banking Parts 220 to 229</dc:title>
<docNumber style="-uslm-sgm:TITLENUM">12</docNumber>
<startingProvision style="-uslm-sgm:PARTS">220</startingProvision>
<endingProvision style="-uslm-sgm:PARTS">229</endingProvision>
<docReleasePoint style="-uslm-sgm:REVISED">2019-01-01</docReleasePoint>
<dcterms:created><!-- style="-uslm-sgm:AMDDATE" -->2019-01-01</dcterms:created>
<dc:type>CFR Title</dc:type>
<dc:publisher>United States Government Publishing Office</dc:publisher>
<dc:creator>Office of the Federal Register</dc:creator>
<processedDate>2019-05-30T20:15:23+00:00</processedDate>
<processedBy>CFR Converter 0.9.9; SGML Converter 1.2.14</processedBy>
<dc:format>text/xml</dc:format>
<dc:language>EN</dc:language>
</meta>
<preface style="-uslm-sgm:FMTR">
<docPublicationName>Code of Federal Regulations</docPublicationName>
<?page num="1"?>
<docNumber style="-uslm-sgm:TITLENUM">Title 12</docNumber>
<subject style="-uslm-sgm:SUBJECT">Banks and Banking </subject>
<provisionRange style="-uslm-sgm:PARTS">Parts 220 to 229</provisionRange>
<docReleasePoint style="-uslm-sgm:REVISED">Revised as of <date date="2019-01-01">January 1, 2019</date></docReleasePoint>
<note topic="contains" style="-uslm-sgm:CONTAINS">Containing a codification of documents of general applicability and future effect </note>
<dc:date><!-- style="-uslm-sgm:DATE" -->As of January 1, 2019 </dc:date>
<dc:creator><!-- style="-uslm-sgm:PUB" -->Published by the Office of the Federal Register National Archives and Records Administration as a Special Edition of the Federal Register
</dc:creator>
<editionNote style="-uslm-sgm:OENOTICE"><?page num="?ii"?>
<heading style="-uslm-sgm:HED">U.S. GOVERNMENT OFFICIAL EDITION NOTICE</heading>
<heading style="-uslm-sgm:HED">Legal Status and Use of Seals and Logos</heading>
<figure style="-uslm-sgm:GPH">
<img src="archives.ai" style="-uslm-sgm:GID; -uslm-sgm-SPAN:1; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:54; -uslm-sgm-HTYPE:LEFT; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:P">The seal of the National Archives and Records Administration (NARA) authenticates the Code of Federal Regulations (CFR) as the official codification of Federal regulations established under the Federal Register Act. Under the provisions of <ref href="/us/usc/t44/s1507">44 U.S.C. 1507</ref>, the contents of the CFR, a special edition of the Federal Register, shall be judicially noticed. The CFR is prima facie evidence of the original documents published in the Federal Register (<ref href="/us/usc/t44/s1510">44 U.S.C. 1510</ref>). </p>
<p style="-uslm-sgm:P">It is prohibited to use NARA's official seal and the stylized Code of Federal Regulations logo on any republication of this material without the express, written permission of the Archivist of the United States or the Archivist's designee. Any person using NARA's official seals and logos in a manner inconsistent with the provisions of <ref href="/us/cfr/t36/p1200">36 CFR part 1200</ref> is subject to the penalties specified in <ref href="/us/usc/t18/s506">18 U.S.C. 506</ref>, 701, and 1017. </p>
<heading style="-uslm-sgm:HED">Use of ISBN Prefix </heading>
<p style="-uslm-sgm:P">This is the Official U.S. Government edition of this publication and is herein identified to certify its authenticity. Use of the 0–16 ISBN prefix is for U.S. Government Publishing Office Official Editions only. The Superintendent of Documents of the U.S. Government Publishing Office requests that any reprinted edition clearly be labeled as a copy of the authentic work with a new ISBN. </p>
</editionNote>
<organizationNote style="-uslm-sgm:GPO">
<figure style="-uslm-sgm:GPH">
<img src="gpologo2.eps" style="-uslm-sgm:GID; -uslm-sgm-SPAN:1; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:28; -uslm-sgm-HTYPE:LEFT; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:P">U . S . G O V E R N M E N T P U B L I S H I N G O F F I C E</p>
</organizationNote>
<organizationNote style="-uslm-sgm:SUDOCS">
<p style="-uslm-sgm:P">U.S. Superintendent of Documents • Washington, DC 20402–0001</p>
<p style="-uslm-sgm:P">http://bookstore.gpo.gov</p>
<p style="-uslm-sgm:P">Phone: toll-free (866) 512-1800; DC area (202) 512-1800
</p>
</organizationNote>
<content>
<toc style="-uslm-sgm:TOC"><?page num="iii"?>
<heading style="-uslm-sgm:HED">Table of Contents </heading>
<headingItem style="-uslm-sgm:PGHD">
<designator>Page </designator>
</headingItem>
<referenceItem style="-uslm-sgm:EXPL">
<label style="-uslm-sgm:SUBJECT">Explanation </label>
<target style="-uslm-sgm:PG">v
</target>
</referenceItem>
<groupItem style="-uslm-sgm:TITLENO">
<headingItem style="-uslm-sgm:HED">
<label>Title 12: </label>
</headingItem>
<referenceItem style="-uslm-sgm:CHAPTI">
<label style="-uslm-sgm:SUBJECT">Chapter II—Federal Reserve System (Continued) </label>
<target style="-uslm-sgm:PG">3</target>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:FAIDS">
<headingItem style="-uslm-sgm:HED">
<label>Finding Aids: </label>
</headingItem>
<referenceItem>
<label style="-uslm-sgm:SUBJECT">Table of CFR Titles and Chapters </label>
<target style="-uslm-sgm:PG">975</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBJECT">Alphabetical List of Agencies Appearing in the CFR </label>
<target style="-uslm-sgm:PG">995</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBJECT">List of CFR Sections Affected </label>
<target style="-uslm-sgm:PG">1005</target>
</referenceItem>
</groupItem>
</toc>
</content>
<citationNote style="-uslm-sgm:CITE"><?page num="iv"?>
<p style="-uslm-sgm:P">Cite this Code: <inline style="-uslm-sgm:E" class="-gpo-grid-0-1">CFR</inline>
</p>
<p style="-uslm-sgm:CITEP">To cite the regulations in this volume use title, part and section number. Thus, <inline style="-uslm-sgm:E" class="-gpo-grid-0-1"><ref href="/us/cfr/t12/s220.1">12 CFR 220.1</ref></inline> refers to title 12, part 220, section 1.</p>
</citationNote>
<explanationNote style="-uslm-sgm:EXPLA"><?page num="v"?>
<heading style="-uslm-sgm:HED">Explanation</heading>
<p style="-uslm-sgm:P">The Code of Federal Regulations is a codification of the general and permanent rules published in the Federal Register by the Executive departments and agencies of the Federal Government. The Code is divided into 50 titles which represent broad areas subject to Federal regulation. Each title is divided into chapters which usually bear the name of the issuing agency. Each chapter is further subdivided into parts covering specific regulatory areas.</p>
<p style="-uslm-sgm:P">Each volume of the Code is revised at least once each calendar year and issued on a quarterly basis approximately as follows:</p>
<xhtml:table style="-uslm-sgm:IPAR">
<xhtml:tbody>
<xhtml:tr>
<xhtml:td style="-uslm-sgm:P1">Title 1 through Title 16 </xhtml:td>
<xhtml:td style="-uslm-sgm:STUB">as of January 1</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td style="-uslm-sgm:P1">Title 17 through Title 27 </xhtml:td>
<xhtml:td style="-uslm-sgm:STUB">as of April 1</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td style="-uslm-sgm:P1">Title 28 through Title 41 </xhtml:td>
<xhtml:td style="-uslm-sgm:STUB">as of July 1</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td style="-uslm-sgm:P1">Title 42 through Title 50 </xhtml:td>
<xhtml:td style="-uslm-sgm:STUB">as of October 1</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">The appropriate revision date is printed on the cover of each volume.</p>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">LEGAL STATUS</heading>
<p style="-uslm-sgm:P">The contents of the Federal Register are required to be judicially noticed (<ref href="/us/usc/t44/s1507">44 U.S.C. 1507</ref>). The Code of Federal Regulations is prima facie evidence of the text of the original documents (<ref href="/us/usc/t44/s1510">44 U.S.C. 1510</ref>).</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">HOW TO USE THE CODE OF FEDERAL REGULATIONS</heading>
<p style="-uslm-sgm:P">The Code of Federal Regulations is kept up to date by the individual issues of the Federal Register. These two publications must be used together to determine the latest version of any given rule.</p>
<p style="-uslm-sgm:P">To determine whether a Code volume has been amended since its revision date (in this case, <date date="2019-01-01">January 1, 2019</date>), consult the “List of CFR Sections Affected (LSA),” which is issued monthly, and the “Cumulative List of Parts Affected,” which appears in the Reader Aids section of the daily Federal Register. These two lists will identify the Federal Register page number of the latest amendment of any given rule.</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">EFFECTIVE AND EXPIRATION DATES</heading>
<p style="-uslm-sgm:P">Each volume of the Code contains amendments published in the Federal Register since the last revision of that volume of the Code. Source citations for the regulations are referred to by volume number and page number of the Federal Register and date of publication. Publication dates and effective dates are usually not the same and care must be exercised by the user in determining the actual effective date. In instances where the effective date is beyond the cut-off date for the Code a note has been inserted to reflect the future effective date. In those instances where a regulation published in the Federal Register states a date certain for expiration, an appropriate note will be inserted following the text.</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">OMB CONTROL NUMBERS</heading>
<p style="-uslm-sgm:P">The Paperwork Reduction Act of 1980 (<ref href="/us/pl/96/511">Pub. L. 96–511</ref>) requires Federal agencies to display an OMB control number with their information collection request. <?page num="vi"?>Many agencies have begun publishing numerous OMB control numbers as amendments to existing regulations in the CFR. These OMB numbers are placed as close as possible to the applicable recordkeeping or reporting requirements.</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">PAST PROVISIONS OF THE CODE</heading>
<p style="-uslm-sgm:P">Provisions of the Code that are no longer in force and effect as of the revision date stated on the cover of each volume are not carried. Code users may find the text of provisions in effect on any given date in the past by using the appropriate List of CFR Sections Affected (LSA). For the convenience of the reader, a “List of CFR Sections Affected” is published at the end of each CFR volume. For changes to the Code prior to the LSA listings at the end of the volume, consult previous annual editions of the LSA. For changes to the Code prior to 2001, consult the List of CFR Sections Affected compilations, published for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">“[RESERVED]” TERMINOLOGY</heading>
<p style="-uslm-sgm:P" role="reserved">The term “[Reserved]” is used as a place holder within the Code of Federal Regulations. An agency may add regulatory information at a “[Reserved]” location at any time. Occasionally “[Reserved]” is used editorially to indicate that a portion of the CFR was left vacant and not accidentally dropped due to a printing or computer error. </p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">INCORPORATION BY REFERENCE</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">What is incorporation by reference?</inline> Incorporation by reference was established by statute and allows Federal agencies to meet the requirement to publish regulations in the Federal Register by referring to materials already published elsewhere. For an incorporation to be valid, the Director of the Federal Register must approve it. The legal effect of incorporation by reference is that the material is treated as if it were published in full in the Federal Register (<ref href="/us/usc/t5/s552/a">5 U.S.C. 552(a)</ref>). This material, like any other properly issued regulation, has the force of law. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">What is a proper incorporation by reference?</inline> The Director of the Federal Register will approve an incorporation by reference only when the requirements of <ref href="/us/cfr/t1/p51">1 CFR part 51</ref> are met. Some of the elements on which approval is based are: </p>
<p style="-uslm-sgm:P">(a) The incorporation will substantially reduce the volume of material published in the Federal Register. </p>
<p style="-uslm-sgm:P">(b) The matter incorporated is in fact available to the extent necessary to afford fairness and uniformity in the administrative process. </p>
<p style="-uslm-sgm:P">(c) The incorporating document is drafted and submitted for publication in accordance with <ref href="/us/cfr/t1/p51">1 CFR part 51</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">What if the material incorporated by reference cannot be found?</inline> If you have any problem locating or obtaining a copy of material listed as an approved incorporation by reference, please contact the agency that issued the regulation containing that incorporation. If, after contacting the agency, you find the material is not available, please notify the Director of the Federal Register, National Archives and Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001, or call 202-741-6010. </p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">CFR INDEXES AND TABULAR GUIDES</heading>
<p style="-uslm-sgm:P">A subject index to the Code of Federal Regulations is contained in a separate volume, revised annually as of January 1, entitled CFR <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Index and Finding Aids.</inline> This volume contains the Parallel Table of Authorities and Rules. A list of CFR titles, chapters, subchapters, and parts and an alphabetical list of agencies publishing in the CFR are also included in this volume.
<?page num="vii"?></p>
<p style="-uslm-sgm:P">An index to the text of “Title 3—The President” is carried within that volume.</p>
<p style="-uslm-sgm:P">The Federal Register Index is issued monthly in cumulative form. This index is based on a consolidation of the “Contents” entries in the daily Federal Register.</p>
<p style="-uslm-sgm:P">A List of CFR Sections Affected (LSA) is published monthly, keyed to the revision dates of the 50 CFR titles.</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">REPUBLICATION OF MATERIAL</heading>
<p style="-uslm-sgm:P">There are no restrictions on the republication of material appearing in the Code of Federal Regulations.</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">INQUIRIES</heading>
<p style="-uslm-sgm:P">For a legal interpretation or explanation of any regulation in this volume, contact the issuing agency. The issuing agency's name appears at the top of odd-numbered pages.</p>
<p style="-uslm-sgm:P">For inquiries concerning CFR reference assistance, call 202–741–6000 or write to the Director, Office of the Federal Register, National Archives and Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001 or e-mail <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">fedreg.info@nara.gov.</inline>
</p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">SALES</heading>
<p style="-uslm-sgm:P">The Government Publishing Office (GPO) processes all sales and distribution of the CFR. For payment by credit card, call toll-free, 866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or fax your order to 202-512-2104, 24 hours a day. For payment by check, write to: US Government Publishing Office – New Orders, P.O. Box 979050, St. Louis, MO 63197-9000. </p>
</content>
<content style="-uslm-sgm:SIDEHED">
<heading style="-uslm-sgm:HED">ELECTRONIC SERVICES</heading>
<p style="-uslm-sgm:P">The full text of the Code of Federal Regulations, the LSA (List of CFR Sections Affected), The United States Government Manual, the Federal Register, Public Laws, Public Papers of the Presidents of the United States, Compilation of Presidential Documents and the Privacy Act Compilation are available in electronic format via <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.ofr.gov.</inline> For more information, contact the GPO Customer Contact Center, U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ContactCenter@gpo.gov.</inline>
</p>
<p style="-uslm-sgm:P">The Office of the Federal Register also offers a free service on the National Archives and Records Administration's (NARA) World Wide Web site for public law numbers, Federal Register finding aids, and related information. Connect to NARA's web site at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.archives.gov/federal-register.</inline>
</p>
<p style="-uslm-sgm:P">The e-CFR is a regularly updated, unofficial editorial compilation of CFR material and Federal Register amendments, produced by the Office of the Federal Register and the Government Publishing Office. It is available at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.ecfr.gov.</inline>
</p>
<?GPOvSpace 12?>
</content>
<signature>
<name style="-uslm-sgm:P">Oliver A. Potts,</name>
<role style="-uslm-sgm:P">Director, </role>
<affiliation style="-uslm-sgm:P">Office of the Federal Register. </affiliation>
<signatureDate style="-uslm-sgm:P"><date date="2019-01-01">January 1, 2019</date>.</signatureDate>
</signature>
</explanationNote>
<explanationNote style="-uslm-sgm:THISTITL"><?page num="ix"?>
<heading style="-uslm-sgm:HED">THIS TITLE </heading>
<p style="-uslm-sgm:P">Title 12—<inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Banks and Banking</inline> is composed of ten volumes. The parts in these volumes are arranged in the following order: Parts 1–199, 200–219, 220–229, 230–299, 300–346, 347–599, 600–899, 900–1025, 1026–1099, and 1100–end. The contents of these volumes represent all current regulations codified under this title of the CFR as of <date date="2019-01-01">January 1, 2019</date>.</p>
</explanationNote>
</preface>
<main style="-uslm-sgm:TITLE">
<leftRunningHead style="-uslm-sgm:LRH">12 CFR Ch. II (1–1–19 Edition)</leftRunningHead>
<rightRunningHead style="-uslm-sgm:RRH">Federal Reserve System</rightRunningHead>
<title><?page num="1"?>
<num value="12" style="-uslm-sgm:HED">Title 12—</num>
<heading style="-uslm-sgm:HED">Banks and Banking </heading>
<note style="-uslm-sgm:P" class="centered">(This book contains parts 220 to 229)</note>
<toc style="-uslm-sgm:CFRTOC" role="cfrTitleTOC">
<headingItem style="-uslm-sgm:PTHD" role="columnHeader">
<target>Part</target>
</headingItem>
<referenceItem style="-uslm-sgm:SUBJECT">
<designator style="-uslm-sgm:SUBJECT" href="/us/cfr/t12/ch2">CHAPTER II—</designator>
<label style="-uslm-sgm:SUBJECT">Federal Reserve System (Continued)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/ch2">220
</target>
</referenceItem>
</toc>
<chapter style="-uslm-sgm:CHAPTER" identifier="/us/cfr/t12/ch2">
<num value="II" style="-uslm-sgm:HED">CHAPTER II—</num>
<heading style="-uslm-sgm:HED">FEDERAL RESERVE SYSTEM (CONTINUED)</heading>
<toc style="-uslm-sgm:TOC" role="cfrChapterTOC">
<groupItem>
<headingItem style="-uslm-sgm:SUBCHAP" role="headerEntry">
<designator style="-uslm-sgm:HED" href="/us/cfr/t12/ch2/schA">SUBCHAPTER A—</designator>
<label style="-uslm-sgm:HED">BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (CONTINUED)</label>
</headingItem>
<headingItem role="columnHeader">
<designator style="-uslm-sgm:PTHD">Part</designator>
<target style="-uslm-sgm:PGHD">Page</target>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p220">220 </designator>
<label style="-uslm-sgm:SUBJECT">Credit by brokers and dealers (Regulation T)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p220">5</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p221">221 </designator>
<label style="-uslm-sgm:SUBJECT">Credit by banks and persons other than brokers or dealers for the purpose of purchasing or carrying margin stock (Regulation U)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p221">34</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p222">222</designator>
<label style="-uslm-sgm:SUBJECT">Fair credit reporting (Regulation V)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p222">55</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p223">223</designator>
<label style="-uslm-sgm:SUBJECT">Transactions between member banks and their affiliates (Regulation W)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p223">116</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p224">224 </designator>
<label style="-uslm-sgm:SUBJECT">Borrowers of securities credit (Regulation X)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p224">143</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p225">225 </designator>
<label style="-uslm-sgm:SUBJECT">Bank holding companies and change in bank control (Regulation Y)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p225">144</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p226">226 </designator>
<label style="-uslm-sgm:SUBJECT">Truth in lending (Regulation Z)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p226">327</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p228">228 </designator>
<label style="-uslm-sgm:SUBJECT">Community reinvestment (Regulation BB)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p228">816</target>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:PT" href="/us/cfr/t12/p229">229</designator>
<label style="-uslm-sgm:SUBJECT">Availability of funds and collection of checks (Regulation CC)</label>
<target style="-uslm-sgm:PG" href="/us/cfr/t12/p229">837</target>
</referenceItem>
</groupItem>
<referenceItem style="-uslm-sgm:SUPPLPUB" role="supplementalPublications">
<designator style="-uslm-sgm:HED">Supplementary Publications:</designator>
<label style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">The Federal Reserve Act, as amended through <date date="1976-12-31">December 31, 1976</date>, with an Appendix containing provisions of certain other statutes affecting the Federal Reserve System. Rules of Organization and Procedure—Board of Governors of the Federal Reserve System. Regulations of the Board of Governors of the Federal Reserve System. The Federal Reserve System—Purposes and Functions. Annual Report. Federal Reserve Bulletin. Monthly. Federal Reserve Chart Book Quarterly; Historical Chart Book issued in September.</inline>
</label>
</referenceItem>
</toc>
<subchapter style="-uslm-sgm:SUBCHAP" role="N" identifier="/us/cfr/t12/ch2/schA"><?page num="5"?>
<num value="A" style="-uslm-sgm:HED">SUBCHAPTER A—</num>
<heading style="-uslm-sgm:HED">BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (CONTINUED)
</heading>
<ear style="-uslm-sgm:EAR">Pt. 220</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p220">
<num value="220" style="-uslm-sgm:HED">PART 220—</num>
<heading style="-uslm-sgm:HED">CREDIT BY BROKERS AND DEALERS (REGULATION T)</heading>
<toc style="-uslm-sgm:CONTENTS">
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.1">220.1</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.2">220.2</designator>
<label style="-uslm-sgm:SUBJECT">Definitions. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.3">220.3</designator>
<label style="-uslm-sgm:SUBJECT">General provisions. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.4">220.4</designator>
<label style="-uslm-sgm:SUBJECT">Margin account. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.5">220.5</designator>
<label style="-uslm-sgm:SUBJECT">Special memorandum account.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.6">220.6</designator>
<label style="-uslm-sgm:SUBJECT">Good faith account. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.7">220.7</designator>
<label style="-uslm-sgm:SUBJECT">Broker-dealer credit account. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.8">220.8</designator>
<label style="-uslm-sgm:SUBJECT">Cash account. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.9">220.9</designator>
<label style="-uslm-sgm:SUBJECT">Clearance of securities, options, and futures. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.10">220.10</designator>
<label style="-uslm-sgm:SUBJECT">Borrowing and lending securities. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.11">220.11</designator>
<label style="-uslm-sgm:SUBJECT">Requirements for the list of marginable OTC stocks and the list of foreign margin stocks. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.12">220.12</designator>
<label style="-uslm-sgm:SUBJECT">Supplement: margin requirements.
</label>
</referenceItem>
<groupItem style="-uslm-sgm:SUBJGRP">
<headingItem style="-uslm-sgm:HED">
<label>Interpretations</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.101">220.101</designator>
<label style="-uslm-sgm:SUBJECT">Transactions of customers who are brokers or dealers. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.102">220.102</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved] </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.103">220.103</designator>
<label style="-uslm-sgm:SUBJECT">Borrowing of securities. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.104">220.104</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved] </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.105">220.105</designator>
<label style="-uslm-sgm:SUBJECT">Ninety-day rule in special cash account. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.106-220.107">220.106–220.107</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.108">220.108</designator>
<label style="-uslm-sgm:SUBJECT">International Bank Securities. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.109">220.109</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.110">220.110</designator>
<label style="-uslm-sgm:SUBJECT">Assistance by Federal credit union to its members. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.111">220.111</designator>
<label style="-uslm-sgm:SUBJECT">Arranging for extensions of credit to be made by a bank. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.112">220.112</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.113">220.113</designator>
<label style="-uslm-sgm:SUBJECT">Necessity for prompt payment and delivery in special cash accounts. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.114-220.116">220.114–220.116</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.117">220.117</designator>
<label style="-uslm-sgm:SUBJECT">Exception to 90-day rule in special cash account. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.118">220.118</designator>
<label style="-uslm-sgm:SUBJECT">Time of payment for mutual fund shares purchased in a special cash account. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.119">220.119</designator>
<label style="-uslm-sgm:SUBJECT">Applicability of margin requirements to credit extended to corporation in connection with retirement of stock. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.120">220.120</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.121">220.121</designator>
<label style="-uslm-sgm:SUBJECT">Applicability of margin requirements to joint account between two creditors. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.122">220.122</designator>
<label style="-uslm-sgm:SUBJECT">“Deep in the money put and call options” as extensions of credit. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.123">220.123</designator>
<label style="-uslm-sgm:SUBJECT">Partial delayed issue contracts covering nonconvertible bonds. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.124">220.124</designator>
<label style="-uslm-sgm:SUBJECT">Installment sale of tax-shelter programs as “arranging” for credit. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.125-220.126">220.125–220.126</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.127">220.127</designator>
<label style="-uslm-sgm:SUBJECT">Independent broker/dealers arranging credit in connection with the sale of insurance premium funding programs. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.128">220.128</designator>
<label style="-uslm-sgm:SUBJECT">Treatment of simultaneous long and short positions in the same margin account when put or call options or combinations thereof on such stock are also outstanding in the account. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.129-220.130">220.129–220.130</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.131">220.131</designator>
<label style="-uslm-sgm:SUBJECT">Application of the arranging section to broker-dealer activities under SEC Rule 144A.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s220.132">220.132</designator>
<label style="-uslm-sgm:SUBJECT">Credit to brokers and dealers.</label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t15/s78c">15 U.S.C. 78c</ref>, 78g, 78q, and 78w. </authority>
<editorialNote style="-uslm-sgm:EDNOTE">
<heading style="-uslm-sgm:HED">Editorial Note:</heading>
<p style="-uslm-sgm:P">A copy of each form referred to in this part is filed as a part of the original document. Copies are available upon request to the Board of Governors of the Federal Reserve System or any Federal Reserve Bank.</p>
</editorialNote>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.1">
<num value="220.1" style="-uslm-sgm:SECTNO">§ 220.1</num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</heading>
<paragraph identifier="/us/cfr/t12/s220.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority and purpose.</heading>
<content> Regulation T (this part) is issued by the Board of Governors of the Federal Reserve System (the Board) pursuant to the Securities Exchange Act of 1934 (the Act) (15 U.S.C.78a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). Its principal purpose is to regulate extensions of credit by brokers and dealers; it also covers related transactions within the Board's authority under the Act. It imposes, among other obligations, initial margin requirements and payment rules on certain securities transactions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Scope.</heading>
<paragraph identifier="/us/cfr/t12/s220.1/b/1" class="inline">
<num value="1"> (1)</num>
<content> This part provides a margin account and four special purpose accounts in which to record all financial relations between a customer and a creditor. Any transaction not specifically permitted in a special purpose account shall be recorded in a margin account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.1/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> This part does not preclude any exchange, national securities association, or creditor from imposing additional requirements or taking action for its own protection.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.1/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> This part does not apply to:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.1/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Financial relations between a customer and a creditor to the extent that they comply with a portfolio margining system under rules approved or amended by the SEC;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.1/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Credit extended by a creditor based on a good faith determination that the borrower is an exempted borrower;
<?page num="6"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.1/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Financial relations between a customer and a broker or dealer registered only under section 15C of the Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.1/b/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Financial relations between a foreign branch of a creditor and a foreign person involving foreign securities.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2820">63 FR 2820</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s220.2">
<num value="220.2" style="-uslm-sgm:SECTNO">§ 220.2</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">The terms used in this part have the meanings given them in section 3(a) of the Act or as defined in this section as follows:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliated corporation</inline> means a corporation of which all the common stock is owned directly or indirectly by the firm or general partners and employees of the firm, or by the corporation or holders of the controlling stock and employees of the corporation, and the affiliation has been approved by the creditor's examining authority.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cash equivalent</inline> means securities issued or guaranteed by the United States or its agencies, negotiable bank certificates of deposit, bankers acceptances issued by banking institutions in the United States and payable in the United States, or money market mutual funds.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Covered option transaction</inline> means any transaction involving options or warrants in which the customer's risk is limited and all elements of the transaction are subject to contemporaneous exercise if:</p>
<p style="-uslm-sgm:P">(1) The amount at risk is held in the account in cash, cash equivalents, or via an escrow receipt; and</p>
<p style="-uslm-sgm:P">(2) The transaction is eligible for the cash account by the rules of the registered national securities exchange authorized to trade the option or warrant or by the rules of the creditor's examining authority in the case of an unregistered option, provided that all such rules have been approved or amended by the SEC.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit balance</inline> means the cash amount due the customer in a margin account after debiting amounts transferred to the special memorandum account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor</inline> means any broker or dealer (as defined in sections 3(a)(4) and 3(a)(5) of the Act), any member of a national securities exchange, or any person associated with a broker or dealer (as defined in section 3(a)(18) of the Act), except for business entities controlling or under common control with the creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Current market value</inline> of:</p>
<p style="-uslm-sgm:P">(1) A security means:</p>
<p style="-uslm-sgm:P">(i) Throughout the day of the purchase or sale of a security, the security's total cost of purchase or the net proceeds of its sale including any commissions charged; or</p>
<p style="-uslm-sgm:P">(ii) At any other time, the closing sale price of the security on the preceding business day, as shown by any regularly published reporting or quotation service. If there is no closing sale price, the creditor may use any reasonable estimate of the market value of the security as of the close of business on the preceding business day.</p>
<p style="-uslm-sgm:P">(2) Any other collateral means a value determined by any reasonable method.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Customer</inline> excludes an exempted borrower and includes:</p>
<p style="-uslm-sgm:P">(1) Any person or persons acting jointly:</p>
<p style="-uslm-sgm:P">(i) To or for whom a creditor extends, arranges, or maintains any credit; or</p>
<p style="-uslm-sgm:P">(ii) Who would be considered a customer of the creditor according to the ordinary usage of the trade;</p>
<p style="-uslm-sgm:P">(2) Any partner in a firm who would be considered a customer of the firm absent the partnership relationship; and</p>
<p style="-uslm-sgm:P">(3) Any joint venture in which a creditor participates and which would be considered a customer of the creditor if the creditor were not a participant.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Debit balance</inline> means the cash amount owed to the creditor in a margin account after debiting amounts transferred to the special memorandum account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Delivery against payment, Payment against delivery, or a C.O.D. transaction</inline> refers to an arrangement under which a creditor and a customer agree that the creditor will deliver to, or accept from, the customer, or the customer's agent, a security against full payment of the purchase price.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Equity</inline> means the total current market value of security positions held in the margin account plus any credit balance less the debit balance in the margin account.
<?page num="7"?></p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrow agreement</inline> means any agreement issued in connection with a call or put option under which a bank or any person designated as a control location under paragraph (c) of SEC Rule 15c3–3 (<ref href="/us/cfr/t17/s240.15c3">17 CFR 240.15c3</ref>–3(c)), holding the underlying asset or required cash or cash equivalents, is obligated to deliver to the creditor (in the case of a call option) or accept from the creditor (in the case of a put option) the underlying asset or required cash or cash equivalent against payment of the exercise price upon exercise of the call or put.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examining authority</inline> means:</p>
<p style="-uslm-sgm:P">(1) The national securities exchange or national securities association of which a creditor is a member; or</p>
<p style="-uslm-sgm:P">(2) If a member of more than one self-regulatory organization, the organization designated by the SEC as the examining authority for the creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exempted borrower</inline> means a member of a national securities exchange or a registered broker or dealer, a substantial portion of whose business consists of transactions with persons other than brokers or dealers, and includes a borrower who:</p>
<p style="-uslm-sgm:P">(1) Maintains at least 1000 active accounts on an annual basis for persons other than brokers, dealers, and persons associated with a broker or dealer;</p>
<p style="-uslm-sgm:P">(2) Earns at least $10 million in gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with a broker or dealer; or</p>
<p style="-uslm-sgm:P">(3) Earns at least 10 percent of its gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with a broker or dealer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exempted securities mutual fund</inline> means any security issued by an investment company registered under section 8 of the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a-8">15 U.S.C. 80a-8</ref>), provided the company has at least 95 percent of its assets continuously invested in exempted securities (as defined in section 3(a)(12) of the Act).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign margin stock</inline> means a foreign security that is an equity security that:</p>
<p style="-uslm-sgm:P">(1) Appears on the Board's periodically published List of Foreign Margin Stocks; or</p>
<p style="-uslm-sgm:P">(2) Is deemed to have a “ready market” under SEC Rule 15c3–1 (<ref href="/us/cfr/t17/s240.15c3">17 CFR 240.15c3</ref>–1) or a “no-action” position issued thereunder.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign person</inline> means a person other than a United States person as defined in section 7(f) of the Act.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign security</inline> means a security issued in a jurisdiction other than the United States.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith</inline> with respect to:</p>
<p style="-uslm-sgm:P">(1) Margin means the amount of margin which a creditor would require in exercising sound credit judgment;</p>
<p style="-uslm-sgm:P">(2) Making a determination or accepting a statement concerning a borrower means that the creditor is alert to the circumstances surrounding the credit, and if in possession of information that would cause a prudent person not to make the determination or accept the notice or certification without inquiry, investigates and is satisfied that it is correct.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Margin call</inline> means a demand by a creditor to a customer for a deposit of additional cash or securities to eliminate or reduce a margin deficiency as required under this part.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Margin deficiency</inline> means the amount by which the required margin exceeds the equity in the margin account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Margin equity security</inline> means a margin security that is an equity security (as defined in section 3(a)(11) of the Act).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Margin excess</inline> means the amount by which the equity in the margin account exceeds the required margin. When the margin excess is represented by securities, the current value of the securities is subject to the percentages set forth in <ref href="/us/cfr/t12/s220.12">§ 220.12</ref> (the Supplement).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Margin security</inline> means:</p>
<p style="-uslm-sgm:P">(1) Any security registered or having unlisted trading privileges on a national securities exchange;</p>
<p style="-uslm-sgm:P">(2) After <date date="1999-01-01">January 1, 1999</date>, any security listed on the Nasdaq Stock Market;</p>
<p style="-uslm-sgm:P">(3) Any non-equity security;</p>
<p style="-uslm-sgm:P">(4) Any security issued by either an open-end investment company or unit investment trust which is registered under section 8 of the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a–8">15 U.S.C. 80a–8</ref>);</p>
<p style="-uslm-sgm:P">(5) Any foreign margin stock;</p>
<p style="-uslm-sgm:P">(6) Any debt security convertible into a margin security;
<?page num="8"?></p>
<p style="-uslm-sgm:P">(7) Until <date date="1999-01-01">January 1, 1999</date>, any OTC margin stock; or</p>
<p style="-uslm-sgm:P">(8) Until <date date="1999-01-01">January 1, 1999</date>, any OTC security designated as qualified for trading in the national market system under a designation plan approved by the Securities and Exchange Commission (NMS security).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Money market mutual fund</inline> means any security issued by an investment company registered under section 8 of the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a–8">15 U.S.C. 80a–8</ref>) that is considered a money market fund under SEC Rule 2a–7 (<ref href="/us/cfr/t17/s270.2a">17 CFR 270.2a</ref>–7).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Non-equity security</inline> means a security that is not an equity security (as defined in section 3(a)(11) of the Act).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonexempted security</inline> means any security other than an exempted security (as defined in section 3(a)(12) of the Act).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">OTC margin stock</inline> means any equity security traded over the counter that the Board has determined has the degree of national investor interest, the depth and breadth of market, the availability of information respecting the security and its issuer, and the character and permanence of the issuer to warrant being treated like an equity security treaded on a national securities exchange. An OTC stock is not considered to be an OTC margin stock unless it appears on the Board's periodically published list of OTC margin stocks.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment period</inline> means the number of business days in the standard securities settlement cycle in the United States, as defined in paragraph (a) of SEC Rule 15c6–1 (<ref href="/us/cfr/t17/s240.15c6">17 CFR 240.15c6</ref>–1(a)), plus two business days.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Purpose credit</inline> means credit for the purpose of:</p>
<p style="-uslm-sgm:P">(1) Buying, carrying, or trading in securities; or</p>
<p style="-uslm-sgm:P">(2) Buying or carrying any part of an investment contract security which shall be deemed credit for the purpose of buying or carrying the entire security.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Short call or short put</inline> means a call option or a put option that is issued, endorsed, or guaranteed in or for an account.</p>
<p style="-uslm-sgm:P">(1) A short call that is not cash-settled obligates the customer to sell the underlying asset at the exercise price upon receipt of a valid exercise notice or as otherwise required by the option contract.</p>
<p style="-uslm-sgm:P">(2) A short put that is not cash-settled obligates the customer to purchase the underlying asset at the exercise price upon receipt of a valid exercise notice or as otherwise required by the option contract.</p>
<p style="-uslm-sgm:P">(3) A short call or a short put that is cash-settled obligates the customer to pay the holder of an in the money long put or long call who has, or has been deemed to have, exercised the option the cash difference between the exercise price and the current assigned value of the option as established by the option contract.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Underlying asset</inline> means:</p>
<p style="-uslm-sgm:P">(1) The security or other asset that will be delivered upon exercise of an option; or</p>
<p style="-uslm-sgm:P">(2) In the case of a cash-settled option, the securities or other assets which comprise the index or other measure from which the option's value is derived.</p>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2821">63 FR 2821</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.3">
<num value="220.3" style="-uslm-sgm:SECTNO">§ 220.3</num>
<heading style="-uslm-sgm:SUBJECT">General provisions.</heading>
<paragraph identifier="/us/cfr/t12/s220.3/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Records.</heading>
<content> The creditor shall maintain a record for each account showing the full details of all transactions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Separation of accounts—</heading>
<paragraph identifier="/us/cfr/t12/s220.3/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> The requirements of one account may not be met by considering items in any other account. If withdrawals of cash or securities are permitted under this part, written entries shall be made when cash or securities are used for purposes of meeting requirements in another account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Exceptions.</heading>
<chapeau> Notwithstanding paragraph (b)(1) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.3/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> For purposes of calculating the required margin for a security in a margin account, assets held in the good faith account pursuant to <ref href="/us/cfr/t12/s220.6/e/1/i">§ 220.6(e)(1)(i)</ref> or (ii) may serve in lieu of margin;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Transfers may be effected between the margin account and the special memorandum account pursuant to <ref href="/us/cfr/t12/s220.4">§§ 220.4</ref> and 220.5.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Maintenance of credit.</heading>
<chapeau> Except as prohibited by this part, any credit initially extended in compliance with this part may be maintained regardless of:
<?page num="9"?></chapeau>
<paragraph identifier="/us/cfr/t12/s220.3/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Reductions in the customer's equity resulting from changes in market prices;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any security in an account ceasing to be margin or exempted; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Any change in the margin requirements prescribed under this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Guarantee of accounts.</heading>
<content> No guarantee of a customer's account shall be given any effect for purposes of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Receipt of funds or securities.</heading>
<paragraph identifier="/us/cfr/t12/s220.3/e/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A creditor, acting in good faith, may accept as immediate payment:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.3/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Cash or any check, draft, or order payable on presentation; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any security with sight draft attached.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A creditor may treat a security, check or draft as received upon written notification from another creditor that the specified security, check, or draft has been sent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Upon notification that a check, draft, or order has been dishonored or when securities have not been received within a reasonable time, the creditor shall take the action required by this part when payment or securities are not received on time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/e/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> To temporarily finance a customer's receipt of securities pursuant to an employee benefit plan registered on SEC Form S–8 or the withholding taxes for an employee stock award plan, a creditor may accept, in lieu of the securities, a properly executed exercise notice, where applicable, and instructions to the issuer to deliver the stock to the creditor. Prior to acceptance, the creditor must verify that the issuer will deliver the securities promptly and the customer must designate the account into which the securities are to be deposited.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Exchange of securities.</heading>
<paragraph identifier="/us/cfr/t12/s220.3/f/1" class="inline">
<num value="1"> (1)</num>
<content> To enable a customer to participate in an offer to exchange securities which is made to all holders of an issue of securities, a creditor may submit for exchange any securities held in a margin account, without regard to the other provisions of this part, provided the consideration received is deposited into the account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If a nonmargin, nonexempted security is acquired in exchange for a margin security, its retention, withdrawal, or sale within 60 days following its acquisition shall be treated as if the security is a margin security.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Arranging for loans by others.</heading>
<content> A creditor may arrange for the extension or maintenance of credit to or for any customer by any person, provided the creditor does not willfully arrange credit that violates parts 221 or 224 of this chapter.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Innocent mistakes.</heading>
<content> If any failure to comply with this part results from a mistake made in good faith in executing a transaction or calculating the amount of margin, the creditor shall not be deemed in violation of this part if, promptly after the discovery of the mistake, the creditor takes appropriate corrective action.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Foreign currency.</heading>
<paragraph identifier="/us/cfr/t12/s220.3/i/1" class="inline">
<num value="1"> (1)</num>
<content> Freely convertible foreign currency may be treated at its U.S. dollar equivalent, provided the currency is marked-to-market daily.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/i/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A creditor may extend credit denominated in any freely convertible foreign currency.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Exempted borrowers.</heading>
<paragraph identifier="/us/cfr/t12/s220.3/j/1" class="inline">
<num value="1"> (1)</num>
<content> A member of a national securities exchange or a registered broker or dealer that has been in existence for less than one year may meet the definition of exempted borrower based on a six-month period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.3/j/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Once a member of a national securities exchange or registered broker or dealer ceases to qualify as an exempted borrower, it shall notify its lender of this fact before obtaining additional credit. Any new extensions of credit to such a borrower, including rollovers, renewals, and additional draws on existing lines of credit, are subject to the provisions of this part.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2822">63 FR 2822</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.4">
<num value="220.4" style="-uslm-sgm:SECTNO">§ 220.4</num>
<heading style="-uslm-sgm:SUBJECT">Margin account.</heading>
<paragraph identifier="/us/cfr/t12/s220.4/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Margin transactions.</heading>
<paragraph identifier="/us/cfr/t12/s220.4/a/1" class="inline">
<num value="1"> (1)</num>
<content> All transactions not specifically authorized for inclusion in another account shall be recorded in the margin account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> A creditor may establish separate margin accounts for the same person to:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.4/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Clear transactions for other creditors where the transactions are introduced to the clearing creditor by separate creditors; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Clear transactions through other creditors if the transactions are cleared by separate creditors; or
<?page num="10"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Provide one or more accounts over which the creditor or a third party investment adviser has investment discretion.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Required margin—</heading>
<paragraph identifier="/us/cfr/t12/s220.4/b/1" class="inline">
<num value="1">(1) </num>
<heading>Applicability.</heading>
<content> The required margin for each long or short position in securities is set forth in <ref href="/us/cfr/t12/s220.12">§ 220.12</ref> (the Supplement) and is subject to the following exceptions and special provisions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Short sale against the box.</heading>
<content> A short sale “against the box” shall be treated as a long sale for the purpose of computing the equity and the required margin.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>When-issued securities.</heading>
<content> The required margin on a net long or net short commitment in a when-issued security is the margin that would be required if the security were an issued margin security, plus any unrealized loss on the commitment or less any unrealized gain.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Stock used as cover.</heading>
<paragraph identifier="/us/cfr/t12/s220.4/b/4/i" class="inline">
<num value="i"> (i)</num>
<content> When a short position held in the account serves in lieu of the required margin for a short put, the amount prescribed by paragraph (b)(1) of this section as the amount to be added to the required margin in respect of short sales shall be increased by any unrealized loss on the position.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> When a security held in the account serves in lieu of the required margin for a short call, the security shall be valued at no greater than the exercise price of the short call.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Accounts of partners.</heading>
<content> If a partner of the creditor has a margin account with the creditor, the creditor shall disregard the partner's financial relations with the firm (as shown in the partner's capital and ordinary drawing accounts) in calculating the margin or equity of the partner's margin account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Contribution to joint venture.</heading>
<content> If a margin account is the account of a joint venture in which the creditor participates, any interest of the creditor in the joint account in excess of the interest which the creditor would have on the basis of its right to share in the profits shall be treated as an extension of credit to the joint account and shall be margined as such.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Transfer of accounts.</heading>
<paragraph identifier="/us/cfr/t12/s220.4/b/7/i" class="inline">
<num value="i"> (i)</num>
<content> A margin account that is transferred from one creditor to another may be treated as if it had been maintained by the transferee from the date of its origin, if the transferee accepts, in good faith, a signed statement of the transferor (or, if that is not practicable, of the customer), that any margin call issued under this part has been satisfied.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A margin account that is transferred from one customer to another as part of a transaction, not undertaken to avoid the requirements of this part, may be treated as if it had been maintained for the transferee from the date of its origin, if the creditor accepts in good faith and keeps with the transferee account a signed statement of the transferor describing the circumstances for the transfer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/b/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Sound credit judgment.</heading>
<content> In exercising sound credit judgment to determine the margin required in good faith pursuant to <ref href="/us/cfr/t12/s220.12">§ 220.12</ref> (the Supplement), the creditor shall make its determination for a specified security position without regard to the customer's other assets or securities positions held in connection with unrelated transactions.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>When additional margin is required—</heading>
<paragraph identifier="/us/cfr/t12/s220.4/c/1" class="inline">
<num value="1">(1) </num>
<heading>Computing deficiency.</heading>
<content> All transactions on the same day shall be combined to determine whether additional margin is required by the creditor. For the purpose of computing equity in an account, security positions are established or eliminated and a credit or debit created on the trade date of a security transaction. Additional margin is required on any day when the day's transactions create or increase a margin deficiency in the account and shall be for the amount of the margin deficiency so created or increased.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Satisfaction of deficiency.</heading>
<content> The additional required margin may be satisfied by a transfer from the special memorandum account or by a deposit of cash, margin securities, exempted securities, or any combination thereof.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Time limits.</heading>
<paragraph identifier="/us/cfr/t12/s220.4/c/3/i" class="inline">
<num value="i"> (i)</num>
<content> A margin call shall be satisfied within one payment period after the margin deficiency was created or increased.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The payment period may be extended for one or more limited periods upon application by the creditor to its examining authority unless the examining authority believes that the creditor is not acting in good faith or that <?page num="11"?>the creditor has not sufficiently determined that exceptional circumstances warrant such action. Applications shall be filed and acted upon prior to the end of the payment period or the expiration of any subsequent extension.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Satisfaction restriction.</heading>
<content> Any transaction, position, or deposit that is used to satisfy one requirement under this part shall be unavailable to satisfy any other requirement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Liquidation in lieu of deposit.</heading>
<content> If any margin call is not met in full within the required time, the creditor shall liquidate securities sufficient to meet the margin call or to eliminate any margin deficiency existing on the day such liquidation is required, whichever is less. If the margin deficiency created or increased is $1000 or less, no action need be taken by the creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Withdrawals of cash or securities.</heading>
<paragraph identifier="/us/cfr/t12/s220.4/e/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Cash or securities may be withdrawn from an account, except if:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.4/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Additional cash or securities are required to be deposited into the account for a transaction on the same or a previous day; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The withdrawal, together with other transactions, deposits, and withdrawals on the same day, would create or increase a margin deficiency.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Margin excess may be withdrawn or may be transferred to the special memorandum account (<ref href="/us/cfr/t12/s220.5">§ 220.5</ref>) by making a single entry to that account which will represent a debit to the margin account and a credit to the special memorandum account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If a creditor does not receive a distribution of cash or securities which is payable with respect to any security in a margin account on the day it is payable and withdrawal would not be permitted under this paragraph (e), a withdrawal transaction shall be deemed to have occurred on the day the distribution is payable.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Interest, service charges, etc.</heading>
<paragraph identifier="/us/cfr/t12/s220.4/f/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Without regard to the other provisions of this section, the creditor, in its usual practice, may debit the following items to a margin account if they are considered in calculating the balance of such account:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.4/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Interest charged on credit maintained in the margin account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Premiums on securities borrowed in connection with short sales or to effect delivery;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/f/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Dividends, interest, or other distributions due on borrowed securities;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/f/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Communication or shipping charges with respect to transactions in the margin account; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/f/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Any other service charges which the creditor may impose.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> A creditor may permit interest, dividends, or other distributions credited to a margin account to be withdrawn from the account if:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.4/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The withdrawal does not create or increase a margin deficiency in the account; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.4/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The current market value of any securities withdrawn does not exceed 10 percent of the current market value of the security with respect to which they were distributed.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2823">63 FR 2823</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.5">
<num value="220.5" style="-uslm-sgm:SECTNO">§ 220.5</num>
<heading style="-uslm-sgm:SUBJECT">Special memorandum account.</heading>
<paragraph identifier="/us/cfr/t12/s220.5/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> A special memorandum account (SMA) may be maintained in conjunction with a margin account. A single entry amount may be used to represent both a credit to the SMA and a debit to the margin account. A transfer between the two accounts may be effected by an increase or reduction in the entry. When computing the equity in a margin account, the single entry amount shall be considered as a debit in the margin account. A payment to the customer or on the customer's behalf or a transfer to any of the customer's other accounts from the SMA reduces the single entry amount.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.5/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> The SMA may contain the following entries:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.5/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Dividend and interest payments;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.5/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Cash not required by this part, including cash deposited to meet a maintenance margin call or to meet any requirement of a self-regulatory organization that is not imposed by this part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.5/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Proceeds of a sale of securities or cash no longer required on any expired or liquidated security position that may be withdrawn under <ref href="/us/cfr/t12/s220.4/e">§ 220.4(e)</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.5/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Margin excess transferred from the margin account under <ref href="/us/cfr/t12/s220.4/e/2">§ 220.4(e)(2)</ref>.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2824">63 FR 2824</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.6"><?page num="12"?>
<num value="220.6" style="-uslm-sgm:SECTNO">§ 220.6</num>
<heading style="-uslm-sgm:SUBJECT">Good faith account.</heading>
<chapeau style="-uslm-sgm:P">In a good faith account, a creditor may effect or finance customer transactions in accordance with the following provisions:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.6/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Securities entitled to good faith margin—</heading>
<paragraph identifier="/us/cfr/t12/s220.6/a/1" class="inline">
<num value="1">(1) </num>
<heading>Permissible transactions.</heading>
<content> A creditor may effect and finance transactions involving the buying, carrying, or trading of any security entitled to “good faith” margin as set forth in <ref href="/us/cfr/t12/s220.12">§ 220.12</ref> (the Supplement).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Required margin.</heading>
<content> The required margin is set forth in <ref href="/us/cfr/t12/s220.12">§ 220.12</ref> (the Supplement).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Satisfaction of margin.</heading>
<content> Required margin may be satisfied by a transfer from the special memorandum account or by a deposit of cash, securities entitled to “good faith” margin as set forth in <ref href="/us/cfr/t12/s220.12">§ 220.12</ref> (the Supplement), any other asset that is not a security, or any combination thereof. An asset that is not a security shall have a margin value determined by the creditor in good faith.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Arbitrage.</heading>
<chapeau> A creditor may effect and finance for any customer bona fide arbitrage transactions. For the purpose of this section, the term “bona fide arbitrage” means:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.6/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A purchase or sale of a security in one market together with an offsetting sale or purchase of the same security in a different market at as nearly the same time as practicable for the purpose of taking advantage of a difference in prices in the two markets; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A purchase of a security which is, without restriction other than the payment of money, exchangeable or convertible within 90 calendar days of the purchase into a second security together with an offsetting sale of the second security at or about the same time, for the purpose of taking advantage of a concurrent disparity in the prices of the two securities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>“Prime broker” transactions.</heading>
<content> A creditor may effect transactions for a customer as part of a “prime broker” arrangement in conformity with SEC guidelines.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Credit to ESOPs.</heading>
<content> A creditor may extend and maintain credit to employee stock ownership plans without regard to the other provisions of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Nonpurpose credit.</heading>
<paragraph identifier="/us/cfr/t12/s220.6/e/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A creditor may:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.6/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Effect and carry transactions in commodities;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Effect and carry transactions in foreign exchange;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Extend and maintain secured or unsecured nonpurpose credit, subject to the requirements of paragraph (e)(2) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.6/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Every extension of credit, except as provided in paragraphs (e)(1)(i) and (e)(1)(ii) of this section, shall be deemed to be purpose credit unless, prior to extending the credit, the creditor accepts in good faith from the customer a written statement that it is not purpose credit. The statement shall conform to the requirements established by the Board.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2824">63 FR 2824</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.7">
<num value="220.7" style="-uslm-sgm:SECTNO">§ 220.7</num>
<heading style="-uslm-sgm:SUBJECT">Broker-dealer credit account.</heading>
<paragraph identifier="/us/cfr/t12/s220.7/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Requirements.</heading>
<content> In a broker-dealer credit account, a creditor may effect or finance transactions in accordance with the following provisions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purchase or sale of security against full payment.</heading>
<content> A creditor may purchase any security from or sell any security to another creditor or person regulated by a foreign securities authority under a good faith agreement to promptly deliver the security against full payment of the purchase price.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Joint back office.</heading>
<content> A creditor may effect or finance transactions of any of its owners if the creditor is a clearing and servicing broker or dealer owned jointly or individually by other creditors.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Capital contribution.</heading>
<content> A creditor may extend and maintain credit to any partner or stockholder of the creditor for the purpose of making a capital contribution to, or purchasing stock of, the creditor, affiliated corporation or another creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Emergency and subordinated credit.</heading>
<chapeau> A creditor may extend and maintain, with the approval of the appropriate examining authority:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.7/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Credit to meet the emergency needs of any creditor; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Subordinated credit to another creditor for capital purposes, if the other creditor:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.7/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Is an affiliated corporation or would not be considered a customer of <?page num="13"?>the lender apart from the subordinated loan; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Will not use the proceeds of the loan to increase the amount of dealing in securities for the account of the creditor, its firm or corporation or an affiliated corporation.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Omnibus credit</heading>
<paragraph identifier="/us/cfr/t12/s220.7/f/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A creditor may effect and finance transactions for a broker or dealer who is registered with the SEC under section 15 of the Act and who gives the creditor written notice that:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.7/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> All securities will be for the account of customers of the broker or dealer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any short sales effected will be short sales made on behalf of the customers of the broker or dealer other than partners.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The written notice required by paragraph (f)(1) of this section shall conform to any SEC rule on the hypothecation of customers' securities by brokers or dealers.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Special purpose credit.</heading>
<chapeau> A creditor may extend the following types of credit with good faith margin:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.7/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Credit to finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid upon completion of the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Credit to finance securities in transit or surrendered for transfer, if the credit is to be repaid upon completion of the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/g/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Credit to enable a broker or dealer to pay for securities, if the credit is to be repaid on the same day it is extended.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/g/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Credit to an exempted borrower.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/g/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Credit to a member of a national securities exchange or registered broker or dealer to finance its activities as a market maker or specialist.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.7/g/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Credit to a member of a national securities exchange or registered broker or dealer to finance its activities as an underwriter.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2824">63 FR 2824</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.8">
<num value="220.8" style="-uslm-sgm:SECTNO">§ 220.8</num>
<heading style="-uslm-sgm:SUBJECT">Cash account.</heading>
<paragraph identifier="/us/cfr/t12/s220.8/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Permissible transactions.</heading>
<chapeau> In a cash account, a creditor, may:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Buy for or sell to any customer any security or other asset if:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> There are sufficient funds in the account; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor accepts in good faith the customer's agreement that the customer will promptly make full cash payment for the security or asset before selling it and does not contemplate selling it prior to making such payment;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Buy from or sell for any customer any security or other asset if:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The security is held in the account; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor accepts in good faith the customer's statement that the security is owned by the customer or the customer's principal, and that it will be promptly deposited in the account;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Issue, endorse, or guarantee, or sell an option for any customer as part of a covered option transaction; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> Use an escrow agreement in lieu of the cash, cash equivalents or underlying asset position if:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/a/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> In the case of a short call or a short put, the creditor is advised by the customer that the required securities, assets or cash are held by a person authorized to issue an escrow agreement and the creditor independently verifies that the appropriate escrow agreement will be delivered by the person promptly; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/a/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In the case of a call issued, endorsed, guaranteed, or sold on the same day the underlying asset is purchased in the account and the underlying asset is to be delivered to a person authorized to issue an escrow agreement, the creditor verifies that the appropriate escrow agreement will be delivered by the person promptly.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Time periods for payment; cancellation or liquidation—</heading>
<paragraph identifier="/us/cfr/t12/s220.8/b/1" class="inline">
<num value="1">(1) </num>
<heading>Full cash payment.</heading>
<chapeau> A creditor shall obtain full cash payment for customer purchases:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> Within one payment period of the date:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Any nonexempted security was purchased;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Any when-issued security was made available by the issuer for delivery to purchasers;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Any “when distributed” security was distributed under a published plan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<chapeau> A security owned by the customer has matured or has been redeemed and a new refunding security of the same issuer has been purchased by the customer, provided:
<?page num="14"?></chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i/D/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The customer purchased the new security no more than 35 calendar days prior to the date of maturity or redemption of the old security;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i/D/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The customer is entitled to the proceeds of the redemption; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/i/D/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The delayed payment does not exceed 103 percent of the proceeds of the old security.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In the case of the purchase of a foreign security, within one payment period of the trade date or within one day after the date on which settlement is required to occur by the rules of the foreign securities market, provided this period does not exceed the maximum time permitted by this part for delivery against payment transactions.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Delivery against payment.</heading>
<content> If a creditor purchases for or sells to a customer a security in a delivery against payment transaction, the creditor shall have up to 35 calendar days to obtain payment if delivery of the security is delayed due to the mechanics of the transaction and is not related to the customer's willingness or ability to pay.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Shipment of securities, extension.</heading>
<content> If any shipment of securities is incidental to consummation of a transaction, a creditor may extend the payment period by the number of days required for shipment, but not by more than one additional payment period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Cancellation; liquidation; minimum amount.</heading>
<content> A creditor shall promptly cancel or otherwise liquidate a transaction or any part of a transaction for which the customer has not made full cash payment within the required time. A creditor may, at its option, disregard any sum due from the customer not exceeding $1000.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>90 day freeze.</heading>
<paragraph identifier="/us/cfr/t12/s220.8/c/1" class="inline">
<num value="1"> (1)</num>
<content> If a nonexempted security in the account is sold or delivered to another broker or dealer without having been previously paid for in full by the customer, the privilege of delaying payment beyond the trade date shall be withdrawn for 90 calendar days following the date of sale of the security. Cancellation of the transaction other than to correct an error shall constitute a sale.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> The 90 day freeze shall not apply if:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Within the period specified in paragraph (b)(1) of this section, full payment is received or any check or draft in payment has cleared and the proceeds from the sale are not withdrawn prior to such payment or check clearance; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The purchased security was delivered to another broker or dealer for deposit in a cash account which holds sufficient funds to pay for the security. The creditor may rely on a written statement accepted in good faith from the other broker or dealer that sufficient funds are held in the other cash account.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Extension of time periods; transfers.</heading>
<paragraph identifier="/us/cfr/t12/s220.8/d/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Unless the creditor's examining authority believes that the creditor is not acting in good faith or that the creditor has not sufficiently determined that exceptional circumstances warrant such action, it may upon application by the creditor:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.8/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Extend any period specified in paragraph (b) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Authorize transfer to another account of any transaction involving the purchase of a margin or exempted security; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Grant a waiver from the 90 day freeze.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.8/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Applications shall be filed and acted upon prior to the end of the payment period, or in the case of the purchase of a foreign security within the period specified in paragraph (b)(1)(ii) of this section, or the expiration of any subsequent extension.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2825">63 FR 2825</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.9">
<num value="220.9" style="-uslm-sgm:SECTNO">§ 220.9</num>
<heading style="-uslm-sgm:SUBJECT">Clearance of securities, options, and futures.</heading>
<paragraph identifier="/us/cfr/t12/s220.9/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Credit for clearance of securities.</heading>
<content> The provisions of this part shall not apply to the extension or maintenance of any credit that is not for more than one day if it is incidental to the clearance of transactions in securities directly between members of a national securities exchange or association or through any clearing agency registered with the SEC.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.9/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Deposit of securities with a clearing agency.</heading>
<chapeau> The provisions of this part shall not apply to the deposit of securities with an option or futures clearing agency for the purpose of meeting the deposit requirements of the agency if:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.9/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> The clearing agency:
<?page num="15"?></chapeau>
<paragraph identifier="/us/cfr/t12/s220.9/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Issues, guarantees performance on, or clears transactions in, any security (including options on any security, certificate of deposit, securities index or foreign currency); or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.9/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Guarantees performance of contracts for the purchase or sale of a commodity for future delivery or options on such contracts;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.9/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The clearing agency is registered with the Securities and Exchange Commission or is the clearing agency for a contract market regulated by the Commodity Futures Trading Commission; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.9/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The deposit consists of any margin security and complies with the rules of the clearing agency that have been approved by the Securities and Exchange Commission or the Commodity Futures Trading Commission.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2826">63 FR 2826</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.10">
<num value="220.10" style="-uslm-sgm:SECTNO">§ 220.10</num>
<heading style="-uslm-sgm:SUBJECT">Borrowing and lending securities.</heading>
<paragraph identifier="/us/cfr/t12/s220.10/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Without regard to the other provisions of this part, a creditor may borrow or lend securities for the purpose of making delivery of the securities in the case of short sales, failure to receive securities required to be delivered, or other similar situations. If a creditor reasonably anticipates a short sale or fail transaction, such borrowing may be made up to one standard settlement cycle in advance of trade date.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.10/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> A creditor may lend foreign securities to a foreign person (or borrow such securities for the purpose of relending them to a foreign person) for any purpose lawful in the country in which they are to be used.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.10/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> A creditor that is an exempted borrower may lend securities without regard to the other provisions of this part and a creditor may borrow securities from an exempted borrower without regard to the other provisions of this part.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2826">63 FR 2826</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.11">
<num value="220.11" style="-uslm-sgm:SECTNO">§ 220.11</num>
<heading style="-uslm-sgm:SUBJECT">Requirements for the list of marginable OTC stocks and the list of foreign margin stocks.</heading>
<paragraph identifier="/us/cfr/t12/s220.11/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Requirements for inclusion on the list of marginable OTC stocks.</heading>
<chapeau> Except as provided in paragraph (f) of this section, OTC margin stock shall meet the following requirements:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.11/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Four or more dealers stand willing to, and do in fact, make a market in such stock and regularly submit bona fide bids and offers to an automated quotations system for their own accounts;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The minimum average bid price of such stock, as determined by the Board, is at least $5 per share;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The stock is registered under section 12 of the Act, is issued by an insurance company subject to section 12(g)(2)(G) of the Act, is issued by a closed-end investment management company subject to registration pursuant to section 8 of the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a-8">15 U.S.C. 80a-8</ref>), is an American Depository Receipt (ADR) of a foreign issuer whose securities are registered under section 12 of the Act, or is a stock of an issuer required to file reports under section 15(d) of the Act;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Daily quotations for both bid and asked prices for the stock are continously available to the general public;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The stock has been publicly traded for at least six months;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> The issuer has at least $4 million of capital, surplus, and undivided profits;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> There are 400,000 or more shares of such stock outstanding in addition to shares held beneficially by officers, directors or beneficial owners of more than 10 percent of the stock;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> There are 1,200 or more holders of record, as defined in SEC Rule 12g5–1 (<ref href="/us/cfr/t17/s240.12g5">17 CFR 240.12g5</ref>–1), of the stock who are not officers, directors or beneficial owners of 10 percent or more of the stock, or the average daily trading volume of such stock as determined by the Board, is at least 500 shares; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/a/9" style="-uslm-sgm:P">
<num value="9">(9)</num>
<content> The issuer or a predecessor in interest has been in existence for at least three years.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Requirements for continued inclusion on the list of marginable OTC stocks.</heading>
<chapeau> Except as provided in paragraph (f) of this section, OTC margin stock shall meet the following requirements:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.11/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Three or more dealers stand willing to, and do in fact, make a market in such stock and regularly submit <?page num="16"?>bona fide bids and offers to an automated quotations system for their own accounts;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The minimum average bid price of such stocks, as determined by the Board, is at least $2 per share;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The stock is registered as specified in paragraph (a)(3) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Daily quotations for both bid and asked prices for the stock are continuously available to the general public; ;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The issuer has at least $1 million of capital, surplus, and undivided profits;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> There are 300,000 or more shares of such stock outstanding in addition to shares held beneficially by officers, directors, or beneficial owners of more than 10 percent of the stock; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/b/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> There continue to be 800 or more holders of record, as defined in SEC Rule 12g5–1 (<ref href="/us/cfr/t17/s240.12g5">17 CFR 240.12g5</ref>–1), of the stock who are not officers, directors, or beneficial owners of 10 percent or more of the stock, or the average daily trading volume of such stock, as determined by the Board, is at least 300 shares.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Requirements for inclusion on the list of foreign margin stocks.</heading>
<chapeau> Except as provided in paragraph (f) of this section, a foreign security shall meet the following requirements before being placed on the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">List of Foreign Margin Stocks:</inline>
</chapeau>
<paragraph identifier="/us/cfr/t12/s220.11/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The security is an equity security that is listed for trading on or through the facilities of a foreign securities exchange or a recognized foreign securities market and has been trading on such exchange or market for at least six months;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Daily quotations for both bid and asked or last sale prices for the security provided by the foreign securities exchange or foreign securities market on which the security is traded are continuously available to creditors in the United States pursuant to an electronic quotation system;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The aggregate market value of shares, the ownership of which is unrestricted, is not less than $1 billion;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The average weekly trading volume of such security during the preceding six months is either at least 200,000 shares or $1 million; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The issuer or a predecessor in interest has been in existence for at least five years.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Requirements for continued inclusion on the list of foreign margin stocks.</heading>
<chapeau> Except as provided in paragraph (f) of this section, a foreign security shall meet the following requirements to remain on the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">List of Foreign Margin Stocks:</inline>
</chapeau>
<paragraph identifier="/us/cfr/t12/s220.11/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The security continues to meet the requirements specified in paragraphs (c) (1) and (2) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The aggregate market value of shares, the ownership of which is unrestricted, is not less than $500 million; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The average weekly trading volume of such security during the preceding six months is either at least 100,000 shares or $500,000.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Removal from the list.</heading>
<chapeau> The Board shall periodically remove from the lists any stock that:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.11/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Ceases to exist or of which the issuer ceases to exist; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> No longer substantially meets the provisions of paragraphs (b) or (d) of this section or the definition of OTC margin stock.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Discretionary authority of Board.</heading>
<content> Without regard to other paragraphs of this section, the Board may add to, or omit or remove from the list of marginable OTC stocks and the list of foreign margin stocks an equity security, if in the judgment of the Board, such action is necessary or appropriate in the public interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.11/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Unlawful representations.</heading>
<content> It shall be unlawful for any creditor to make, or cause to be made, any representation to the effect that the inclusion of a security on the list of marginable OTC stocks or the list of foreign margin stocks is evidence that the Board or the SEC has in any way passed upon the merits of, or given approval to, such security or any transactions therein. Any statement in an advertisement or other similar communication containing a reference to the Board in connection with the lists or stocks on those lists shall be an unlawful representation.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2826">63 FR 2826</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.12"><?page num="17"?>
<num value="220.12" style="-uslm-sgm:SECTNO">§ 220.12</num>
<heading style="-uslm-sgm:SUBJECT">Supplement: margin requirements.</heading>
<chapeau style="-uslm-sgm:P">The required margin for each security position held in a margin account shall be as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.12/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Margin equity security, except for an exempted security, money market mutual fund or exempted securities mutual fund, warrant on a securities index or foreign currency or a long position in an option: 50 percent of the current market value of the security or the percentage set by the regulatory authority where the trade occurs, whichever is greater.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.12/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Exempted security, non-equity security, money market mutual fund or exempted securities mutual fund: The margin required by the creditor in good faith or the percentage set by the regulatory authority where the trade occurs, whichever is greater.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.12/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<chapeau> Short sale of a nonexempted security, except for a non-equity security:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.12/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> 150 percent of the current market value of the security; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.12/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> 100 percent of the current market value if a security exchangeable or convertible within 90 calendar days without restriction other than the payment of money into the security sold short is held in the account, provided that any long call to be used as margin in connection with a short sale of the underlying security is an American-style option issued by a registered clearing corporation and listed or traded on a registered national securities exchange with an exercise price that does not exceed the price at which the underlying security was sold short.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.12/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Short sale of an exempted security or non-equity security: 100 percent of the current market value of the security plus the margin required by the creditor in good faith.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.12/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Nonmargin, nonexempted equity security: 100 percent of the current market value.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.12/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<chapeau> Put or call on a security, certificate of deposit, securities index or foreign currency or a warrant on a securities index or foreign currency:</chapeau>
<paragraph identifier="/us/cfr/t12/s220.12/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> In the case of puts and calls issued by a registered clearing corporation and listed or traded on a registered national securities exchange or a registered securities association and registered warrants on a securities index or foreign currency, the amount, or other position specified by the rules of the registered national securities exchange or the registered securities association authorized to trade the option or warrant, provided that all such rules have been approved or amended by the SEC; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.12/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In the case of all other puts and calls, the amount, or other position, specified by the maintenance rules of the creditor's examining authority.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/63/2827">63 FR 2827</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
<level style="-uslm-sgm:SUBJGRP">
<heading style="-uslm-sgm:HED">Interpretations
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.101">
<num value="220.101" style="-uslm-sgm:SECTNO">§ 220.101</num>
<heading style="-uslm-sgm:SUBJECT">Transactions of customers who are brokers or dealers. </heading>
<chapeau style="-uslm-sgm:P">The Board has recently considered certain questions regarding transactions of customers who are brokers or dealers. </chapeau>
<paragraph identifier="/us/cfr/t12/s220.101/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The first question was whether delivery and payment under <ref href="/us/cfr/t12/s220.4/f/3">§ 220.4(f)(3)</ref> must be exactly simultaneous (such as in sight draft shipments), or whether it is sufficient if the broker-dealer customer, “as promptly as practicable in accordance with the ordinary usage of the trade,” mails or otherwise delivers to the creditor a check in settlement of the transaction, the check being accompanied by instructions for transfer or delivery of the security. The Board ruled that the latter method of setting the transaction is permissible. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.101/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The second question was, in effect, whether the limitations of <ref href="/us/cfr/t12/s220.4/c/8">§ 220.4(c)(8)</ref> apply to the account of a customer who is himself a broker or dealer. The answer is that the provision applies to any “special cash account,” regardless of the type of customer. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.101/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The third question was, in effect, whether a purchase and a sale of an unissued security under <ref href="/us/cfr/t12/s220.4/f/3">§ 220.4(f)(3)</ref> may be offset against each other, or whether each must be settled separately by what would amount to delivery of the security to settle one transaction and its redelivery to settle the other. The answer is that it is permissible to offset the transactions against each other without physical delivery and redelivery of the security. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/11/14155">11 FR 14155</ref>, <date date="1946-12-07">Dec. 7, 1946</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.102"><?page num="18"?>
<num value="220.102" style="-uslm-sgm:SECTNO">§ 220.102</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.103">
<num value="220.103" style="-uslm-sgm:SECTNO">§ 220.103</num>
<heading style="-uslm-sgm:SUBJECT">Borrowing of securities. </heading>
<paragraph identifier="/us/cfr/t12/s220.103/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors has been asked for a ruling as to whether <ref href="/us/cfr/t12/s220.6/h">§ 220.6(h)</ref>, which deals with borrowing and lending of securities, applies to a borrower of securities if the lender is a private individual, as contrasted with a member of a national securities exchange or a broker or dealer. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.103/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Section 220.6(h) does not require that the lender of the securities in such a case be a member of a national securities exchange or a broker or dealer. Therefore, a borrowing of securities may be able to qualify under the provision even though the lender is a private individual, and this is true whether the security is registered on a national securities exchange or is unregistered. In borrowing securities from a private individual under <ref href="/us/cfr/t12/s220.6/h">§ 220.6(h)</ref>, however, it becomes especially important to bear in mind two limitations that are contained in the section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.103/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The first limitation is that the section applies only if the broker borrows the securities for the purpose specified in the provision, that is, “for the purpose of making delivery of such securities in the case of short sales, failure to receive securities he is required to deliver, or other similar cases”. The present language of the provision does not require that the delivery for which the securities are borrowed must be on a transaction which the borrower has himself made, either as agent or as principal; he may borrow under the provision in order to relend to someone else for the latter person to make such a delivery. However, the borrowing must be related to an actual delivery of the type specified—a delivery in connection with a specific transaction that has already occurred or is in immediate prospect. The provision does not authorize a broker to borrow securities (or make the related deposit) merely in order that he or some other broker may have the securities “on hand” or may anticipate some need that may or may not arise in the future. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.103/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The ruling in the 1940 Federal Reserve Bulletin, at page 647, is an example of a borrowing which, on the facts as given, did not meet the requirement. There, the broker wished to borrow stocks with the understanding that he “would offer to lend this stock in the ‘loan crowd’ on a national securities exchange.” There was no assurance that the stocks would be used for the purpose specified in <ref href="/us/cfr/t12/s220.6/h">§ 220.6(h)</ref>; they might be, or they might merely be held idle while the person lending the stocks had the use of the funds deposited against them. The ruling held in effect that since the borrowing could not qualify under <ref href="/us/cfr/t12/s220.6/h">§ 220.6(h)</ref> it must comply with other applicable provisions of the regulation. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.103/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The second requirement is that the deposit of cash against the borrowed securities must be “bona fide.” This requirement naturally cannot be spelled out in detail, but it requires at least that the purpose of the broker in making the deposit should be to obtain the securities for the specified purpose, and that he should not use the arrangement as a means of accommodating a customer who is seeking to obtain more funds than he could get in a general account. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.103/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> The Board recognizes that even with these requirements there is still some possibility that the provision may be misapplied. The Board is reluctant to impose additional burdens on legitimate transactions by tightening the provision. If there should be evidence of abuses developing under the provision, however, it would become necessary to consider making it more restricted. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/12/5278">12 FR 5278</ref>, <date date="1947-08-02">Aug. 2, 1947</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.104">
<num value="220.104" style="-uslm-sgm:SECTNO">§ 220.104</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.105">
<num value="220.105" style="-uslm-sgm:SECTNO">§ 220.105</num>
<heading style="-uslm-sgm:SUBJECT">Ninety-day rule in special cash account. </heading>
<paragraph identifier="/us/cfr/t12/s220.105/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Section 220.4(c)(8) places a limitation on a special cash account if a security other than an exempted security has been purchased in the account and “without having been previously paid for in full by the customer * * * has been * * * delivered out to any broker or dealer.” The limitation is that during the succeeding 90 days the customer may not purchase a security in the account other than an exempted security unless funds sufficient for the purpose are held in the account. In other words, the privilege of delayed <?page num="19"?>payment in such an account is withdrawn during the 90-day period. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.105/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The Board recently considered a question as to whether the following situation makes an account subject to the 90-day disqualification: A customer purchases registered security ABC in a special cash account. The broker executes the order in good faith as a bona fide cash transaction, expecting to obtain full cash payment promptly. The next day, the customer sells registered security XYZ in the account, promising to deposit it promptly in the account. The proceeds of the sale are equal to or greater than the cost of security ABC. After both sale and purchase have been made, the customer requests the broker to deliver security ABC to a different broker, to receive security XYZ from that broker at about the same time, and to settle with the other broker—such settlement to be made either by paying the cost of security XYZ to the other broker and receiving from him the cost of security ABC, or by merely settling any difference between these amounts. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.105/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The Board expressed the view that the account becomes subject to the 90-day disqualification in <ref href="/us/cfr/t12/s220.4/c/8">§ 220.4(c)(8)</ref>. In the instant case, unlike that described at 1940 Federal Reserve Bulletin 772, the security sold is not held in the account and is not to be deposited in it unconditionally. It is to be obtained only against the delivery to the other broker of the security which had been purchased. Hence payment can not be said to have been made prior to such delivery; the purchased security has been delivered out to a broker without previously having been paid for in full, and the account becomes subject to the 90-day disqualification. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/13/2368">13 FR 2368</ref>, <date date="1948-05-01">May 1, 1948</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.106-220.107">
<num value="220.106-220.107" style="-uslm-sgm:SECTNO">§§ 220.106–220.107</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.108">
<num value="220.108" style="-uslm-sgm:SECTNO">§ 220.108</num>
<heading style="-uslm-sgm:SUBJECT">International Bank Securities. </heading>
<paragraph identifier="/us/cfr/t12/s220.108/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content>
<p> Section 2 of the Act of <date date="1949-06-29">June 29, 1949</date> (<ref href="/us/pl/142">Pub. L. 142</ref>—81st Congress), amended the Bretton Woods Agreements Act by adding a new section numbered 15 providing, in part, that—</p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">Any securities issued by International Bank for Reconstruction and Development (including any guaranty by the bank, whether or not limited in scope), and any securities guaranteed by the bank as to both principal and interest, shall be deemed to be exempted securities within the meaning of * * * paragraph (a)(12) of section 3 of the [Securities Exchange] Act of <date date="1934-06-06">June 6, 1934</date>, as amended (<ref href="/us/usc/t15/s78c">15 U.S.C. 78c</ref>). * * *.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.108/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> In response to inquiries with respect to the applicability of the margin requirements of this part to securities issued or guaranteed by the International Bank for Reconstruction and Development, the Board has replied that, as a result of this enactment, securities issued by the Bank are now classified as exempted securities under <ref href="/us/cfr/t12/s220.2/e">§ 220.2(e)</ref>. Such securities are now in the same category under this part as are United States Government, State and municipal bonds. Accordingly, the specific percentage limitations prescribed by this part with respect to maximum loan value and margin requirements are no longer applicable thereto. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/14/5505">14 FR 5505</ref>, <date date="1949-09-07">Sept. 7, 1949</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.109">
<num value="220.109" style="-uslm-sgm:SECTNO">§ 220.109</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.110">
<num value="220.110" style="-uslm-sgm:SECTNO">§ 220.110</num>
<heading style="-uslm-sgm:SUBJECT">Assistance by Federal credit union to its members. </heading>
<paragraph identifier="/us/cfr/t12/s220.110/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> An inquiry was presented recently concerning the application of this part or part 221 of this subchapter, to a plan proposed by a Federal credit union to aid its members in purchasing stock of a corporation whose subsidiary apparently was the employer of all the credit union's members. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.110/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> From the information submitted, the plan appeared to contemplate that the Federal credit union would accept orders from its members for registered common stock of the parent corporation in multiples of 5 shares; that whenever orders had been so received for a total of 100 shares, the credit union, as agent for such members, would execute the orders through a brokerage firm with membership on a national securities exchange; that the brokerage firm would deliver certificates for the stock, registered in the names of the individual purchasers, to the credit union against payment by the credit union; that the credit union would prorate the total amount so paid, including the brokerage fee, <?page num="20"?>among the individual purchasers according to the number of shares purchased by them; and that a savings in brokerage fee resulting from the 100-lot purchases would be passed on by the credit union to the individual purchasers of the stock. However, amounts of the stock less than 100 shares would be purchased by the credit union through the brokerage firm for any members willing to forego such savings. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.110/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> It appeared further that the Federal credit union members for whom stock was so purchased would reimburse the credit union (1) by cash payment, (2) by the proceeds of withdrawn shares of the credit union, (3) by the proceeds of an installment loan from the credit union collateraled by the stock purchased, or by (4) by a combination of two or more of the above methods. To assist the collection of any such loan, the employer of the credit union members would provide payroll deductions. Apparently, sales by the credit union of any of the stock purchased by one of its members would occur only in satisfaction of a delinquent loan balance. In no case did it appear that the credit union would make a charge for arranging the execution of transactions in the stock for its members. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.110/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The Board was of the view that, from the facts as presented, it did not appear that the Federal credit union should be regarded as the type of institution to which part 221 of this subchapter, in its present form, applied. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.110/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> With respect to this part, the question was whether the activities of the Federal credit union under the proposal, or otherwise, might be such as to bring it within the meaning of the terms “broker” or “dealer” as used in the part and the Securities Exchange Act of 1934. The Board observed that this, of course, was a question of fact that necessarily depended upon the circumstances of the particular case, including the manner in which the arrangement in question might be carried out in practice. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.110/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> On the basis of the information submitted, however, it did not appear to the Board that the Federal credit union should be regarded as being subject to this part as a “broker or dealer who transacts a business in securities through the medium of” a member firm solely because of its activities as contemplated by the proposal in question. The Board stated that the part rather clearly would not apply if there appeared to be nothing other than loans by the credit union to its members to finance purchases made directly by them of stock of the parent corporation of the employer of the member-borrowers. The additional fact that the credit union, as agent, would purchase such stock for its members (even though all such purchases might not be financed by credit union loans) was not viewed by the Board as sufficient to make the regulation applicable where, as from the facts presented, it did not appear that the credit union in any case was to make any charge or receive any compensation for assisting in such purchases or that the credit union otherwise was engaged in securities activities. However, the Board stated that matters of this kind must be examined closely for any variations that might suggest the inapplicability of the foregoing. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/18/4592">18 FR 4592</ref>, <date date="1953-08-05">Aug. 5, 1953</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.111">
<num value="220.111" style="-uslm-sgm:SECTNO">§ 220.111</num>
<heading style="-uslm-sgm:SUBJECT">Arranging for extensions of credit to be made by a bank. </heading>
<paragraph identifier="/us/cfr/t12/s220.111/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has recently had occasion to express opinions regarding the requirements which apply when a person subject to this part (for convenience, called here simply a broker) arranges for a bank to extend credit. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.111/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The matter is treated generally in <ref href="/us/cfr/t12/s220.7/a">§ 220.7(a)</ref> and is also subject to the general rule of law that any person who aids or abets a violation of law by another is himself guilty of a violation. It may be stated as a general principle that any person who arranges for credit to be extended by someone else has a responsibility so to conduct his activities as not to be a participant in a violation of this part, which applies to brokers, or part 221 of this subchapter, which applies to banks. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.111/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> More specifically, in arranging an extension of credit that may be subject to part 221 of this subchapter, a broker must act in good faith and, therefore, must question the accuracy of any non-purpose statement (i.e., a statement that the loan is not for the purpose of <?page num="21"?>purchasing or carrying registered stocks) given in connection with the loan where the circumstances are such that the broker from any source knows or has reason to know that the statement is incomplete or otherwise inaccurate as to the true purpose of the credit. The requirement of “good faith” is of vital importance. While the application of the requirement will necessarily vary with the facts of the particular case, the broker, like the bank for whom the loan is arranged to be made, must be alert to the circumstances surrounding the loan. Thus, for example, if a broker or dealer is to deliver registered stocks to secure the loan or is to receive the proceeds of the loan, the broker arranging the loan and the bank making it would be put on notice that the loan would probably be subject to part 221 of this subchapter. In any such circumstances they could not in good faith accept or rely upon a statement to the contrary without obtaining a reliable and satisfactory explanation of the situation. The foregoing, of course, applies the principles contained in <ref href="/us/cfr/t12/s221.101">§ 221.101</ref> of this subchapter. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.111/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In addition, when a broker is approached by another broker to arrange extensions of credit for customers of the approaching broker, the broker approached has a responsibility not to arrange any extension of credit which the approaching broker could not himself arrange. Accordingly, in such cases the statutes and regulations forbid the approached broker to arrange extensions of credit on unregistered securities for the purpose of purchasing or carrying either registered or unregistered securities. The approaching broker would also be violating the applicable requirements if he initiated or otherwise participated in any such forbidden transactions. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.111/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The expression of views, set forth in this section, to the effect that certain specific transactions are forbidden, of course, should not in any way be understood to indicate approval of any other transactions which are not mentioned. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/18/5505">18 FR 5505</ref>, <date date="1953-09-15">Sept. 15, 1953</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.112">
<num value="220.112" style="-uslm-sgm:SECTNO">§ 220.112</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.113">
<num value="220.113" style="-uslm-sgm:SECTNO">§ 220.113</num>
<heading style="-uslm-sgm:SUBJECT">Necessity for prompt payment and delivery in special cash accounts. </heading>
<paragraph identifier="/us/cfr/t12/s220.113/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors recently received an inquiry concerning whether purchases of securities by certain municipal employees' retirement or pension systems on the basis of arrangements for delayed delivery and payment, might properly be effected by a creditor subject to this part in a special cash account under <ref href="/us/cfr/t12/s220.4/c">§ 220.4(c)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.113/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It appears that in a typical case the supervisors of the retirement system meet only once or twice each month, at which times decisions are made to purchase any securities wished to be acquired for the system. Although the securities are available for prompt delivery by the broker-dealer firm selected to effect the system's purchase, it is arranged in advance with the firm that the system will not accept delivery and pay for the securities before some date more than seven business days after the date on which the securities are purchased. Apparently, such an arrangement is occasioned by the monthly or semimonthly meetings of the system's supervisors. It was indicated that a retirement system of this kind may be supervised by officials who administer it as an incidental part of their regular duties, and that meetings requiring joint action by two or more supervisors may be necessary under the system's rules and procedures to authorize issuance of checks in payment for the securities purchased. It was indicated also that the purchases do not involve exempted securities, securities of the kind covered by <ref href="/us/cfr/t12/s220.4/c/3">§ 220.4(c)(3)</ref>, or any shipment of securities as described in <ref href="/us/cfr/t12/s220.4/c">§ 220.4(c)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.113/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> This part provides that a creditor subject thereto may not effect for a customer a purchase in a special cash account under <ref href="/us/cfr/t12/s220.4/c">§ 220.4(c)</ref> unless the use of the account meets the limitations of <ref href="/us/cfr/t12/s220.4/a">§ 220.4(a)</ref> and the purchase constitutes a “bona fide cash transaction” which complies with the eligibility requirements of <ref href="/us/cfr/t12/s220.4/c/1/i">§ 220.4(c)(1)(i)</ref>. One such requirement is that the purchase be made “in reliance upon an agreement accepted by the creditor (broker-dealer) in good faith” that the customer <?page num="22"?>will “promptly make full cash payment for the security, if funds sufficient for the purpose are not already in the account; and, subject to certain exceptions, <ref href="/us/cfr/t12/s220.4/c/2">§ 220.4(c)(2)</ref> provides that the creditor shall promptly cancel or liquidate the transaction if payment is not made by the customer within seven business days after the date of purchase. As indicated in the Board's interpretation at 1940 Federal Reserve Bulletin 1172, a necessary part of the customer's undertaking pursuant to <ref href="/us/cfr/t12/s220.4/c/1/i">§ 220.4(c)(1)(i)</ref> is that he “should have the necessary means of payment readily available when he purchases a security in the special cash account. He should expect to pay for it immediately or in any event within the period (of not more than a very few days) that is as long as is usually required to carry through the ordinary securities transaction.” </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.113/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The arrangements for delayed delivery and payment in the case presented to the Board and outlined above clearly would be inconsistent with the requirement of <ref href="/us/cfr/t12/s220.4/c/1/i">§ 220.4(c)(1)(i)</ref> that the purchase be made in reliance upon an agreement accepted by the creditor in good faith that the customer will “promptly” make full cash payment for the security. Accordingly, the Board said that transactions of the kind in question would not qualify as a “bona fide cash transaction” and, therefore, could not properly be effected in a special cash account, unless a contrary conclusion would be justified by the exception in <ref href="/us/cfr/t12/s220.4/c/5">§ 220.4(c)(5)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.113/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Section 220.4(c)(5) provides that if the creditor, “acting in good faith in accordance with” <ref href="/us/cfr/t12/s220.4/c/1">§ 220.4(c)(1)</ref>, purchases a security for a customer “with the understanding that he is to deliver the security promptly to the customer, and the full cash payment is to be made promptly by the customer is to be made against such delivery”, the creditor may at his option treat the transaction as one to which the period applicable under <ref href="/us/cfr/t12/s220.4/c/2">§ 220.4(c)(2)</ref> is not the seven days therein specified but 35 days after the date of such purchase. It will be observed that the application of <ref href="/us/cfr/t12/s220.4">§ 220.4</ref> (c)(5) is specifically conditioned on the creditor acting in good faith in accordance with <ref href="/us/cfr/t12/s220.4/c/1">§ 220.4(c)(1)</ref>. As noted above, the existence of the arrangements for delayed delivery and payment in the case presented would prevent this condition from being met, since the customer could not be regarded as having agreed to make full cash payment “promptly”. Furthermore, such arrangements clearly would be inconsistent with the requirement of <ref href="/us/cfr/t12/s220.4/c/5">§ 220.4(c)(5)</ref> that the creditor “deliver the security promptly to the customer”. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.113/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Section 220.4(c)(5) was discussed in the Board's published interpretation, referred to above, which states that “it is not the purpose of (<ref href="/us/cfr/t12/s220.4">§ 220.4</ref> (c)(5)) to allow additional time to customers for making payment. The ‘prompt delivery’ described in (<ref href="/us/cfr/t12/s220.4">§ 220.4</ref> (c)(5)) is delivery which is to be made as soon as the broker or dealer can reasonably make it in view of the mechanics of the securities business and the bona fide usages of the trade. The provision merely recognizes the fact that in certain circumstances it is an established bona fide practice in the trade to obtain payment against delivery of the security to the customer, and the further fact that the mechanics of the trade, unrelated to the customer's readiness to pay, may sometimes delay such delivery to the customer”. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.113/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> In the case presented, it appears that the only reason for the delay is related solely to the customer's readiness to pay and is in no way attributable to the mechanics of the securities business. Accordingly, it is the Board's view that the exception in <ref href="/us/cfr/t12/s220.4/c/5">§ 220.4(c)(5)</ref> should not be regarded as permitting the transactions in question to be effected in a special cash account. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/22/5954">22 FR 5954</ref>, <date date="1957-07-27">July 27, 1957</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.114-220.116">
<num value="220.114-220.116" style="-uslm-sgm:SECTNO">§§ 220.114–220.116</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.117">
<num value="220.117" style="-uslm-sgm:SECTNO">§ 220.117</num>
<heading style="-uslm-sgm:SUBJECT">Exception to 90-day rule in special cash account. </heading>
<paragraph identifier="/us/cfr/t12/s220.117/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors has recently interpreted certain of the provisions of <ref href="/us/cfr/t12/s220.4/c/8">§ 220.4(c)(8)</ref>, with respect to the withdrawal of proceeds of a sale of stock in a “special cash account” when the stock has been sold out of the account prior to payment for its purchase. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.117/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content>
<p> The specific factual situation presented may be summarized as follows: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT"><?page num="23"?>
<p style="-uslm-sgm:P">Customer purchased stock in a special cash account with a member firm on Day 1. On Day 3 customer sold the same stock at a profit. On Day 8 customer delivered his check for the cost of the purchase to the creditor (member firm). On Day 9 the creditor mailed to the customer a check for the proceeds of the sale.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.117/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content>
<p> Section 220.4(c)(8) prohibits a creditor, as a general rule, from effecting a purchase of a security in a customer's special cash account if any security has been purchased in that account during the preceding 90 days and has then been sold in the account or delivered out to any broker or dealer without having been previously paid for in full by the customer. One exception to this general rule reads as follows: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * The creditor may disregard for the purposes of this subparagraph (<ref href="/us/cfr/t12/s220.4/c">§ 220.4(c)</ref> (8)) a sale without prior payment provided full cash payment is received within the period described by subparagraph (2) of this paragraph (seven days after the date of purchase) and the customer has not withdrawn the proceeds of sale on or before the day on which such payment (and also final payment of any check received in that connection) is received. * * *</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.117/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<chapeau> Final payment of customer's check: (1) The first question is: When is the creditor to be regarded as having received “final payment of any check received” in connection with the purchase? </chapeau>
<paragraph identifier="/us/cfr/t12/s220.117/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The clear purpose of <ref href="/us/cfr/t12/s220.4/c">§ 220.4(c)</ref> (8) is to prevent the use of the proceeds of sale of a stock by a customer to pay for its purchase—i.e., to prevent him from trading on the creditor's funds by being able to deposit the sale proceeds prior to presentment of his own check to the drawee bank. Thus, when a customer undertakes to pay for a purchase by check, that check does not constitute payment for the purchase, within the language and intent of the above-quoted exception in <ref href="/us/cfr/t12/s220.4/c/8">§ 220.4(c)(8)</ref>, until it has been honored by the drawee bank, indicating the sufficiency of his account to pay the check. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.117/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> The phrase “final payment of any check” is interpreted as above notwithstanding <ref href="/us/cfr/t12/s220.6/f">§ 220.6(f)</ref>, which provides that: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">For the purposes of this part (Regulation T), a creditor may, at his option (1) treat the receipt in good faith of any check or draft drawn on a bank which in the ordinary course of business is payable on presentation, * * * as receipt of payment of the amount of such check, draft or order; * * *</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">This is a general provision substantially the same as language found in section 4(f) of Regulation T as originally promulgated in 1934. The language of the subject exception to the 90-day rule of <ref href="/us/cfr/t12/s220.4/c/8">§ 220.4(c)(8)</ref>, i.e., the exception based expressly on final “payment of any check,” was added to the regulation in 1949 by an amendment directed at a specific type of situation. Because the exception is a special, more recent provision, and because <ref href="/us/cfr/t12/s220.6/f">§ 220.6(f)</ref>, if controlling, would permit the exception to undermine, to some extent, the effectiveness of the 90-day rule, sound principles of construction require that the phrase “final payment of any check” be given its literal and intended effect. </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.117/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> There is no fixed period of time from the moment of receipt by the payee, or of deposit, within which it is certain that any check will be paid by the drawee bank. Therefore, in the rare case where the operation of the subject exception to <ref href="/us/cfr/t12/s220.4/c/8">§ 220.4(c)(8)</ref> is necessary to avoid application of the 90-day rule, a creditor should ascertain (from his bank of deposit or otherwise) the fact of payment of a customer's check given for the purchase. Having so determined the day of final payment, the creditor can permit withdrawal on any subsequent day. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.117/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<chapeau> Mailing as “withdrawal”: (1) Also presented is the question whether the mailing to the customer of the creditor's check for the sale proceeds constitutes a withdrawal of such proceeds by the customer at the time of mailing so that, if the check for the sale proceeds is mailed on or before the day on which the customer's check for the purchase is finally paid, the 90-day rule applies. It may be that a check mailed one day will not ordinarily be received by the customer until the next. The Board is of the view, however, that when the check for sale proceeds is issued and released into the mails, the proceeds are to be regarded as withdrawn by the customer; a more liberal interpretation would open a way for circumvention. Accordingly, the creditor's check should not be mailed nor the sale proceeds otherwise released to <?page num="24"?>the customer “on or before the day” on which payment for the purchase, including final payment of any check given for such payment, is received by the creditor, as determined in accordance with the principles stated herein. </chapeau>
<paragraph identifier="/us/cfr/t12/s220.117/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Applying the above principles to the schedule of transactions described in the second paragraph of this interpretation, the mailing of the creditor's check on “Day 9” would be consistent with the subject exception to <ref href="/us/cfr/t12/s220.4/c/8">§ 220.4(c)(8)</ref>, as interpreted herein, only if the customer's check was paid by the drawee bank on “Day 8”. </content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/27/3511">27 FR 3511</ref>, <date date="1962-04-12">Apr. 12, 1962</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.118">
<num value="220.118" style="-uslm-sgm:SECTNO">§ 220.118</num>
<heading style="-uslm-sgm:SUBJECT">Time of payment for mutual fund shares purchased in a special cash account. </heading>
<paragraph identifier="/us/cfr/t12/s220.118/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has recently considered the question whether, in connection with the purchase of mutual fund shares in a “special cash account” under the provisions of this part 220, the 7-day period with respect to liquidation for nonpayment is that described in <ref href="/us/cfr/t12/s220.4/c/2">§ 220.4(c)(2)</ref> or that described in <ref href="/us/cfr/t12/s220.4/c/3">§ 220.4(c)(3)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.118/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content>
<p> Section 220.4(c)(2) provides as follows: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">In case a customer purchases a security (other than an exempted security) in the special cash account and does not make full cash payment for the security within 7 days after the date on which the security is so purchased, the creditor shall, except as provided in subparagraphs (3)–(7) of this paragraph, promptly cancel or otherwise liquidate the transaction or the unsettled portion thereof.</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">Section 220.4(c)(3), one of the exceptions referred to, provides in relevant part as follows: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">If the security when so purchased is an unissued security, the period applicable to the transaction under subparagraph (2) of this paragraph shall be 7 days after the date on which the security is made available by the issuer for delivery to purchasers.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.118/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> In the case presented, the shares of the mutual fund (open-end investment company) are technically not issued at the time they are sold by the underwriter and distributor. Several days may elapse from the date of sale before a certificate can be delivered by the transfer agent. The specific inquiry to the Board was, in effect, whether the 7-day period after which a purchase transaction must be liquidated or cancelled for nonpayment should run, in the case of mutual fund shares, from the time when a certificate for the purchased shares is available for delivery to the purchaser, instead of from the date of the purchase. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.118/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Under the general rule of <ref href="/us/cfr/t12/s220.4">§ 220.4</ref> (c)(2) that is applicable to purchases of outstanding securities, the 7-day period runs from the date of purchase without regard to the time required for the mechanical acts of transfer of ownership and delivery of a certificate. This rule is based on the principles governing the use of special cash accounts in accordance with which, in the absence of special circumstances, payment is to be made promptly upon the purchase of securities. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.118/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The purpose of <ref href="/us/cfr/t12/s220.4/c/3">§ 220.4(c)(3)</ref> is to recognize the fact that, when an issue of securities is to be issued at some fixed future date, a security that is a part of such issue can be purchased on a “when-issued” basis and that payment may reasonably be delayed until after such date of issue, subject to other basic conditions for transactions in a special cash account. Thus, unissued securities should be regarded as “made available for delivery to purchasers” on the date when they are substantially as available as outstanding securities are available upon purchase, and this would ordinarily be the designated date of issuance or, in the case of a stock dividend, the “payment date”. In any case, the time required for the mechanics of transfer and delivery of a certificate is not material under <ref href="/us/cfr/t12/s220.4/c/3">§ 220.4(c)(3)</ref> any more than it is under <ref href="/us/cfr/t12/s220.4/c/2">§ 220.4(c)(2)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.118/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Mutual fund shares are essentially available upon purchase to the same extent as outstanding securities. The mechanics of their issuance and of the delivery of certificates are not significantly different from the mechanics of transfer and delivery of certificates for shares of outstanding securities, and the issuance of mutual fund shares is not a future event in a sense that would warrant the extension of the time for payment beyond that afforded in the case of outstanding securities. Consequently, the Board has concluded that a purchase of mutual fund shares <?page num="25"?>is not a purchase of an “unissued security” to which <ref href="/us/cfr/t12/s220.4/c/3">§ 220.4(c)(3)</ref> applies, but is a transaction to which <ref href="/us/cfr/t12/s220.4/c/2">§ 220.4(c)(2)</ref> applies. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/27/10885">27 FR 10885</ref>, <date date="1962-11-08">Nov. 8, 1962</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.119">
<num value="220.119" style="-uslm-sgm:SECTNO">§ 220.119</num>
<heading style="-uslm-sgm:SUBJECT">Applicability of margin requirements to credit extended to corporation in connection with retirement of stock. </heading>
<paragraph identifier="/us/cfr/t12/s220.119/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors has been asked whether part 220 was violated when a dealer in securities transferred to a corporation 4,161 shares of the stock of such corporation for a consideration of $33,288, of which only 10 percent was paid in cash. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> If the transaction was of a kind that must be included in the corporation's “general account” with the dealer (<ref href="/us/cfr/t12/s220.3">§ 220.3</ref>), it would involve an excessive extension of credit in violation of <ref href="/us/cfr/t12/s220.3">§ 220.3</ref> (b)(1). However, the transaction would be permissible if the transaction came within the scope of <ref href="/us/cfr/t12/s220.4/f/8">§ 220.4(f)(8)</ref>, which permits a “creditor” (such as the dealer) to “Extend and maintain credit to or for any customer without collateral or on any collateral whatever for any purpose other than purchasing or carrying or trading in securities.” Accordingly, the crucial question is whether the corporation, in this transaction, was “purchasing” the 4,161 shares of its stock, within the meaning of that term as used in this part. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Upon first examination, it might seem apparent that the transaction was a purchase by the corporation. From the viewpoint of the dealer the transaction was a sale, and ordinarily, at least a sale by one party connotes a purchase by the other. Furthermore, other indicia of a sale/purchase transaction were present, such as a transfer of property for a pecuniary consideration. However, when the underlying objectives of the margin regulations are considered, it appears that they do not encompass a transaction of this nature, where securities are transferred on credit to the issuer thereof for the purpose of retirement. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Section 7(a) of the Securities Exchange Act of 1934 requires the Board of Governors to prescribe margin regulations “For the purpose of preventing the excessive use of credit for the purchase or carrying of securities.” Accordingly, the provisions of this part are not intended to prevent the use of credit where the transaction will not have the effect of increasing the volume of credit in the securities markets. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> It appears that the instant transaction would have no such effect. When the transaction was completed, the equity interest of the dealer was transmuted into a dollar-obligation interest; in lieu of its status as a stockholder of the corporation, the dealer became a creditor of that corporation. The corporation did not become the owner of any securities acquired through the use of credit; its outstanding stock was simply reduced by 4,161 shares. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> The meaning of “sale” and “purchase” in the Securities Exchange Act has been considered by the Federal courts in a series of decisions dealing with corporate “insiders” profits under section 16(b) of that Act. Although the statutory purpose sought to be effectuated in those cases is quite different from the purpose of the margin regulations, the decisions in question support the propriety of not regarding a transaction as a “purchase” where this accords with the probable legislative intent, even though, literally, the statutory definition seems to include the particular transaction. See Roberts v. Eaton (CA 2 1954) 212 F. 2d 82, and cases and other authorities there cited. The governing principle, of course, is to effectuate the purpose embodied in the statutory or regulatory provision being interpreted, even where that purpose may conflict with the literal words. U.S. v. Amer. Trucking Ass'ns, 310 U.S. 534, 543 (1940); 2 Sutherland, Statutory Construction (3d ed. 1943) ch. 45. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> There can be little doubt that an extension of credit to a corporation to enable it to retire debt securities would not be for the purpose of “purchasing * * * securities” and therefore would come within <ref href="/us/cfr/t12/s220.4/f/8">§ 220.4(f)(8)</ref>, regardless of whether the retirement was obligatory (e.g., at maturity) or was a voluntary “call” by the issuer. This is true, it is difficult to see any valid distinction, for this purpose, between (1) voluntary retirement of an indebtedness security and (2) voluntary retirement of an equity security.
<?page num="26"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> For the reasons indicated above, it is the opinion of the Board of Governors that the extension of credit here involved is not of the kind which the margin requirements are intended to regulate and that the transaction described does not involve an unlawful extension of credit as far as this part is concerned. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.119/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The foregoing interpretation relates, of course, only to cases of the type described. It should not be regarded as governing any other situations; for example, the interpretation does not deal with cases where securities are being transferred to someone other than the issuer, or to the issuer for a purpose other than immediate retirement. Whether the margin requirements are inapplicable to any such situations would depend upon the relevant facts of actual cases presented. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/27/12346">27 FR 12346</ref>, <date date="1962-12-13">Dec. 13, 1962</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.120">
<num value="220.120" style="-uslm-sgm:SECTNO">§ 220.120</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.121">
<num value="220.121" style="-uslm-sgm:SECTNO">§ 220.121</num>
<heading style="-uslm-sgm:SUBJECT">Applicability of margin requirements to joint account between two creditors. </heading>
<paragraph identifier="/us/cfr/t12/s220.121/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has recently been asked whether extensions of credit in a joint account between two brokerage firms, a member of a national securities exchange (“Firm X”) and a member of the National Association of Securities Dealers (“Firm Y”) are subject to the margin requirements of this part (Regulation T). It is understood that similar joint accounts are not uncommon, and it appears that the margin requirements of the regulation are not consistently applied to extensions of credit in the accounts. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.121/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> When the account in question was opened, Firm Y deposited $5,000 with Firm X and has made no further deposit in the account, except for the monthly settlement described below. Both firms have the privilege of buying and selling specified securities in the account, but it appears that Firm X initiates most of the transactions therein. Trading volume may run from half a million to a million dollars a month. Firm X carries the “official” ledger of the account and sends Firm Y a monthly statement with a complete record of all transactions effected during the month. Settlement is then made in accordance with the agreement between the two firms, which provides that profits and losses shall be shared equally on a fifty-fifty basis. However, all transactions are confirmed and reconfirmed between the two on a daily basis. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.121/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content>
<p> Section 220.3(a) provides that </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">All financial relations between a creditor and a customer, whether recorded in one record or in more than one record, shall be included in and be deemed to be part of the customer's general account with the creditor, * * *.</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">and <ref href="/us/cfr/t12/s220.2/c">§ 220.2(c)</ref> defines the term “customer” to include </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * any person, or any group of persons acting jointly, * * * to or for whom a creditor is extending or maintaining any credit * * *</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">In the course of a normal month's operations, both Firm X and Firm Y are at one time or another extending credit to the joint account, since both make purchases for the account that are not “settled” until the month's end. Consequently, the account would be a “customer” within the above definition. </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.121/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content>
<p> Section 220.6(b) provides, with respect to the account of a joint adventure in which a creditor participates, that </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * the adjusted debit balance of the account shall include, in addition to the items specified in <ref href="/us/cfr/t12/s220.3/d">§ 220.3(d)</ref>, any amount by which the creditor's contribution to the joint adventure exceeds the contribution which he would have made if he had contributed merely in proportion to his right to share in the profits of the joint adventure.</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">In addition, the final paragraph of <ref href="/us/cfr/t12/s220.2/c">§ 220.2(c)</ref> states that the definition of “customer” </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * includes any joint adventure in which a creditor participates and which would be considered a customer of the creditor if the creditor were not a participant.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.121/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The above provisions clearly evince the Board's intent that the regulation shall cover trading accounts in which a creditor participates. If additional confirmation were needed, it is supplied by the fact that the Board found it needful specifically to exempt from ordinary margin requirements <?page num="27"?>credit extended to certain joint accounts in which a creditor participates. These include the account in which transactions of odd-lot dealers may be financed under <ref href="/us/cfr/t12/s220.4/f">§ 220.4(f)</ref> (4), and the specialist's account under <ref href="/us/cfr/t12/s220.4/g">§ 220.4(g)</ref>. Accordingly, the Board concluded that the joint account between Firm X and Firm Y is a “customer” within the meaning of the regulation, and that extensions of credit in the account are subject to margin requirements. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/31/7169">31 FR 7169</ref>, <date date="1966-05-17">May 17, 1966</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.122">
<num value="220.122" style="-uslm-sgm:SECTNO">§ 220.122</num>
<heading style="-uslm-sgm:SUBJECT">“Deep in the money put and call options” as extensions of credit. </heading>
<paragraph identifier="/us/cfr/t12/s220.122/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content>
<p> The Board of Governors has been asked to determine whether the business of selling instruments described as “deep in the money put and call options” would involve an extension of credit for the purposes of the Board's regulations governing margin requirements for securities transactions. Most of such options would be of the “call” type, such as the following proposal that was presented to the Board for its consideration: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">If X stock is selling at $100 per share, the customer would pay about $3,250 for a contract to purchase 100 shares of X at $70 per share within a 30-day period. The contract would be guaranteed by an exchange member, as are standard “puts” and “calls”. When the contract is made with the customer, the seller, who will also be the writer of the contract, will immediately purchase 100 shares of X at $100 per share through the guarantor member firm in a margin account. If the customer exercises the option, the shares will be delivered to him; if the option is not exercised, the writer will sell the shares in the margin account to close out the transaction. As a practical matter, it is anticipated that the customer will exercise the option in almost every case.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> An ordinary “put” is an option given to a person to sell to the writer of the put a specified amount of securities at a stated price within a certain time. A “call” is an option given to a person to buy from the writer a specified amount of securities at a stated price within a certain time. To be freely saleable, options must be indorsed, or guaranteed, by a member firm of the exchange on which the security is registered. The guarantor charges a fee for this service. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The option embodied in the normal put or call is exercisable either at the market price of the security at the time the option is written, or some “points away” from the market. The price of a normal option is modest by comparison with the margin required to take a position. Writers of normal options are persons who are satisfied with the current price of a security, and are prepared to purchase or sell at that price, with the small profit provided by the fee. Moreover, since a large proportion of all options are never exercised, a person who customarily writes normal options can anticipate that the fee would be clear profit in many cases, and he will not be obligated to buy or sell the stock in question. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The stock exchanges require that the writer of an option deposit and maintain in his margin account with the indorser 30 percent of the current market price in the case of a call (unless he has a long position in the stock) and 25 percent in the case of a put (unless he has a short position in the stock). Many indorsing firms in fact require larger deposits. Under <ref href="/us/cfr/t12/s220.3/a">§ 220.3(a)</ref> of Regulation T, all financial relations between a broker and his customer must be included in the customer's general account, unless specifically eligible for one of the special accounts authorized by <ref href="/us/cfr/t12/s220.4">§ 220.4</ref>. Accordingly, the writer, as a customer of the member firm, must make a deposit, which is included in his general account. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> In order to prevent the deposit from being available against other margin purchases, and in effect counted twice, <ref href="/us/cfr/t12/s220.3/d/5">§ 220.3(d)(5)</ref> requires that in computing the customer's adjusted debit balance, there shall be included “the amount of any margin customarily required by the creditor in connection with his endorsement or guarantee of any put, call, or other option”. No other margin deposit is required in connection with a normal put or call option under Regulation T. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Turning to the “deep in the money” proposed option contract described above, the price paid by the buyer can be divided into (1) a deposit of 30 percent of the current market <?page num="28"?>value of the stock, and (2) an additional fixed charge, or fee. To the extent that the price of the stock rose during the 30 ensuing days the proposed instrument would produce results similar to those in the case of an ordinary profitable call, and the contract right would be exercised. But even if the price fell, unlike the situation with a normal option, the buyer would still be virtually certain to exercise his right to purchase before it expired, in order to minimize his loss. The result would be that the buyer would not have a genuine choice whether or not to buy. Rather, the instrument would have made it possible for him, in effect, to purchase stock as of the time the contract was written by depositing 30 percent of the stock's current market price. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> It was suggested that the proposed contract is not unusual, since there are examples of ordinary options selling at up to 28 percent of current market value. However, such examples are of options running for 12 months, and reflect expectations of changes in the price of the stock over that period. The 30-day contracts discussed above are not comparable to such 12-month options, because instances of true expectations of price changes of this magnitude over a 30-day period would be exceedingly rare. And a contract that does not reflect such true expectations of price change, plus a reasonable fee for the services of the writer, is not an option in the accepted meaning of the term. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> Because of the virtual certainty that the contract right would be exercised under the proposal described above, the writer would buy the stock in a margin account with an indorsing firm immediately on writing the contract. The indorsing firm would extend credit in the amount of 20 percent of the current market price of the stock, the maximum permitted by the current <ref href="/us/cfr/t12/s220.8">§ 220.8</ref> (supplement to Regulation T). The writer would deposit the 30 percent supplied by the buyer, and furnish the remaining 50 percent out of his own working capital. His account with the indorsing firm would thus be appropriately margined. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> As to the buyer, however, the writer would function as a broker. In effect, he would purchase the stock for the account, or use, of the buyer, on what might be described as a deferred payment arrangement. Like an ordinary broker, the writer of the contract described above would put up funds to pay for the difference between the price of securities the customer wished to purchase and the customer's own contribution. His only risk would be that the price of the securities would decline in excess of the customer's contribution. True, he would be locked in, and could not liquidate the customer's collateral for 30 days even if the market price should fall in excess of 30 percent, but the risk of such a decline is extremely slight. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/j" style="-uslm-sgm:P">
<num value="j">(j)</num>
<content> Like any other broker who extends credit in a margin account, the writer who was in the business of writing and selling such a contract would be satisfied with a fixed predetermined amount of return on his venture, since he would realize only the fee charged. Unlike a writer of ordinary puts and calls, he would not receive a substantial part of his income from fees on unexercised contract rights. The similarity of his activities to those of a broker, and the dissimilarity to a writer of ordinary options, would be underscored by the fact that his fee would be a fixed predetermined amount of return similar to an interest charge, rather than a fee arrived at individually for each transaction according to the volatility of the stock and other individual considerations. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/k" style="-uslm-sgm:P">
<num value="k">(k)</num>
<content> The buyer's general account with the writer would in effect reflect a debit for the purchase price of the stock and, on the credit side, a deposit of cash in the amount of 30 percent of that price, plus an extension of credit for the remaining 70 percent, rather than the maximum permissible 20 percent. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.122/l" style="-uslm-sgm:P">
<num value="l">(l)</num>
<content> For the reasons stated above, the Board concluded that the proposed contracts would involve extensions of credit by the writer as broker in an amount exceeding that permitted by the current supplement to Regulation T. Accordingly, the writing of such contracts by a brokerage firm is presently prohibited by such regulation, and any brokerage firm that endorses such a contract would be arranging for <?page num="29"?>credit in an amount greater than the firm itself could extend, a practice that is prohibited by <ref href="/us/cfr/t12/s220.7/a">§ 220.7(a)</ref>. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/35/3280">35 FR 3280</ref>, <date date="1970-02-21">Feb. 21, 1970</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.123">
<num value="220.123" style="-uslm-sgm:SECTNO">§ 220.123</num>
<heading style="-uslm-sgm:SUBJECT">Partial delayed issue contracts covering nonconvertible bonds. </heading>
<paragraph identifier="/us/cfr/t12/s220.123/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> During recent years, it has become customary for portions of new issues of nonconvertible bonds and preferred stocks to be sold subject to partial delayed issue contracts, which have customarily been referred to in the industry as “delayed delivery” contracts, and the Board of Governors has been asked for its views as to whether such transactions involve any violations of the Board's margin regulations. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The practice of issuing a portion of a debt (or equivalent) security issue at a date subsequent to the main underwriting has arisen where market conditions made it difficult or impossible, in a number of instances, to place an entire issue simultaneously. In instances of this kind, institutional investors (e.g., insurance companies or pension funds) whose cash flow is such that they expect to have funds available some months in the future, have been willing to subscribe to a portion, to be issued to them at a future date. The issuer has been willing to agree to issue the securities in two or more stages because it did not immediately need the proceeds to be realized from the deferred portion, because it could not raise funds on better terms, or because it preferred to have a certain portion of the issue taken down by an investor of this type. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> In the case of such a delayed issue contract, the underwriter is authorized to solicit from institutional customers offers to purchase from the issuer, pursuant to contracts of the kind described above, and the agreement becomes binding at the underwriters' closing, subject to specified conditions. When securities are issued pursuant to the agreement, the purchase price includes accrued interest or dividends, and until they are issued to it, the purchaser does not, in the case of bonds, have rights under the trust indenture, or, in the case of preferred stocks, voting rights. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Securities sold pursuant to such arrangements are high quality debt issues (or their equivalent). The purchasers buy with a view to investment and do not resell or otherwise dispose of the contract prior to its completion. Delayed issue arrangements are not acceptable to issuers unless a substantial portion of an issue, not less than 10 percent, is involved. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Sections 3(a) (13) and (14) of the Securities Exchange Act of 1934 provide that an agreement to purchase is equivalent to a purchase, and an agreement to sell to a sale. The Board has hitherto expressed the view that credit is extended at the time when there is a firm agreement to extend such credit (1968 Federal Reserve Bulletin 328; <ref href="/us/cfr/t12/s207.101">12 CFR 207.101</ref>; ¶ 6800 Published Interpretations of the Board of Governors). Accordingly, in instances of the kind described above, the issuer may be regarded as extending credit to the institutional purchaser at the time of the underwriters' closing, when the obligations of both become fixed. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Section 220.7(a) of the Board's Regulation T (<ref href="/us/cfr/t12/s220.7/a">12 CFR 220.7(a)</ref>), with an exception not applicable here, forbids a creditor subject to that regulation to arrange for credit on terms on which the creditor could not itself extend the credit. Sections 220.4(c) (1) and (2) (<ref href="/us/cfr/t12/s220.4/c">12 CFR 220.4(c)</ref> (1) and (2)) provide that a creditor may not sell securities to a customer except in good faith reliance upon an agreement that the customer will promptly, and in no event in more than 7 full business days, make full cash payment for the securities. Since the underwriters in question are creditors subject to the regulation, unless some specific exception applies, they are forbidden to arrange for the credit described above. This result follows because payment is not made until more than 7 full business days have passed from the time the credit is extended. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content>
<p> However, <ref href="/us/cfr/t12/s220.4/c/3">§ 220.4(c)(3)</ref> provides that: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">If the security when so purchased is an unissued security, the period applicable to the transaction under subparagraph (2) of this paragraph shall be 7 days after the date on which the security is made available by the issuer for delivery to purchasers.</p>
</note>
<?GPOvSpace 04?>
<?page num="30"?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content>
<p> In interpreting <ref href="/us/cfr/t12/s220.4/c/3">§ 220.4(c)(3)</ref>, the Board has stated that the purpose of the provision: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * is to recognize the fact that, when an issue of securities is to be issued at some future fixed date, a security that is part of such issue can be purchased on a “when-issued” basis and that payment may reasonably be delayed until after such date of issue, subject to other basic conditions for transactions in a special cash account. (1962 Federal Reserve Bulletin 1427; <ref href="/us/cfr/t12/s220.118">12 CFR 220.118</ref>; ¶ 5996, Published Interpretations of the Board of Governors.)</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">In that situation, the Board distinguished the case of mutual fund shares, which technically are not issued until the certificate can be delivered by the transfer agent. The Board held that mutual fund shares must be regarded as issued at the time of purchase because they are: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * essentially available upon purchase to the same extent as outstanding securities. The mechanics of their issuance and of the delivery of certificates are not significantly different from the mechanics of transfer and delivery of certificates for shares of outstanding securities, and the issuance of mutual fund shares is not a future event in the sense that would warrant the extension of the time for payment beyond that afforded in the case of outstanding securities. (ibid.)</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">The issuance of debt securities subject to delayed issue contracts, by contrast with that of mutual fund shares, which are in a status of continual underwriting, is a specific single event taking place at a future date fixed by the issuer with a view to its need for funds and the availability of those funds under current market conditions. </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.123/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> For the reasons stated above the Board concluded that the nonconvertible debt and preferred stock subject to delayed issue contracts of the kind described above should not be regarded as having been issued until delivered, pursuant to the agreement, to the institutional purchaser. This interpretation does not apply, of course, to fact situations different from that described in this section. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/36/2777">36 FR 2777</ref>, <date date="1971-02-10">Feb. 10, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.124">
<num value="220.124" style="-uslm-sgm:SECTNO">§ 220.124</num>
<heading style="-uslm-sgm:SUBJECT">Installment sale of tax-shelter programs as “arranging” for credit. </heading>
<paragraph identifier="/us/cfr/t12/s220.124/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has been asked whether the sale by brokers and dealers of tax-shelter programs containing a provision that payment for the program may be made in installments would constitute “arranging” for credit in violation of this part 220. For the purposes of this interpretation, the term “tax-shelter program” means a program which is required to be registered pursuant to section 5 of the Securities Act of 1933 (<ref href="/us/usc/t15/s77e">15 U.S.C. section 77e</ref>), in which tax benefits, such as the ability to deduct substantial amounts of depreciation or oil exploration expenses, are made available to a person investing in the program. The programs may take various legal forms and can relate to a variety of industries including, but not limited to, oil and gas exploration programs, real estate syndications (except real estate investment trusts), citrus grove developments and cattle programs. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.124/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The most common type of tax-shelter program takes the form of a limited partnership. In the case of the programs under consideration, the investor would commit himself to purchase and the partnership would commit itself to sell the interests. The investor would be entitled to the benefits, and become subject to the risks of ownership at the time the contract is made, although the full purchase price is not then required to be paid. The balance of the purchase price after the downpayment usually is payable in installments which range from 1 to 10 years depending on the program. Thus, the partnership would be extending credit to the purchaser until the time when the latter's contractual obligation has been fulfilled and the final payment made. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.124/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content>
<p> With an exception not applicable here, <ref href="/us/cfr/t12/s220.7/a">§ 220.7(a)</ref> of Regulation T provides that: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">A creditor [broker or dealer] may arrange for the extension or maintenance of credit to or for any customer of such creditor by any person upon the same terms and conditions as those upon which the creditor, under the provisions of this part, may himself extend or maintain such credit to such customer, but only such terms and conditions * * *</p>
</note>
<?GPOvSpace 04?>
<?page num="31"?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.124/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In the case of credit for the purpose of purchasing or carrying securities (purpose credit), <ref href="/us/cfr/t12/s220.8">§ 220.8</ref> of the regulation (the Supplement to Regulation T) does not permit any loan value to be given securities that are not registered on a national securities exchange, included on the Board's OTC Margin List, or exempted by statute from the regulation. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.124/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The courts have consistently held investment programs such as those described above to be “securities” for purpose of both the Securities Act of 1933 and the Securities Exchange Act of 1934. The courts have also held that the two statutes are to be construed together. Tax-shelter programs, accordingly, are securities for purposes of Regulation T. They also are not registered on a national securities exchange, included on the Board's OTC Margin List, or exempted by statute from the regulation. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.124/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Accordingly, the Board concludes that the sale by a broker/dealer of tax-shelter programs containing a provision that payment for the program may be made in installments would constitute “arranging” for the extension of credit to purchase or carry securities in violation of the prohibitions of <ref href="/us/cfr/t12/s220.7/a">§§ 220.7(a)</ref> and 220.8 of Regulation T. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/37/6568">37 FR 6568</ref>, <date date="1972-03-31">Mar. 31, 1972</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.125-220.126">
<num value="220.125-220.126" style="-uslm-sgm:SECTNO">§§ 220.125–220.126</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.127">
<num value="220.127" style="-uslm-sgm:SECTNO">§ 220.127</num>
<heading style="-uslm-sgm:SUBJECT">Independent broker/dealers arranging credit in connection with the sale of insurance premium funding programs. </heading>
<paragraph identifier="/us/cfr/t12/s220.127/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board's <date date="1972-09-05">September 5, 1972</date>, clarifying amendment to <ref href="/us/cfr/t12/s220.4/k">§ 220.4(k)</ref> set forth that creditors who arrange credit for the acquisition of mutual fund shares and insurance are also permitted to sell mutual fund shares without insurance under the provisions of the special cash account. It should be understood, of course, that such account provides a relatively short credit period of up to 7 business days even with so-called cash transactions. This amendment was in accordance with the Board's understanding in 1969, when the insurance premium funding provisions were adopted in <ref href="/us/cfr/t12/s220.4/k">§ 220.4(k)</ref>, that firms engaged in a general securities business would not also be engaged in the sale and arranging of credit in connection with such insurance premium funding programs. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.127/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The 1972 amendment eliminated from <ref href="/us/cfr/t12/s220.4/k">§ 220.4(k)</ref> the requirement that, to be eligible for the provisions of the section, a creditor had to be the issuer, or a subsidiary or affiliate of the issuer, of programs which combine the acquisition of both mutual fund shares and insurance. Thus the amendment permits an independent broker/dealer to sell such a program and to arrange for financing in that connection. In reaching such decision, the Board again relied upon the earlier understanding that independent broker/dealers who would sell such programs would not be engaged in transacting a general securities business. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.127/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content>
<p> In response to a specific view recently expressed, the Board agrees that under Regulation T: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * a broker/dealer dealing in special insurance premium funding products can only extend credit in connection with such products or in connection with the sale of shares of registered investment companies under the cash accounts * * * (and) cannot engage in the general securities business or sell any securities other than shares * * * (in) registered investment companies through a cash account or any other manner involving the extension of credit.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.127/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> There is a way, of course, as has been indicated, that an independent broker/dealer might be able to sell other than shares of registered investment companies without creating any conflict with the regulation. Such sales could be executed on a “funds on hand” basis and in the case of payment by check, would have to include the collection of such check. It is understood from industry sources, however, that few if any independent broker/dealers engage solely in a “fund on hand” type of operation. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/38/11066">38 FR 11066</ref>, <date date="1973-05-04">May 4, 1973</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.128">
<num value="220.128" style="-uslm-sgm:SECTNO">§ 220.128</num>
<heading style="-uslm-sgm:SUBJECT">Treatment of simultaneous long and short positions in the same margin account when put or call options or combinations thereof on such stock are also outstanding in the account. </heading>
<paragraph identifier="/us/cfr/t12/s220.128/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board was recently asked whether under Regulation T, “Credit by Brokers and Dealers” (12 CFR part <?page num="32"?>220), if there are simultaneous long and short positions in the same security in the same margin account (often referred to as a short sale “against the box”), such positions may be used to supply the place of the deposit of margin ordinarily required in connection with the guarantee by a creditor of a put or call option or combination thereof on such stock. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.128/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content>
<p> The applicable provisions of regulation T are <ref href="/us/cfr/t12/s220.3/d/3">§ 220.3(d)(3)</ref> and (5) and <ref href="/us/cfr/t12/s220.3/g/4">§ 220.3(g)(4)</ref> and (5) which provide as follows: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">(d) * * * the adjusted debit balance of a general account * * * shall be calculated by taking the sum of the following items:</p>
</note>
<?GPOvSpace 04?>
<elided style="-uslm-sgm:STARS">* * * * *</elided>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">(3) The current market value of any securities (other than unissued securities) sold short in the general account plus, for each security (other than an exempted security), such amount as the board shall prescribe from time to time in <ref href="/us/cfr/t12/s220.8/d">§ 220.8(d)</ref> (the supplement to regulation T) as the margin required for such short sales, except that such amount so prescribed in such <ref href="/us/cfr/t12/s220.8/d">§ 220.8(d)</ref> need not be included when there are held in the general account * * * the same securities or securities exchangeable or convertible within 90 calendar days, without restriction other than the payment of money, into such securities sold short;</p>
</note>
<?GPOvSpace 04?>
<elided style="-uslm-sgm:STARS">* * * * *</elided>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">(5) The amount of any margin customarily required by the creditor in connection with his endorsement or guarantee of any put, call, or other option;</p>
</note>
<?GPOvSpace 04?>
<elided style="-uslm-sgm:STARS">* * * * *</elided>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">(g) * * * (4) Any transaction which serves to meet the requirements of paragraph (e) of this section or otherwise serves to permit any offsetting transaction in an account shall, to that extent, be unavailable to permit any other transaction in such account. </p>
<p style="-uslm-sgm:P">(5) For the purposes of this part (regulation T), if a security has maximum loan value under paragraph (c)(1) of this section in a general account, or under <ref href="/us/cfr/t12/s220.4/j">§ 220.4(j)</ref> in a special convertible debt security account, a sale of the same security (even though not the same certificate) in such account shall be deemed to be a long sale and shall not be deemed to be or treated as a short sale.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.128/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Rule 431 of the New York Stock Exchange requires that a creditor obtain a minimum deposit of 25 percent of the current market value of the optioned stock in connection with his issuance or guarantee of a put, and at least 30 percent in the case of a call (and that such position be “marked to the market”), but permits a short position in the stock to serve in lieu of the required deposit in the case of a put and a long position to serve in the case of a call. Thus, where the appropriate position is held in an account, that position may serve as the margin required by <ref href="/us/cfr/t12/s220.3/d/5">§ 220.3(d)(5)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.128/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In a short sale “against the box,” however, the customer is both long and short the same security. He may have established either position, properly margined, prior to taking the other, or he may have deposited fully paid securities in his margin account on the same day he makes a short sale of such securities. In either case, he will have directed his broker to borrow securities elsewhere in order to make delivery on the short sale rather than using his long position for this purpose (see also <ref href="/us/cfr/t17/s240.3b">17 CFR 240.3b</ref>–3). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.128/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Generally speaking, a customer makes a short sale “against the box” for tax reasons. Regulation T, however, provides in <ref href="/us/cfr/t12/s220.3/g">§ 220.3(g)</ref> that the two positions must be “netted out” for the purposes of the calculations required by the regulation. Thus, the board concludes that neither position would be available to serve as the deposit of margin required in connection with the endorsement by the creditor of an option. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.128/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> A similar conclusion obtains under <ref href="/us/cfr/t12/s220.3/d/3">§ 220.3(d)(3)</ref>. That section provides, in essence, that the margin otherwise required in connection with a short sale need not be included in the account if the customer has in the account a long position in the same security. In <ref href="/us/cfr/t12/s220.3/g">§ 220.3(g)</ref> (4), however, it is provided that “[A]ny transaction which * * * serves to permit any offsetting transaction in an account shall, to that extent, be unavailable to permit any other transaction in such account.” Thus, if a customer has, for example, a long position in a security and that long position has been used to supply the margin required in connection with <?page num="33"?>a short sale of the same security, then the long position is unavailable to serve as the margin required in connection with the creditor's endorsement of a call option on such security. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.128/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> A situation was also described in which a customer has purported to establish simultaneous offsetting long and short positions by executing a “cross” or wash sale of the security on the same day. In this situation, no change in the beneficial ownership of stock has taken place. Since there is no actual “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">contra</inline>” party to either transaction, and no stock has been borrowed or delivered to accomplish the short sale, such fictitious positions would have no value for purposes of the Board's margin regulations. Indeed, the adoption of such a scheme in connection with an overall strategy involving the issuance, endorsement, or guarantee of put or call options or combinations thereof appears to be manipulative and may have been employed for the purpose of circumventing the requirements of the regulations. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/38/12098">38 FR 12098</ref>, <date date="1973-05-09">May 9, 1973</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s220.129-220.130">
<num value="220.129-220.130" style="-uslm-sgm:SECTNO">§§ 220.129–220.130</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.131">
<num value="220.131" style="-uslm-sgm:SECTNO">§ 220.131</num>
<heading style="-uslm-sgm:SUBJECT">Application of the arranging section to broker-dealer activities under SEC Rule 144A.</heading>
<paragraph identifier="/us/cfr/t12/s220.131/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content>
<p> The Board has been asked whether the purchase by a broker-dealer of debt securities for resale in reliance on Rule 144A of the Securities and Exchange Commission (<ref href="/us/cfr/t17/s230.144A">17 CFR 230.144A</ref>) <ref id="fnd3e1728" idref="fnd3e1734" style="-uslm-sgm:SU">1</ref> may be considered an arranging of credit permitted as an “investment banking service” under <ref href="/us/cfr/t12/s220.13/a">§ 220.13(a)</ref> of Regulation T.</p>
<footnote id="fnd3e1734" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e1728" style="-uslm-sgm:SU">1</ref> Rule 144A, <ref href="/us/cfr/t17/s230.144A">17 CFR 230.144A</ref>, was originally published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> at <ref href="/us/fr/55/17933">55 FR 17933</ref>, <date date="1990-04-30">April 30, 1990</date>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.131/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> SEC Rule 144A provides a safe harbor exemption from the registration requirements of the Securities Act of 1933 for resales of restricted securities to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">qualified institutional buyers,</inline> as defined in the rule. In general, a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">qualified institutional buyer</inline> is an institutional investor that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the buyer. Registered broker-dealers need only own and invest on a discretionary basis at least $10 million of securities in order to purchase as principal under the rule. Section 4(2) of the Securities Act of 1933 provides an exemption from the registration requirements for “transactions by an issuer not involving any public offering.” Securities acquired in a transaction under section 4(2) cannot be resold without registration under the Act or an exemption therefrom. Rule 144A provides a safe harbor exemption for resales of such securities. Accordingly, broker-dealers that previously acted only as agents in intermediating between issuers and purchasers of privately-placed securities, due to the lack of such a safe harbor, now may purchase privately-placed securities from issuers as principal and resell such securities to “qualified institutional buyers” under Rule 144A.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.131/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The Board has consistently treated the purchase of a privately-placed debt security as an extension of credit subject to the margin regulations. If the issuer uses the proceeds to buy securities, the purchase of the privately-placed debt security by a creditor represents an extension of “purpose credit” to the issuer. Section 7(c) of the Securities Exchange Act of 1934 prohibits the extension of purpose credit by a creditor if the credit is unsecured, secured by collateral other than securities, or secured by any security (other than an exempted security) in contravention of Federal Reserve regulations. If a debt security sold pursuant to Rule 144A represents purpose credit and is not properly collateralized by securities, the statute and Regulation T can be viewed as preventing the broker-dealer from taking the security into inventory in spite of the fact that the broker-dealer intends to immediately resell the debt security.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.131/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Under <ref href="/us/cfr/t12/s220.13">§ 220.13</ref> of Regulation T, a creditor may arrange credit it cannot itself extend if the arrangement is an “investment banking service” and the credit does not violate Regulations G and U. Investment banking services are defined to include, but not be limited to, “underwritings, private placements, and advice and other services in connection with exchange offers, mergers, or acquisitions, except for <?page num="34"?>underwritings that involve the public distribution of an equity security with installment or other deferred-payment provisions.” To comply with Regulations G and U where the proceeds of debt securities sold under Rule 144A may be used to purchase or carry margin stock and the debt securities are secured in whole or in part, directly or indirectly by margin stock (see <ref href="/us/cfr/t12/s207.2/f">12 CFR 207.2(f)</ref>, 207.112, and 221.2(g)), the margin requirements of the regulations must be met.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s220.131/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The SEC's objective in adopting Rule 144A is to achieve “a more liquid and efficient institutional resale market for unregistered securities.” To further this objective, the Board believes it is appropriate for Regulation T purposes to characterize the participation of broker-dealers in this unique and limited market as an “investment banking service.” The Board is therefore of the view that the purchase by a creditor of debt securities for resale pursuant to SEC Rule 144A may be considered an investment banking service under the arranging section of Regulation T. The market-making activities of broker-dealers who hold themselves out to other institutions as willing to buy and sell Rule 144A securities on a regular and continuous basis may also be considered an arranging of credit permissible under <ref href="/us/cfr/t12/s220.13/a">§ 220.13(a)</ref> of Regulation T.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/55/29566">55 FR 29566</ref>, <date date="1990-07-20">July 20, 1990</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s220.132">
<num value="220.132" style="-uslm-sgm:SECTNO">§ 220.132</num>
<heading style="-uslm-sgm:SUBJECT">Credit to brokers and dealers. </heading>
<content>
<p style="-uslm-sgm:P">For text of this interpretation, see <ref href="/us/cfr/t12/s221.125">§ 221.125</ref> of this subchapter. </p>
<source style="-uslm-sgm:CITA">[Reg. T, <ref href="/us/fr/61/60167">61 FR 60167</ref>, <date date="1996-11-26">Nov. 26, 1996</date>, as amended at <ref href="/us/fr/72/70486">72 FR 70486</ref>, <date date="2007-12-12" role="amended">Dec. 12, 2007</date>]
</source>
</content>
</section>
</level>
</part>
<ear style="-uslm-sgm:EAR">Pt. 221</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p221">
<num value="221" style="-uslm-sgm:HED">PART 221—</num>
<heading style="-uslm-sgm:HED">CREDIT BY BANKS AND PERSONS OTHER THAN BROKERS OR DEALERS FOR THE PURPOSE OF PURCHASING OR CARRYING MARGIN STOCK (REGULATION U)</heading>
<toc style="-uslm-sgm:CONTENTS">
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.1">221.1</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.2">221.2</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.3">221.3</designator>
<label style="-uslm-sgm:SUBJECT">General requirements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.4">221.4</designator>
<label style="-uslm-sgm:SUBJECT">Employee stock option, purchase, and ownership plans.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.5">221.5</designator>
<label style="-uslm-sgm:SUBJECT">Special purpose loans to brokers and dealers.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.6">221.6</designator>
<label style="-uslm-sgm:SUBJECT">Exempted transactions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.7">221.7</designator>
<label style="-uslm-sgm:SUBJECT">Supplement: Maximum loan value of margin stock and other collateral.
</label>
</referenceItem>
<groupItem style="-uslm-sgm:SUBJGRP">
<headingItem style="-uslm-sgm:HED">
<label>Interpretations</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.101">221.101</designator>
<label style="-uslm-sgm:SUBJECT">Determination and effect of purpose of loan.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.102">221.102</designator>
<label style="-uslm-sgm:SUBJECT">Application to committed credit where funds are disbursed thereafter.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.103">221.103</designator>
<label style="-uslm-sgm:SUBJECT">Loans to brokers or dealers.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.104">221.104</designator>
<label style="-uslm-sgm:SUBJECT">Federal credit unions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.105">221.105</designator>
<label style="-uslm-sgm:SUBJECT">Arranging for extensions of credit to be made by a bank.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.106">221.106</designator>
<label style="-uslm-sgm:SUBJECT">Reliance in “good faith” on statement of purpose of loan.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.107">221.107</designator>
<label style="-uslm-sgm:SUBJECT">Arranging loan to purchase open-end investment company shares.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.108">221.108</designator>
<label style="-uslm-sgm:SUBJECT">Effect of registration of stock subsequent to making of loan.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.109">221.109</designator>
<label style="-uslm-sgm:SUBJECT">Loan to open-end investment company.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.110">221.110</designator>
<label style="-uslm-sgm:SUBJECT">Questions arising under this part.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.111">221.111</designator>
<label style="-uslm-sgm:SUBJECT">Contribution to joint venture as extension of credit when the contribution is disproportionate to the contributor's share in the venture's profits or losses.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.112">221.112</designator>
<label style="-uslm-sgm:SUBJECT">Loans by bank in capacity as trustee.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.113">221.113</designator>
<label style="-uslm-sgm:SUBJECT">Loan which is secured indirectly by stock.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.114">221.114</designator>
<label style="-uslm-sgm:SUBJECT">Bank loans to purchase stock of American Telephone and Telegraph Company under Employees' Stock Plan.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.115">221.115</designator>
<label style="-uslm-sgm:SUBJECT">Accepting a purpose statement through the mail without benefit of face-to-face interview.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.116">221.116</designator>
<label style="-uslm-sgm:SUBJECT">Bank loans to replenish working capital used to purchase mutual fund shares.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.117">221.117</designator>
<label style="-uslm-sgm:SUBJECT">When bank in “good faith” has not relied on stock as collateral.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.118">221.118</designator>
<label style="-uslm-sgm:SUBJECT">Bank arranging for extension of credit by corporation.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.119">221.119</designator>
<label style="-uslm-sgm:SUBJECT">Applicability of plan-lender provisions to financing of stock options and stock purchase rights qualified or restricted under Internal Revenue Code.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.120">221.120</designator>
<label style="-uslm-sgm:SUBJECT">Allocation of stock collateral to purpose and nonpurpose credits to same customer.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.121">221.121</designator>
<label style="-uslm-sgm:SUBJECT">Extension of credit in certain stock option and stock purchase plans.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.122">221.122</designator>
<label style="-uslm-sgm:SUBJECT">Applicability of margin requirements to credit in connection with Insurance Premium Funding Programs.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.123">221.123</designator>
<label style="-uslm-sgm:SUBJECT">Combined credit for exercising employee stock options and paying income taxes incurred as a result of such exercise.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.124">221.124</designator>
<label style="-uslm-sgm:SUBJECT">Purchase of debt securities to finance corporate takeovers.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s221.125">221.125</designator>
<label style="-uslm-sgm:SUBJECT">Credit to brokers and dealers.</label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t15/s78c">15 U.S.C. 78c</ref>, 78g, 78q, and 78w.</authority>
<source style="-uslm-sgm:SOURCE"><?page num="35"?>
<heading style="-uslm-sgm:HED">Source:</heading> Reg. U, <ref href="/us/fr/63/2827">63 FR 2827</ref>, <date date="1998-01-16">Jan. 16, 1998</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.1">
<num value="221.1" style="-uslm-sgm:SECTNO">§ 221.1</num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</heading>
<paragraph identifier="/us/cfr/t12/s221.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority.</heading>
<content> Regulation U (this part) is issued by the Board of Governors of the Federal Reserve System (the Board) pursuant to the Securities Exchange Act of 1934 (the Act) (<ref href="/us/usc/t15/s78a">15 U.S.C. 78a</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purpose and scope.</heading>
<paragraph identifier="/us/cfr/t12/s221.1/b/1" class="inline">
<num value="1"> (1)</num>
<content> This part imposes credit restrictions upon persons other than brokers or dealers (hereinafter lenders) that extend credit for the purpose of buying or carrying margin stock if the credit is secured directly or indirectly by margin stock. Lenders include “banks” (as defined in <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>) and other persons who are required to register with the Board under <ref href="/us/cfr/t12/s221.3/b">§ 221.3(b)</ref>. Lenders may not extend more than the maximum loan value of the collateral securing such credit, as set by the Board in <ref href="/us/cfr/t12/s221.7">§ 221.7</ref> (the Supplement).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.1/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> This part does not apply to clearing agencies regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission that accept deposits of margin stock in connection with:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.1/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The issuance of, or guarantee of, or the clearance of transactions in, any security (including options on any security, certificate of deposit, securities index or foreign currency); or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.1/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The guarantee of contracts for the purchase or sale of a commodity for future delivery or options on such contracts.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.1/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> This part does not apply to credit extended to an exempted borrower.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.1/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Availability of forms.</heading>
<content> The forms referenced in this part are available from the Federal Reserve Banks.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s221.2">
<num value="221.2" style="-uslm-sgm:SECTNO">§ 221.2</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">The terms used in this part have the meanings given them in section 3(a) of the Act or as defined in this section as follows:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate</inline> means:</p>
<p style="-uslm-sgm:P">(1) For banks:</p>
<p style="-uslm-sgm:P">(i) Any bank holding company of which a bank is a subsidiary within the meaning of the Bank Holding Company Act of 1956, as amended (<ref href="/us/usc/t12/s1841/d">12 U.S.C. 1841(d)</ref>);</p>
<p style="-uslm-sgm:P">(ii) Any other subsidiary of such bank holding company; and</p>
<p style="-uslm-sgm:P">(iii) Any other corporation, business trust, association, or other similar organization that is an affiliate as defined in section 2(b) of the Banking Act of 1933 (<ref href="/us/usc/t12/s221a/c">12 U.S.C. 221a(c)</ref>);</p>
<p style="-uslm-sgm:P">(2) For nonbank lenders, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">affiliate</inline> means any person who, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the lender.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank.</inline> Has the meaning given to it in section 3(a)(6) of the Act (<ref href="/us/usc/t15/s78c/a/6">15 U.S.C. 78c(a)(6)</ref>) and includes:</p>
<p style="-uslm-sgm:P">(i) Any subsidiary of a bank;</p>
<p style="-uslm-sgm:P">(ii) Any corporation organized under section 25(a) of the Federal Reserve Act (<ref href="/us/usc/t12/s611">12 U.S.C. 611</ref>); and</p>
<p style="-uslm-sgm:P">(iii) Any agency or branch of a foreign bank located within the United States.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank</inline> does not include:</p>
<p style="-uslm-sgm:P">(i) Any savings and loan association;</p>
<p style="-uslm-sgm:P">(ii) Any credit union;</p>
<p style="-uslm-sgm:P">(iii) Any lending institution that is an instrumentality or agency of the United States; or</p>
<p style="-uslm-sgm:P">(iv) Any member of a national securities exchange.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Carrying</inline> credit is credit that enables a customer to maintain, reduce, or retire indebtedness originally incurred to purchase a security that is currently a margin stock.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Current market value</inline> of:</p>
<p style="-uslm-sgm:P">(1) A security means:</p>
<p style="-uslm-sgm:P">(i) If quotations are available, the closing sale price of the security on the preceding business day, as appearing on any regularly published reporting or quotation service; or</p>
<p style="-uslm-sgm:P">(ii) If there is no closing sale price, the lender may use any reasonable estimate of the market value of the security as of the close of business on the preceding business day; or</p>
<p style="-uslm-sgm:P">(iii) If the credit is used to finance the purchase of the security, the total cost of purchase, which may include any commissions charged.</p>
<p style="-uslm-sgm:P">(2) Any other collateral means a value determined by any reasonable method.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Customer</inline> excludes an exempted borrower and includes any person or persons acting jointly, to or for whom a lender extends or maintains credit.
<?page num="36"?></p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examining authority</inline> means:</p>
<p style="-uslm-sgm:P">(1) The national securities exchange or national securities association of which a broker or dealer is a member; or</p>
<p style="-uslm-sgm:P">(2) If a member of more than one self-regulatory organization, the organization designated by the Securities and Exchange Commission as the examining authority for the broker or dealer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exempted borrower</inline> means a member of a national securities exchange or a registered broker or dealer, a substantial portion of whose business consists of transactions with persons other than brokers or dealers, and includes a borrower who:</p>
<p style="-uslm-sgm:P">(1) Maintains at least 1000 active accounts on an annual basis for persons other than brokers, dealers, and persons associated with a broker or dealer;</p>
<p style="-uslm-sgm:P">(2) Earns at least $10 million in gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with a broker or dealer; or</p>
<p style="-uslm-sgm:P">(3) Earns at least 10 percent of its gross revenues on an annual basis from transactions with persons other than brokers, dealers, and persons associated with a broker-dealer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith</inline> with respect to:</p>
<p style="-uslm-sgm:P">(1) The loan value of collateral means that amount (not exceeding 100 per cent of the current market value of the collateral) which a lender, exercising sound credit judgment, would lend, without regard to the customer's other assets held as collateral in connection with unrelated transactions.</p>
<p style="-uslm-sgm:P">(2) Making a determination or accepting a statement concerning a borrower means that the lender or its duly authorized representative is alert to the circumstances surrounding the credit, and if in possession of information that would cause a prudent person not to make the determination or accept the notice or certification without inquiry, investigates and is satisfied that it is correct;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In the ordinary course of business</inline> means occurring or reasonably expected to occur in carrying out or furthering any business purpose, or in the case of an individual, in the course of any activity for profit or the management or preservation of property.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Indirectly secured.</inline> (1) Includes any arrangement with the customer under which:</p>
<p style="-uslm-sgm:P">(i) The customer's right or ability to sell, pledge, or otherwise dispose of margin stock owned by the customer is in any way restricted while the credit remains outstanding; or</p>
<p style="-uslm-sgm:P">(ii) The exercise of such right is or may be cause for accelerating the maturity of the credit.</p>
<p style="-uslm-sgm:P">(2) Does not include such an arrangement if:</p>
<p style="-uslm-sgm:P">(i) After applying the proceeds of the credit, not more than 25 percent of the value (as determined by any reasonable method) of the assets subject to the arrangement is represented by margin stock;</p>
<p style="-uslm-sgm:P">(ii) It is a lending arrangement that permits accelerating the maturity of the credit as a result of a default or renegotiation of another credit to the customer by another lender that is not an affiliate of the lender;</p>
<p style="-uslm-sgm:P">(iii) The lender holds the margin stock only in the capacity of custodian, depositary, or trustee, or under similar circumstances, and, in good faith, has not relied upon the margin stock as collateral; or</p>
<p style="-uslm-sgm:P">(iv) The lender, in good faith, has not relied upon the margin stock as collateral in extending or maintaining the particular credit.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lender</inline> means:</p>
<p style="-uslm-sgm:P">(1) Any bank; or</p>
<p style="-uslm-sgm:P">(2) Any person subject to the registration requirements of this part.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Margin stock</inline> means:</p>
<p style="-uslm-sgm:P">(1) Any equity security registered or having unlisted trading privileges on a national securities exchange;</p>
<p style="-uslm-sgm:P">(2) Any OTC security designated as qualified for trading in the National Market System under a designation plan approved by the Securities and Exchange Commission (NMS security);</p>
<p style="-uslm-sgm:P">(3) Any debt security convertible into a margin stock or carrying a warrant or right to subscribe to or purchase a margin stock;</p>
<p style="-uslm-sgm:P">(4) Any warrant or right to subscribe to or purchase a margin stock; or</p>
<p style="-uslm-sgm:P">(5) Any security issued by an investment company registered under section 8 of the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a–8">15 U.S.C. 80a–8</ref>), other than:
<?page num="37"?></p>
<p style="-uslm-sgm:P">(i) A company licensed under the Small Business Investment Company Act of 1958, as amended (<ref href="/us/usc/t15/s661">15 U.S.C. 661</ref>); or</p>
<p style="-uslm-sgm:P">(ii) A company which has at least 95 percent of its assets continuously invested in exempted securities (as defined in <ref href="/us/usc/t15/s78c/a/12">15 U.S.C. 78c(a)(12)</ref>); or</p>
<p style="-uslm-sgm:P">(iii) A company which issues face-amount certificates as defined in <ref href="/us/usc/t15/s80a–2/a/15">15 U.S.C. 80a–2(a)(15)</ref>, but only with respect of such securities; or</p>
<p style="-uslm-sgm:P">(iv) A company which is considered a money market fund under SEC Rule 2a–7 (<ref href="/us/cfr/t17/s270.2a">17 CFR 270.2a</ref>–7).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maximum loan value</inline> is the percentage of current market value assigned by the Board under <ref href="/us/cfr/t12/s221.7">§ 221.7</ref> (the Supplement) to specified types of collateral. The maximum loan value of margin stock is stated as a percentage of its current market value. Puts, calls and combinations thereof that do not qualify as margin stock have no loan value. All other collateral has good faith loan value.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonbank lender</inline> means any person subject to the registration requirements of this part.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Purpose credit</inline> is any credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock.
</p>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.3">
<num value="221.3" style="-uslm-sgm:SECTNO">§ 221.3</num>
<heading style="-uslm-sgm:SUBJECT">General requirements.</heading>
<paragraph identifier="/us/cfr/t12/s221.3/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Extending, maintaining, and arranging credit—</heading>
<paragraph identifier="/us/cfr/t12/s221.3/a/1" class="inline">
<num value="1">(1) </num>
<heading>Extending credit.</heading>
<content> No lender, except a plan-lender, as defined in <ref href="/us/cfr/t12/s221.4/a">§ 221.4(a)</ref>, shall extend any purpose credit, secured directly or indirectly by margin stock, in an amount that exceeds the maximum loan value of the collateral securing the credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Maintaining credit.</heading>
<chapeau> A lender may continue to maintain any credit initially extended in compliance with this part, regardless of:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.3/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Reduction in the customer's equity resulting from change in market prices;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Change in the maximum loan value prescribed by this part; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Change in the status of the security (from nonmargin to margin) securing an existing purpose credit.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Arranging credit.</heading>
<content> No lender may arrange for the extension or maintenance of any purpose credit, except upon the same terms and conditions under which the lender itself may extend or maintain purpose credit under this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Registration of nonbank lenders; termination of registration; annual report—</heading>
<paragraph identifier="/us/cfr/t12/s221.3/b/1" class="inline">
<num value="1">(1) </num>
<heading>Registration.</heading>
<chapeau> Every person other than a person subject to part 220 of this chapter or a bank who, in the ordinary course of business, extends or maintains credit secured, directly or indirectly, by any margin stock shall register on Federal Reserve Form FR G–1 (OMB control number 7100–0011) within 30 days after the end of any calendar quarter during which:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.3/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of credit extended equals $200,000 or more; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The amount of credit outstanding at any time during that calendar quarter equals $500,000 or more.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Deregistration.</heading>
<content> A registered nonbank lender may apply to terminate its registration, by filing Federal Reserve Form FR G–2 (OMB control number 7100–0011), if the lender has not, during the preceding six calendar months, had more than $200,000 of such credit outstanding. Registration shall be deemed terminated when the application is approved by the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Annual report.</heading>
<content> Every registered nonbank lender shall, within 30 days following June 30 of every year, file Form FR G–4 (OMB control number 7100–0011).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Where to register and file applications and reports.</heading>
<content> Registration statements, applications to terminate registration, and annual reports shall be filed with the Federal Reserve Bank of the district in which the principal office of the lender is located.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Purpose statement—</heading>
<paragraph identifier="/us/cfr/t12/s221.3/c/1" class="inline">
<num value="1">(1) </num>
<heading>General rule—</heading>
<paragraph identifier="/us/cfr/t12/s221.3/c/1/i" class="inline">
<num value="i">(i) </num>
<heading>Banks.</heading>
<content> Except for credit extended under paragraph (c)(2) of this section, whenever a bank extends credit secured directly or indirectly by any margin stock, in an amount exceeding $100,000, the bank shall require its customer to execute Form FR U–1 (OMB No. 7100–0115), which shall be signed and accepted by a duly authorized officer of the bank acting in good faith.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Nonbank lenders.</heading>
<content> Except for credit extended under paragraph (c)(2) of this section or <ref href="/us/cfr/t12/s221.4">§ 221.4</ref>, whenever a nonbank lender extends credit secured directly or indirectly by any margin stock, the <?page num="38"?>nonbank lender shall require its customer to execute Form FR G–3 (OMB control number 7100–0018), which shall be signed and accepted by a duly authorized representative of the nonbank lender acting in good faith.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Purpose statement for revolving-credit or multiple-draw agreements or financing of securities purchases on a payment-against-delivery basis—</heading>
<paragraph identifier="/us/cfr/t12/s221.3/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>Banks.</heading>
<content> If a bank extends credit, secured directly or indirectly by any margin stock, in an amount exceeding $100,000, under a revolving-credit or other multiple-draw agreement, Form FR U–1 must be executed at the time the credit arrangement is originally established and must be amended as described in paragraph (c)(2)(iv) of this section for each disbursement if all of the collateral for the agreement is not pledged at the time the agreement is originally established.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Nonbank lenders.</heading>
<content> If a nonbank lender extends credit, secured directly or indirectly by any margin stock, under a revolving-credit or other multiple-draw agreement, Form FR G–3 must be executed at the time the credit arrangement is originally established and must be amended as described in paragraph (c)(2)(iv) of this section for each disbursement if all of the collateral for the agreement is not pledged at the time the agreement is originally established.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Collateral.</heading>
<chapeau> If a purpose statement executed at the time the credit arrangement is initially made indicates that the purpose is to purchase or carry margin stock, the credit will be deemed in compliance with this part if:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.3/c/2/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The maximum loan value of the collateral at least equals the aggregate amount of funds actually disbursed; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/c/2/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> At the end of any day on which credit is extended under the agreement, the lender calls for additional collateral sufficient to bring the credit into compliance with <ref href="/us/cfr/t12/s221.7">§ 221.7</ref> (the Supplement).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/c/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Amendment of purpose statement.</heading>
<content> For any purpose credit disbursed under the agreement, the lender shall obtain and attach to the executed Form FR U–1 or FR G–3 a current list of collateral which adequately supports all credit extended under the agreement.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Single credit rule.</heading>
<paragraph identifier="/us/cfr/t12/s221.3/d/1" class="inline">
<num value="1"> (1)</num>
<content> All purpose credit extended to a customer shall be treated as a single credit, and all the collateral securing such credit shall be considered in determining whether or not the credit complies with this part, except that syndicated loans need not be aggregated with other unrelated purpose credit extended by the same lender.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A lender that has extended purpose credit secured by margin stock may not subsequently extend unsecured purpose credit to the same customer unless the combined credit does not exceed the maximum loan value of the collateral securing the prior credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If a lender extended unsecured purpose credit to a customer prior to the extension of purpose credit secured by margin stock, the credits shall be combined and treated as a single credit solely for the purposes of the withdrawal and substitution provision of paragraph (f) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> If a lender extends purpose credit secured by any margin stock and non-purpose credit to the same customer, the lender shall treat the credits as two separate loans and may not rely upon the required collateral securing the purpose credit for the nonpurpose credit.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Exempted borrowers.</heading>
<paragraph identifier="/us/cfr/t12/s221.3/e/1" class="inline">
<num value="1"> (1)</num>
<content> An exempted borrower that has been in existence for less than one year may meet the definition of exempted borrower based on a six-month period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Once a member of a national securities exchange or registered broker or dealer ceases to qualify as an exempted borrower, it shall notify its lenders of this fact. Any new extensions of credit to such a borrower, including rollovers, renewals, and additional draws on existing lines of credit, are subject to the provisions of this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Withdrawals and substitutions.</heading>
<paragraph identifier="/us/cfr/t12/s221.3/f/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A lender may permit any withdrawal or substitution of cash or collateral by the customer if the withdrawal or substitution would not:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.3/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Cause the credit to exceed the maximum loan value of the collateral; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Increase the amount by which the credit exceeds the maximum loan value of the collateral.
<?page num="39"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> For purposes of this section, the maximum loan value of the collateral on the day of the withdrawal or substitution shall be used.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Exchange offers.</heading>
<content> To enable a customer to participate in a reorganization, recapitalization or exchange offer that is made to holders of an issue of margin stock, a lender may permit substitution of the securities received. A nonmargin, nonexempted security acquired in exchange for a margin stock shall be treated as if it is margin stock for a period of 60 days following the exchange.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Renewals and extensions of maturity.</heading>
<content> A renewal or extension of maturity of a credit need not be considered a new extension of credit if the amount of the credit is increased only by the addition of interest, service charges, or taxes with respect to the credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Transfers of credit.</heading>
<paragraph identifier="/us/cfr/t12/s221.3/i/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A transfer of a credit between customers or between lenders shall not be considered a new extension of credit if:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.3/i/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The original credit was extended by a lender in compliance with this part or by a lender subject to part 207 of this chapter in effect prior to <date date="1998-04-01">April 1, 1998</date>, (See part 207 appearing in the <ref href="/us/cfr/t12/p200">12 CFR parts 200</ref> to 219 edition revised as of <date date="1997-01-01">January 1, 1997</date>), in a manner that would have complied with this part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/i/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The transfer is not made to evade this part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/i/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The amount of credit is not increased; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/i/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The collateral for the credit is not changed.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/i/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any transfer between customers at the same lender shall be accompanied by a statement by the transferor customer describing the circumstances giving rise to the transfer and shall be accepted and signed by a representative of the lender acting in good faith. The lender shall keep such statement with its records of the transferee account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/i/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> When a transfer is made between lenders, the transferee shall obtain a copy of the Form FR U–1 or Form FR G–3 originally filed with the transferor and retain the copy with its records of the transferee account. If no form was originally filed with the transferor, the transferee may accept in good faith a statement from the transferor describing the purpose of the loan and the collateral securing it.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Action for lender's protection.</heading>
<content> Nothing in this part shall require a bank to waive or forego any lien or prevent a bank from taking any action it deems necessary in good faith for its protection.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.3/k" style="-uslm-sgm:P">
<num value="k">(k) </num>
<heading>Mistakes in good faith.</heading>
<content> A mistake in good faith in connection with the extension or maintenance of credit shall not be a violation of this part.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.4">
<num value="221.4" style="-uslm-sgm:SECTNO">§ 221.4</num>
<heading style="-uslm-sgm:SUBJECT">Employee stock option, purchase, and ownership plans.</heading>
<paragraph identifier="/us/cfr/t12/s221.4/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Plan-lender; eligible plan.</heading>
<paragraph identifier="/us/cfr/t12/s221.4/a/1" class="inline">
<num value="1"> (1)</num>
<content> Plan-lender means any corporation, (including a wholly-owned subsidiary, or a lender that is a thrift organization whose membership is limited to employees and former employees of the corporation, its subsidiaries or affiliates) that extends or maintains credit to finance the acquisition of margin stock of the corporation, its subsidiaries or affiliates under an eligible plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.4/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Eligible plan.</heading>
<content> An eligible plan means any employee stock option, purchase, or ownership plan adopted by a corporation and approved by its stockholders that provides for the purchase of margin stock of the corporation, its subsidiaries, or affiliates.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.4/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Credit to exercise rights under or finance an eligible plan.</heading>
<paragraph identifier="/us/cfr/t12/s221.4/b/1" class="inline">
<num value="1"> (1)</num>
<content> If a plan-lender extends or maintains credit under an eligible plan, any margin stock that directly or indirectly secured that credit shall have good faith loan value.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.4/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Credit extended under this section shall be treated separately from credit extended under any other section of this part except <ref href="/us/cfr/t12/s221.3/b/1">§ 221.3(b)(1)</ref> and (b)(3).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.4/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Credit to ESOPs.</heading>
<content> A nonbank lender may extend and maintain purpose credit without regard to the provisions of this part, except for <ref href="/us/cfr/t12/s221.3/b/1">§ 221.3(b)(1)</ref> and (b)(3), if such credit is extended to an employee stock ownership plan (ESOP) qualified under section 401 of the Internal Revenue Code, as amended (<ref href="/us/usc/t26/s401">26 U.S.C. 401</ref>).
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.5"><?page num="40"?>
<num value="221.5" style="-uslm-sgm:SECTNO">§ 221.5</num>
<heading style="-uslm-sgm:SUBJECT">Special purpose loans to brokers and dealers.</heading>
<paragraph identifier="/us/cfr/t12/s221.5/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Special purpose loans.</heading>
<content> A lender may extend and maintain purpose credit to brokers and dealers without regard to the limitations set forth in <ref href="/us/cfr/t12/s221.3">§§ 221.3</ref> and 221.7, if the credit is for any of the specific purposes and meets the conditions set forth in paragraph (c) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Written notice.</heading>
<content> Prior to extending credit for more than a day under this section, the lender shall obtain and accept in good faith a written notice or certification from the borrower as to the purposes of the loan. The written notice or certification shall be evidence of continued eligibility for the special credit provisions until the borrower notifies the lender that it is no longer eligible or the lender has information that would cause a reasonable person to question whether the credit is being used for the purpose specified.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Types of special purpose credit.</heading>
<chapeau> The types of credit that may be extended and maintained on a good faith basis are as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.5/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Hypothecation loans.</heading>
<content> Credit secured by hypothecated customer securities that, according to written notice received from the broker or dealer, may be hypothecated by the broker or dealer under Securities and Exchange Commission (SEC) rules.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Temporary advances in payment-against-delivery transactions.</heading>
<content> Credit to finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid upon completion of the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Loans for securities in transit or transfer.</heading>
<content> Credit to finance securities in transit or surrendered for transfer, if the credit is to be repaid upon completion of the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Intra-day loans.</heading>
<content> Credit to enable a broker or dealer to pay for securities, if the credit is to be repaid on the same day it is extended.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Arbitrage loans.</heading>
<chapeau> Credit to finance proprietary or customer bona fide arbitrage transactions. For the purpose of this section bona fide arbitrage means:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.5/c/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Purchase or sale of a security in one market, together with an offsetting sale or purchase of the same security in a different market at nearly the same time as practicable, for the purpose of taking advantage of a difference in prices in the two markets; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Purchase of a security that is, without restriction other than the payment of money, exchangeable or convertible within 90 calendar days of the purchase into a second security, together with an offsetting sale of the second security at or about the same time, for the purpose of taking advantage of a concurrent disparity in the price of the two securities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Market maker and specialist loans.</heading>
<content> Credit to a member of a national securities exchange or registered broker or dealer to finance its activities as a market maker or specialist.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Underwriter loans.</heading>
<content> Credit to a member of a national securities exchange or registered broker or dealer to finance its activities as an underwriter.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Emergency loans.</heading>
<content> Credit that is essential to meet emergency needs of the broker-dealer business arising from exceptional circumstances.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Capital contribution loans.</heading>
<chapeau> Capital contribution loans include:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.5/c/9/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Credit that Board has exempted by order upon a finding that the exemption is necessary or appropriate in the public interest or for the protection of investors, provided the Securities Investor Protection Corporation certifies to the Board that the exemption is appropriate; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/9/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Credit to a customer for the purpose of making a subordinated loan or capital contribution to a broker or dealer in conformity with the SEC's net capital rules and the rules of the broker's or dealer's examining authority, provided:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.5/c/9/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The customer reduces the credit by the amount of any reduction in the loan or contribution to the broker or dealer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/9/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The credit is not used to purchase securities issued by the broker or dealer in a public distribution.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.5/c/10" style="-uslm-sgm:P">
<num value="10">(10)</num>
<content> Credit to clearing brokers or dealers. Credit to a member of a national securities exchange or registered broker or dealer whose nonproprietary business is limited to financing and carrying the accounts of registered market makers.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.6"><?page num="41"?>
<num value="221.6" style="-uslm-sgm:SECTNO">§ 221.6</num>
<heading style="-uslm-sgm:SUBJECT">Exempted transactions.</heading>
<chapeau style="-uslm-sgm:P">A bank may extend and maintain purpose credit without regard to the provisions of this part if such credit is extended:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.6/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> To any bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.6/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> To any foreign banking institution;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.6/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Outside the United States;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.6/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> To an employee stock ownership plan (ESOP) qualified under section 401 of the Internal Revenue Code (<ref href="/us/usc/t26/s401">26 U.S.C. 401</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.6/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> To any plan lender as defined in <ref href="/us/cfr/t12/s221.4/a">§ 221.4(a)</ref> to finance an eligible plan as defined in <ref href="/us/cfr/t12/s221.4/b">§ 221.4(b)</ref>, provided the bank has no recourse to any securities purchased pursuant to the plan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.6/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> To any customer, other than a broker or dealer, to temporarily finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid in the ordinary course of business upon completion of the transaction and is not extended to enable the customer to pay for securities purchased in an account subject to part 220 of this chapter;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.6/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> Against securities in transit, if the credit is not extended to enable the customer to pay for securities purchased in an account subject to part 220 of this chapter; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.6/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> To enable a customer to meet emergency expenses not reasonably foreseeable, and if the extension of credit is supported by a statement executed by the customer and accepted and signed by an officer of the bank acting in good faith. For this purpose, emergency expenses include expenses arising from circumstances such as the death or disability of the customer, or some other change in circumstances involving extreme hardship, not reasonably foreseeable at the time the credit was extended. The opportunity to realize monetary gain or to avoid loss is not a “change in circumstances” for this purpose.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.7">
<num value="221.7" style="-uslm-sgm:SECTNO">§ 221.7</num>
<heading style="-uslm-sgm:SUBJECT">Supplement: Maximum loan value of margin stock and other collateral.</heading>
<paragraph identifier="/us/cfr/t12/s221.7/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Maximum loan value of margin stock.</heading>
<content> The maximum loan value of any margin stock is fifty per cent of its current market value.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.7/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Maximum loan value of nonmargin stock and all other collateral.</heading>
<content> The maximum loan value of nonmargin stock and all other collateral except puts, calls, or combinations thereof is their good faith loan value.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.7/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Maximum loan value of options.</heading>
<content> Except for options that qualify as margin stock, puts, calls, and combinations thereof have no loan value.
</content>
</paragraph>
</section>
<level style="-uslm-sgm:SUBJGRP">
<heading style="-uslm-sgm:HED">Interpretations
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.101">
<num value="221.101" style="-uslm-sgm:SECTNO">§ 221.101</num>
<heading style="-uslm-sgm:SUBJECT">Determination and effect of purpose of loan.</heading>
<paragraph identifier="/us/cfr/t12/s221.101/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Under this part the original purpose of a loan is controlling. In other words, if a loan originally is not for the purpose of purchasing or carrying margin stock, changes in the collateral for the loan do not change its exempted character.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.101/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> However, a so-called increase in the loan is necessarily on an entirely different basis. So far as the purpose of the credit is concerned, it is a new loan, and the question of whether or not it is subject to this part must be determined accordingly.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.101/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Certain facts should also be mentioned regarding the determination of the purpose of a loan. Section 221.3(c) provides in that whenever a lender is required to have its customer execute a “Statement of Purpose for an Extension of Credit Secured by Margin Stock,” the statement must be accepted by the lender “acting in good faith.” The requirement of “good faith” is of vital importance here. Its application will necessarily vary with the facts of the particular case, but it is clear that the bank must be alert to the circumstances surrounding the loan. For example, if the loan is to be made to a customer who is not a broker or dealer in securities, but such a broker or dealer is to deliver margin stock to secure the loan or is to receive the proceeds of the loan, the bank would be put on notice that the loan would probably be subject to this part. It could not accept in good faith a statement to the contrary without obtaining a reliable and satisfactory explanation of the situation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.101/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Furthermore, the purpose of a loan means just that. It cannot be altered by some temporary application of <?page num="42"?>the proceeds. For example, if a borrower is to purchase Government securities with the proceeds of a loan, but is soon thereafter to sell such securities and replace them with margin stock, the loan is clearly for the purpose of purchasing or carrying margin stock.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.102">
<num value="221.102" style="-uslm-sgm:SECTNO">§ 221.102</num>
<heading style="-uslm-sgm:SUBJECT">Application to committed credit where funds are disbursed thereafter.</heading>
<chapeau style="-uslm-sgm:P">The Board has concluded that the date a commitment to extend credit becomes binding should be regarded as the date when the credit is extended, since:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.102/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> On that date the parties should be aware of law and facts surrounding the transaction; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.102/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Generally, the date of contract is controlling for purposes of margin regulations and Federal securities law, regardless of the delivery of cash or securities.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.103">
<num value="221.103" style="-uslm-sgm:SECTNO">§ 221.103</num>
<heading style="-uslm-sgm:SUBJECT">Loans to brokers or dealers.</heading>
<content style="-uslm-sgm:P">Questions have arisen as to the adequacy of statements received by lending banks under <ref href="/us/cfr/t12/s221.3/c">§ 221.3(c)</ref>, “Purpose Statement,” in the case of loans to brokers or dealers secured by margin stock where the proceeds of the loans are to be used to finance customer transactions involving the purchasing or carrying of margin stock. While some such loans may qualify for exemption under <ref href="/us/cfr/t12/s221.1/b/2">§§ 221.1(b)(2)</ref>, 221.4, 221.5 or 221.6, unless they do qualify for such an exemption they are subject to this part. For example, if a loan so secured is made to a broker to furnish cash working capital for the conduct of his brokerage business (i.e., for purchasing and carrying securities for the account of customers), the maximum loan value prescribed in <ref href="/us/cfr/t12/s221.7">§ 221.7</ref> (the Supplement) would be applicable unless the loan should be of a kind exempted under this part. This result would not be affected by the fact that the margin stock given as security for the loan was or included margin stock owned by the brokerage firm. In view of the foregoing, the statement referred to in <ref href="/us/cfr/t12/s221.3/c">§ 221.3(c)</ref> which the lending bank must accept in good faith in determining the purpose of the loan would be inadequate if the form of statement accepted or used by the bank failed to call for answers which would indicate whether or not the loan was of the kind discussed elsewhere in this section.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.104">
<num value="221.104" style="-uslm-sgm:SECTNO">§ 221.104</num>
<heading style="-uslm-sgm:SUBJECT">Federal credit unions.</heading>
<content style="-uslm-sgm:P">For text of the interpretation on Federal credit unions, see <ref href="/us/cfr/t12/s220.110">12 CFR 220.110</ref>.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.105">
<num value="221.105" style="-uslm-sgm:SECTNO">§ 221.105</num>
<heading style="-uslm-sgm:SUBJECT">Arranging for extensions of credit to be made by a bank.</heading>
<content style="-uslm-sgm:P">For text of the interpretation on Arranging for extensions of credit to be made by a bank, see <ref href="/us/cfr/t12/s220.111">12 CFR 220.111</ref>.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.106">
<num value="221.106" style="-uslm-sgm:SECTNO">§ 221.106</num>
<heading style="-uslm-sgm:SUBJECT">Reliance in “good faith” on statement of purpose of loan.</heading>
<paragraph identifier="/us/cfr/t12/s221.106/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Certain situations have arisen from time to time under this part wherein it appeared doubtful that, in the circumstances, the lending banks may have been entitled to rely upon the statements accepted by them in determining whether the purposes of certain loans were such as to cause the loans to be not subject to the part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.106/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The use by a lending bank of a statement in determining the purpose of a particular loan is, of course, provided for by <ref href="/us/cfr/t12/s221.3/c">§ 221.3(c)</ref>. However, under that paragraph a lending bank may accept such statement only if it is “acting in good faith.” As the Board stated in the interpretation contained in <ref href="/us/cfr/t12/s221.101">§ 221.101</ref>, the “requirement of ‘good faith’ is of vital importance”; and, to fulfill such requirement, “it is clear that the bank must be alert to the circumstances surrounding the loan.”</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.106/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Obviously, such a statement would not be accepted by the bank in “good faith” if at the time the loan was made the bank had knowledge, from any source, of facts or circumstances which were contrary to the natural purport of the statement, or which were sufficient reasonably to put the bank on notice of the questionable reliability or completeness of the statement.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.106/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Furthermore, the same requirement of “good faith” is to be applied whether the statement accepted by the bank is signed by the borrower or by an officer of the bank. In either case, “good faith” requires the exercise of special diligence in any instance in which the borrower is not personally <?page num="43"?>known to the bank or to the officer who processes the loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.106/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The interpretation set forth in <ref href="/us/cfr/t12/s221.101">§ 221.101</ref> contains an example of the application of the “good faith” test. There it was stated that “if the loan is to be made to a customer who is not a broker or dealer in securities, but such a broker or dealer is to deliver margin stock to secure the loan or is to receive the proceeds of the loan, the bank would be put on notice that the loan would probably be subject to this part. It could not accept in good faith a statement to the contrary without obtaining a reliable and satisfactory explanation of the situation”.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.106/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Moreover, and as also stated by the interpretation contained in <ref href="/us/cfr/t12/s221.101">§ 221.101</ref>, the purpose of a loan, of course, “cannot be altered by some temporary application of the proceeds. For example, if a borrower is to purchase Government securities with the proceeds of a loan, but is soon thereafter to sell such securities and replace them with margin stock, the loan is clearly for the purpose of purchasing or carrying margin stock”. The purpose of a loan therefore, should not be determined upon a narrow analysis of the immediate use to which the proceeds of the loan are put. Accordingly, a bank acting in “good faith” should carefully scrutinize cases in which there is any indication that the borrower is concealing the true purpose of the loan, and there would be reason for special vigilance if margin stock is substituted for bonds or nonmargin stock soon after the loan is made, or on more than one occasion.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.106/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> Similarly, the fact that a loan made on the borrower's signature only, for example, becomes secured by margin stock shortly after the disbursement of the loan usually would afford reasonable grounds for questioning the bank's apparent reliance upon merely a statement that the purpose of the loan was not to purchase or carry margin stock.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.106/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> The examples in this section are, of course, by no means exhaustive. They simply illustrate the fundamental fact that no statement accepted by a lender is of any value for the purposes of this part unless the lender accepting the statement is “acting in good faith”, and that “good faith” requires, among other things, reasonable diligence to learn the truth.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.107">
<num value="221.107" style="-uslm-sgm:SECTNO">§ 221.107</num>
<heading style="-uslm-sgm:SUBJECT">Arranging loan to purchase open-end investment company shares.</heading>
<content style="-uslm-sgm:P">For text of the interpretation on Arranging loan to purchase open-end investment company shares, see <ref href="/us/cfr/t12/s220.112">12 CFR 220.112</ref>.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.108">
<num value="221.108" style="-uslm-sgm:SECTNO">§ 221.108</num>
<heading style="-uslm-sgm:SUBJECT">Effect of registration of stock subsequent to making of loan.</heading>
<paragraph identifier="/us/cfr/t12/s221.108/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board recently was asked whether a loan by a bank to enable the borrower to purchase a newly issued nonmargin stock during the initial over-the-counter trading period prior to the stock becoming registered (listed) on a national securities exchange would be subject to this part. The Board replied that, until such stock qualifies as margin stock, this would not be applicable to such a loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.108/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The Board has now been asked what the position of the lending bank would be under this part if, after the date on which the stock should become registered, such bank continued to hold a loan of the kind just described. It is assumed that the loan was in an amount greater than the maximum loan value for the collateral specified in this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.108/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> If the stock should become registered, the loan would then be for the purpose of purchasing or carrying a margin stock, and, if secured directly or indirectly by any margin stock, would be subject to this part as from the date the stock was registered. Under this part, this does not mean that the bank would have to obtain reduction of the loan in order to reduce it to an amount no more than the specified maximum loan value. It does mean, however, that so long as the loan balance exceeded the specified maximum loan value, the bank could not permit any withdrawals or substitutions of collateral that would increase such excess; nor could the bank increase the amount of the loan balance unless there was provided additional collateral having a maximum loan value at least equal to the amount of the increase. In other words, as from the date the stock should become a <?page num="44"?>margin stock, the loan would be subject to this part in exactly the same way, for example, as a loan subject to this part that became under-margined because of a decline in the current market value of the loan collateral or because of a decrease by the Board in the maximum loan value of the loan collateral.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.109">
<num value="221.109" style="-uslm-sgm:SECTNO">§ 221.109</num>
<heading style="-uslm-sgm:SUBJECT">Loan to open-end investment company.</heading>
<content style="-uslm-sgm:P">In response to a question regarding a possible loan by a bank to an open-end investment company that customarily purchases stocks registered on a national securities exchange, the Board stated that in view of the general nature and operations of such a company, any loan by a bank to such a company should be presumed to be subject to this part as a loan for the purpose of purchasing or carrying margin stock. This would not be altered by the fact that the open-end company had used, or proposed to use, its own funds or proceeds of the loan to redeem some of its own shares, since mere application of the proceeds of a loan to some other use cannot prevent the ultimate purpose of a loan from being to purchase or carry registered stocks.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.110">
<num value="221.110" style="-uslm-sgm:SECTNO">§ 221.110</num>
<heading style="-uslm-sgm:SUBJECT">Questions arising under this part.</heading>
<paragraph identifier="/us/cfr/t12/s221.110/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> This part governs “any purpose credit” extended by a lender “secured directly or indirectly by margin stock” and defines “purpose credit” as “any credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock, “ with certain exceptions, and provides that the maximum loan value of such margin stock shall be a fixed percentage “of its current market value.”</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.110/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> The Board of Governors has had occasion to consider the application of the language in paragraph (a) of this section to the two following questions:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.110/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Loan secured by stock.</heading>
<chapeau> First, is a loan to purchase or carry margin stock subject to this part where made in unsecured form, if margin stock is subsequently deposited as security with the lender, and surrounding circumstances indicate that the parties originally contemplated that the loan should be so secured? The Board answered that in a case of this kind, the loan would be subject to this part, for the following reasons:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.110/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The Board has long held, in the closely related purpose area, that the original purpose of a loan should not be determined upon a narrow analysis of the technical circumstances under which a loan is made. Instead, the fundamental purpose of the loan is considered to be controlling. Indeed, “the fact that a loan made on the borrower's signature only, for example, becomes secured by registered stock shortly after the disbursement of the loan” affords reasonable grounds for questioning whether the bank was entitled to rely upon the borrower's statement as to the purpose of the loan. 1953 Fed. Res. Bull. 951 (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See,</inline> <ref href="/us/cfr/t12/s221.106">§ 221.106</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.110/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Where security is involved, standards of interpretation should be equally searching. If, for example, the original agreement between borrower and lender contemplated that the loan should be secured by margin stock, and such stock is in fact delivered to the bank when available, the transaction must be regarded as fundamentally a secured loan. This view is strengthened by the fact that this part applies to a loan “secured directly or indirectly by margin stock.”</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.110/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Loan to acquire controlling shares.</heading>
<paragraph identifier="/us/cfr/t12/s221.110/b/2/i" class="inline">
<num value="i"> (i)</num>
<content> The second question is whether this part governs a margin stock-secured loan made for the business purpose of purchasing a controlling interest in a corporation, or whether such a loan would be exempt on the ground that this part is directed solely toward purchases of stock for speculative or investment purposes. The Board answered that a margin stock-secured loan for the purpose of purchasing or carrying margin stock is subject to this part, regardless of the reason for which the purchase is made.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.110/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The answer is required, in the Board's view, since the language of this part is explicitly inclusive, covering “any purpose credit, secured directly or indirectly by margin stock.” Moreover, the withdrawal in 1945 of the original section 2(e) of this part, which exempted “any loan for the purpose of purchasing a stock from or through a person who is not a member of a national securities exchange . . .” plainly <?page num="45"?>implies that transactions of the sort described are now subject to the general prohibition of <ref href="/us/cfr/t12/s221.3/a">§ 221.3(a)</ref>.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.111">
<num value="221.111" style="-uslm-sgm:SECTNO">§ 221.111</num>
<heading style="-uslm-sgm:SUBJECT">Contribution to joint venture as extension of credit when the contribution is disproportionate to the contributor's share in the venture's profits or losses.</heading>
<paragraph identifier="/us/cfr/t12/s221.111/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board considered the question whether a joint venture, structured so that the amount of capital contribution to the venture would be disproportionate to the right of participation in profits or losses, constitutes an “extension of credit” for the purpose of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.111/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> An individual and a corporation plan to establish a joint venture to engage in the business of buying and selling securities, including margin stock. The individual would contribute 20 percent of the capital and receive 80 percent of the profits or losses; the corporate share would be the reverse. In computing profits or losses, each participant would first receive interest at the rate of 8 percent on his respective capital contribution. Although purchases and sales would be mutually agreed upon, the corporation could liquidate the joint portfolio if the individual's share of the losses equaled or exceeded his 20 percent contribution to the venture. The corporation would hold the securities, and upon termination of the venture, the assets would first be applied to repayment of capital contributions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.111/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> In general, the relationship of joint venture is created when two or more persons combine their money, property, or time in the conduct of some particular line of trade or some particular business and agree to share jointly, or in proportion to capital contributed, the profits and losses of the undertaking.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.111/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The incidents of the joint venture described in paragraph (b) of this section, however, closely parallel those of an extension of margin credit, with the corporation as lender and the individual as borrower. The corporation supplies 80 percent of the purchase price of securities in exchange for a net return of 8 percent of the amount advanced plus 20 percent of any gain. Like a lender of securities credit, the corporation is insulated against loss by retaining the right to liquidate the collateral before the securities decline in price below the amount of its contribution. Conversely, the individual—like a customer who borrows to purchase securities—puts up only 20 percent of their cost, is entitled to the principal portion of any appreciation in their value, bears the principal risk of loss should that value decline, and does not stand to gain or lose except through a change in value of the securities purchased.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.111/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<chapeau> The Board is of the opinion that where the right of an individual to share in profits and losses of such a joint venture is disproportionate to his contribution to the venture:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.111/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The joint venture involves an extension of credit by the corporation to the individual;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.111/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The extension of credit is to purchase or carry margin stock, and is collateralized by such margin stock; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.111/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If the corporation is not a broker or dealer subject to Regulation T (<ref href="/us/cfr/t12/p220">12 CFR part 220</ref>), the credit is of the kind described by <ref href="/us/cfr/t12/s221.3/a">§ 221.3(a)</ref>.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.112">
<num value="221.112" style="-uslm-sgm:SECTNO">§ 221.112</num>
<heading style="-uslm-sgm:SUBJECT">Loans by bank in capacity as trustee.</heading>
<paragraph identifier="/us/cfr/t12/s221.112/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board's advice has been requested whether a bank's activities in connection with the administration of an employees' savings plan are subject to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.112/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Under the plan, any regular, full-time employee may participate by authorizing the sponsoring company to deduct a percentage of his salary and wages and transmit the same to the bank as trustee. Voluntary contributions by the company are allocated among the participants. A participant may direct that funds held for him be invested by the trustee in insurance, annuity contracts, Series E Bonds, or in one or more of three specified securities which are listed on a stock exchange. Loans to purchase the stocks may be made to participants from funds of the trust, subject to approval of the administrative committee, which is composed of five participants, and of the trustee. The bank's right to approve is said to be restricted to the <?page num="46"?>mechanics of making the loan, the purpose being to avoid cumbersome procedures.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.112/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Loans are secured by the credit balance of the borrowing participants in the savings fund, including stock, but excluding (in practice) insurance and annuity contracts and government securities. Additional stocks may be, but, in practice, have not been pledged as collateral for loans. Loans are not made, under the plan, from bank funds, and participants do not borrow from the bank upon assignment of the participants' accounts in the trust.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.112/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> It is urged that loans under the plan are not subject to this part because a loan should not be considered as having been made by a bank where the bank acts solely in its capacity of trustee, without exercise of any discretion.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.112/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The Board reviewed this question upon at least one other occasion, and full consideration has again been given to the matter. After considering the arguments on both sides, the Board has reaffirmed its earlier view that, in conformity with an interpretation not published in the Code of Federal Regulations which was published at page 874 of the 1946 Federal Reserve Bulletin (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s261.10/f">12 CFR 261.10(f)</ref> for information on how to obtain Board publications.), this part applies to the activities of a bank when it is acting in its capacity as trustee. Although the bank in that case had at best a limited discretion with respect to loans made by it in its capacity as trustee, the Board concluded that this fact did not affect the application of the regulation to such loans.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.113">
<num value="221.113" style="-uslm-sgm:SECTNO">§ 221.113</num>
<heading style="-uslm-sgm:SUBJECT">Loan which is secured indirectly by stock.</heading>
<paragraph identifier="/us/cfr/t12/s221.113/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> A question has been presented to the Board as to whether a loan by a bank to a mutual investment fund is “secured * * * indirectly by margin stock” within the meaning of § 221.(3)(a), so that the loan should be treated as subject to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> Briefly, the facts are as follows. Fund X, an open-end investment company, entered into a loan agreement with Bank Y, which was (and still is) custodian of the securities which comprise the portfolio of Fund X. The agreement includes the following terms, which are material to the question before the Board:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.113/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Fund X agrees to have an “asset coverage” (as defined in the agreements) of 400 percent of all its borrowings, including the proposed borrowing, at the time when it takes down any part of the loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Fund X agrees to maintain an “asset coverage” of at least 300 percent of its borrowings at all times.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Fund X agrees not to amend its custody agreement with Bank Y, or to substitute another custodian without Bank Y's consent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Fund X agrees not to mortgage, pledge, or otherwise encumber any of its assets elsewhere than with Bank Y.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> In <ref href="/us/cfr/t12/s221.109">§ 221.109</ref> the Board stated that because of “the general nature and operations of such a company”, any “loan by a bank to an open-end investment company that customarily purchases margin stock * * * should be presumed to be subject to this part as a loan for the purpose of purchasing or carrying margin stock” (purpose credit). The Board's interpretation went on to say that: “this would not be altered by the fact that the open-end company had used, or proposed to use, its own funds or proceeds of the loan to redeem some of its own shares * * *.”</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Accordingly, the loan by Bank Y to Fund X was and is a “purpose credit”. However, a loan by a bank is not subject to this part unless: it is a purpose credit; and it is “secured directly or indirectly by margin stock”. In the present case, the loan is not “secured directly” by stock in the ordinary sense, since the portfolio of Fund X is not pledged to secure the credit from Bank Y. But the word “indirectly” must signify some form of security arrangement other than the “direct” security which arises from the ordinary “transaction that gives recourse against a particular chattel or land or against a third party on an obligation” described in the American Law Institute's Restatement of the Law of Security, page 1. Otherwise the word “indirectly” would be superfluous, and a regulation, like a statute, must be construed if possible to give meaning to every word.
<?page num="47"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The Board has indicated its view that any arrangement under which margin stock is more readily available as security to the lending bank than to other creditors of the borrower may amount to indirect security within the meaning of this part. In an interpretation published at <ref href="/us/cfr/t12/s221.110">§ 221.110</ref> it stated: “The Board has long held, in the * * * purpose area, that the original purpose of a loan should not be determined upon a narrow analysis of the technical circumstances under which a loan is made * * * . Where security is involved, standards of interpretation should be equally searching.” In its pamphlet issued for the benefit and guidance of banks and bank examiners, entitled “Questions and Answers Illustrating Application of Regulation U”, the Board said: “In determining whether a loan is “indirectly” secured, it should be borne in mind that the reason the Board has thus far refrained * * * from regulating loans not secured by stock has been to simplify operations under the regulation. This objective of simplifying operations does not apply to loans in which arrangements are made to retain the substance of stock collateral while sacrificing only the form”.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<chapeau> A wide variety of arrangements as to collateral can be made between bank and borrower which will serve, to some extent, to protect the interest of the bank in seeing that the loan is repaid, without giving the bank a conventional direct “security” interest in the collateral. Among such arrangements which have come to the Board's attention are the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.113/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The borrower may deposit margin stock in the custody of the bank. An arrangement of this kind may not, it is true, place the bank in the position of a secured creditor in case of bankruptcy, or even of conflicting claims, but it is likely effectively to strengthen the bank's position. The definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">indirectly secured</inline> in <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>, which provides that a loan is not indirectly secured if the lender “holds the margin stock only in the capacity of custodian, depositary or trustee, or under similar circumstances, and, in good faith has not relied upon the margin stock as collateral,” does not exempt a deposit of this kind from the impact of the regulation unless it is clear that the bank “has not relied” upon the margin stock deposited with it.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A borrower may not deposit his margin stock with the bank, but agree not to pledge or encumber his assets elsewhere while the loan is outstanding. Such an agreement may be difficult to police, yet it serves to some extent to protect the interest of the bank if only because the future credit standing and business reputation of the borrower will depend upon his keeping his word. If the assets covered by such an agreement include margin stock, then, the credit is “indirectly secured” by the margin stock within the meaning of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The borrower may deposit margin stock with a third party who agrees to hold the stock until the loan has been paid off. Here, even though the parties may purport to provide that the stock is not “security” for the loan (for example, by agreeing that the stock may not be sold and the proceeds applied to the debt if the borrower fails to pay), the mere fact that the stock is out of the borrower's control for the duration of the loan serves to some extent to protect the bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> The three instances described in paragraph (f) of this section are merely illustrative. Other methods, or combinations of methods, may serve a similar purpose. The conclusion that any given arrangement makes a credit “indirectly secured” by margin stock may, but need not, be reinforced by facts such as that the stock in question was purchased with proceeds of the loan, that the lender suggests or insists upon the arrangement, or that the loan would probably be subject to criticism by supervisory authorities were it not for the protective arrangement.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.113/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> Accordingly, the Board concludes that the loan by Bank Y to Fund X is indirectly secured by the portfolio of the fund and must be treated by the bank as a regulated loan.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.114">
<num value="221.114" style="-uslm-sgm:SECTNO">§ 221.114</num>
<heading style="-uslm-sgm:SUBJECT">Bank loans to purchase stock of American Telephone and Telegraph Company under Employees' Stock Plan.</heading>
<paragraph identifier="/us/cfr/t12/s221.114/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors interpreted this part in connection with proposed loans by a bank to persons who are purchasing shares of stock of <?page num="48"?>American Telephone and Telegraph Company pursuant to its Employees' Stock Plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.114/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> According to the current offering under the Plan, an employee of the AT&amp;T system may purchase shares through regular deductions from his pay over a period of 24 months. At the end of that period, a certificate for the appropriate number of shares will be issued to the participating employee by AT&amp;T. Each employee is entitled to purchase, as a maximum, shares that will cost him approximately three-fourths of his annual base pay. Since the program extends over two years, it follows that the payroll deductions for this purpose may be in the neighborhood of 38 percent of base pay and a larger percentage of “take-home pay.” Deductions of this magnitude are in excess of the saving rate of many employees.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.114/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Certain AT&amp;T employees, who wish to take advantage of the current offering under the Plan, are the owners of shares of AT&amp;T stock that they purchased under previous offerings. A bank proposed to receive such stock as collateral for a “living expenses” loan that will be advanced to the employee in monthly installments over the 24-month period, each installment being in the amount of the employee's monthly payroll deduction under the Plan. The aggregate amount of the advances over the 24-month period would be substantially greater than the maximum loan value of the collateral as prescribed in <ref href="/us/cfr/t12/s221.7">§ 221.7</ref> (the Supplement).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.114/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In the opinion of the Board of Governors, a loan of the kind described would violate this part if it exceeded the maximum loan value of the collateral. The regulation applies to any margin stock-secured loan for the purpose of purchasing or carrying margin stock (<ref href="/us/cfr/t12/s221.3/a">§ 221.3(a)</ref>). Although the proposed loan would purport to be for living expenses, it seems quite clear, in view of the relationship of the loan to the Employees' Stock Plan, that its actual purpose would be to enable the borrower to purchase AT&amp;T stock, which is margin stock. At the end of the 24-month period the borrower would acquire a certain number of shares of that stock and would be indebted to the lending bank in an amount approximately equal to the amount he would pay for such shares. In these circumstances, the loan by the bank must be regarded as a loan “for the purpose of purchasing” the stock, and therefore it is subject to the limitations prescribed by this part. This conclusion follows from the provisions of this part, and it may also be observed that a contrary conclusion could largely defeat the basic purpose of the margin regulations.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.114/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Accordingly, the Board concluded that a loan of the kind described may not be made in an amount exceeding the maximum loan value of the collateral, as prescribed by the current <ref href="/us/cfr/t12/s221.7">§ 221.7</ref> (the Supplement).
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.115">
<num value="221.115" style="-uslm-sgm:SECTNO">§ 221.115</num>
<heading style="-uslm-sgm:SUBJECT">Accepting a purpose statement through the mail without benefit of face-to-face interview.</heading>
<paragraph identifier="/us/cfr/t12/s221.115/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has been asked whether the acceptance of a purpose statement submitted through the mail by a lender subject to the provisions of this part will meet the good faith requirement of <ref href="/us/cfr/t12/s221.3/c">§ 221.3(c)</ref>. Section 221.3(c) states that in connection with any credit secured by collateral which includes any margin stock, a nonbank lender must obtain a purpose statement executed by the borrower and accepted by the lender in good faith. Such acceptance requires that the lender be alert to the circumstances surrounding the credit and if further information suggests inquiry, he must investigate and be satisfied that the statement is truthful.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.115/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The lender is a subsidiary of a holding company which also has another subsidiary which serves as underwriter and investment advisor to various mutual funds. The sole business of the lender will be to make “non-purpose” consumer loans to shareholders of the mutual funds, such loans to be collateralized by the fund shares. Most mutual funds shares are margin stock for purposes of this part. Solicitation and acceptance of these consumer loans will be done principally through the mail and the lender wishes to obtain the required purpose statement by mail rather than by a face-to-face interview. Personal interviews are not practicable for the lender because shareholders of the funds are scattered throughout the country. In order to <?page num="49"?>provide the same safeguards inherent in face-to-face interviews, the lender has developed certain procedures designed to satisfy the good faith acceptance requirement of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.115/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The purpose statement will be supplemented with several additional questions relevant to the prospective borrower's investment activities such as purchases of any security within the last 6 months, dollar amount, and obligations to purchase or pay for previous purchases; present plans to purchase securities in the near future, participations in securities purchase plans, list of unpaid debts, and present income level. Some questions have been modified to facilitate understanding but no questions have been deleted. If additional inquiry is indicated by the answers on the form, a loan officer of the lender will interview the borrower by telephone to make sure the loan is “non-purpose”. Whenever the loan exceeds the “maximum loan value” of the collateral for a regulated loan, a telephone interview will be done as a matter of course.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.115/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> One of the stated purposes of Regulation X (<ref href="/us/cfr/t12/p224">12 CFR part 224</ref>) was to prevent the infusion of unregulated credit into the securities markets by borrowers falsely certifying the purpose of a loan. The Board is of the view that the existence of Regulation X (<ref href="/us/cfr/t12/p224">12 CFR part 224</ref>), which makes the borrower liable for willful violations of the margin regulations, will allow a lender subject to this part to meet the good faith acceptance requirement of <ref href="/us/cfr/t12/s221.3/c">§ 221.3(c)</ref> without a face-to-face interview if the lender adopts a program, such as the one described in paragraph (c) of this section, which requires additional detailed information from the borrower and proper procedures are instituted to verify the truth of the information received. Lenders intending to embark on a similar program should discuss proposed plans with their district Federal Reserve Bank. Lenders may have existing or future loans with the prospective customers which could complicate the efforts to determine the true purpose of the loan.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.116">
<num value="221.116" style="-uslm-sgm:SECTNO">§ 221.116</num>
<heading style="-uslm-sgm:SUBJECT">Bank loans to replenish working capital used to purchase mutual fund shares.</heading>
<paragraph identifier="/us/cfr/t12/s221.116/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> In a situation considered by the Board of Governors, a business concern (X) proposed to purchase mutual fund shares, from time to time, with proceeds from its accounts receivable, then pledge the shares with a bank in order to secure working capital. The bank was prepared to lend amounts equal to 70 percent of the current value of the shares as they were purchased by X. If the loans were subject to this part, only 50 percent of the current market value of the shares could be lent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.116/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The immediate purpose of the loans would be to replenish X's working capital. However, as time went on, X would be acquiring mutual fund shares at a cost that would exceed the net earnings it would normally have accumulated, and would become indebted to the lending bank in an amount approximately 70 percent of the prices of said shares.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.116/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The Board held that the loans were for the purpose of purchasing the shares, and therefore subject to the limitations prescribed by this part. As pointed out in <ref href="/us/cfr/t12/s221.114">§ 221.114</ref> with respect to a similar program for putting a high proportion of cash income into stock, the borrowing against the margin stock to meet needs for which the cash would otherwise have been required, a contrary conclusion could largely defeat the basic purpose of the margin regulations.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.116/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Also considered was an alternative proposal under which X would deposit proceeds from accounts receivable in a time account for 1 year, before using those funds to purchase mutual fund shares. The Board held that this procedure would not change the situation in any significant way. Once the arrangement was established, the proceeds would be flowing into the time account at the same time that similar amounts were released to purchase the shares, and over any extended period of time the result would be the same. Accordingly, the Board concluded that bank loans made under the alternative proposal would similarly be subject to this part.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.117"><?page num="50"?>
<num value="221.117" style="-uslm-sgm:SECTNO">§ 221.117</num>
<heading style="-uslm-sgm:SUBJECT">When bank in “good faith” has not relied on stock as collateral.</heading>
<paragraph identifier="/us/cfr/t12/s221.117/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has received questions regarding the circumstances in which an extension or maintenance of credit will not be deemed to be “indirectly secured” by stock as indicated by the phrase, “if the lender, in good faith, has not relied upon the margin stock as collateral,” contained in paragraph (2)(iv) of the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">indirectly secured</inline> in <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.117/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> In response, the Board noted that in amending this portion of the regulation in 1968 it was indicated that one of the purposes of the change was to make clear that the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">indirectly secured</inline> does not apply to certain routine negative covenants in loan agreements. Also, while the question of whether or not a bank has relied upon particular stock as collateral is necessarily a question of fact to be determined in each case in the light of all relevant circumstances, some indication that the bank had not relied upon stock as collateral would seem to be afforded by such circumstances as the fact that:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.117/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The bank had obtained a reasonably current financial statement of the borrower and this statement could reasonably support the loan; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.117/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The loan was not payable on demand or because of fluctuations in market value of the stock, but instead was payable on one or more fixed maturities which were typical of maturities applied by the bank to loans otherwise similar except for not involving any possible question of stock collateral.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.118">
<num value="221.118" style="-uslm-sgm:SECTNO">§ 221.118</num>
<heading style="-uslm-sgm:SUBJECT">Bank arranging for extension of credit by corporation.</heading>
<paragraph identifier="/us/cfr/t12/s221.118/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<chapeau> The Board considered the questions whether:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.118/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The guaranty by a corporation of an “unsecured” bank loan to exercise an option to purchase stock of the corporation is an “extension of credit” for the purpose of this part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Such a guaranty is given “in the ordinary course of business” of the corporation, as defined in <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The bank involved took part in arranging for such credit on better terms than it could extend under the provisions of this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The Board understood that any officer or employee included under the corporation's stock option plan who wished to exercise his option could obtain a loan for the purchase price of the stock by executing an unsecured note to the bank. The corporation would issue to the bank a guaranty of the loan and hold the purchased shares as collateral to secure it against loss on the guaranty. Stock of the corporation is registered on a national securities exchange and therefore qualifies as “margin stock” under this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> A nonbank lender is subject to the registration and other requirements of this part if, in the ordinary course of his business, he extends credit on collateral that includes any margin stock in the amount of $200,000 or more in any calendar quarter, or has such credit outstanding in any calendar quarter in the amount of $500,000 or more. The Board understood that the corporation in question had sufficient guaranties outstanding during the applicable calendar quarter to meet the dollar thresholds for registration.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In the Board's judgment a person who guarantees a loan, and thereby becomes liable for the amount of the loan in the event the borrower should default, is lending his credit to the borrower. In the circumstances described, such a lending of credit must be considered an “extension of credit” under this part in order to prevent circumvention of the regulation's limitation on the amount of credit that can be extended on the security of margin stock.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Under <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in the ordinary course of business means</inline> “occurring or reasonably expected to occur in carrying out or furthering any business purpose. * * *” In general, stock option plans are designed to provide a company's employees with a proprietary interest in the company in the form of ownership of the company's stock. Such plans increase the company's ability to attract and retain able personnel and, accordingly, promote the interest of the company and its stockholders, while at the same time providing the company's employees with additional incentive to work toward <?page num="51"?>the company's future success. An arrangement whereby participating employees may finance the exercise of their options through an unsecured bank loan guaranteed by the company, thereby facilitating the employees' acquisition of company stock, is likewise designed to promote the company's interest and is, therefore, in furtherance of a business purpose.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> For the reasons indicated, the Board concluded that under the circumstances described a guaranty by the corporation constitutes credit extended in the ordinary course of business under this part, that the corporation is required to register pursuant to <ref href="/us/cfr/t12/s221.3/b">§ 221.3(b)</ref>, and that such guaranties may not be given in excess of the maximum loan value of the collateral pledged to secure the guaranty.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.118/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> Section 221.3(a)(3) provides that “no lender may arrange for the extension or maintenance of any purpose credit, except upon the same terms and conditions on which the lender itself may extend or maintain purpose credit under this part”. Since the Board concluded that the giving of a guaranty by the corporation to secure the loan described above constitutes an extension of credit, and since the use of a guaranty in the manner described could not be effectuated without the concurrence of the bank involved, the Board further concluded that the bank took part in “arranging” for the extension of credit in excess of the maximum loan value of the margin stock pledged to secure the guaranties.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.119">
<num value="221.119" style="-uslm-sgm:SECTNO">§ 221.119</num>
<heading style="-uslm-sgm:SUBJECT">Applicability of plan-lender provisions to financing of stock options and stock purchase rights qualified or restricted under Internal Revenue Code.</heading>
<paragraph identifier="/us/cfr/t12/s221.119/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has been asked whether the plan-lender provisions of <ref href="/us/cfr/t12/s221.4/a">§ 221.4(a)</ref> and (b) were intended to apply to the financing of stock options restricted or qualified under the Internal Revenue Code where such options or the option plan do not provide for such financing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.119/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It is the Board's experience that in some nonqualified plans, particularly stock purchase plans, the credit arrangement is distinct from the plan. So long as the credit extended, and particularly, the character of the plan-lender, conforms with the requirements of the regulation, the fact that option and credit are provided for in separate documents is immaterial. It should be emphasized that the Board does not express any view on the preferability of qualified as opposed to nonqualified options; its role is merely to prevent excessive credit in this area.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.119/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Section 221.4(a) provides that a plan-lender may include a wholly-owned subsidiary of the issuer of the collateral (taking as a whole, corporate groups including subsidiaries and affiliates). This clarifies the Board's intent that, to qualify for special treatment under that section, the lender must stand in a special employer-employee relationship with the borrower, and a special relationship of issuer with regard to the collateral. The fact that the Board, for convenience and practical reasons, permitted the employing corporation to act through a subsidiary or other entity should not be interpreted to mean the Board intended the lender to be other than an entity whose overriding interests were coextensive with the issuer. An independent corporation, with independent interests was never intended, regardless of form, to be at the base of exempt stock-plan lending.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.120">
<num value="221.120" style="-uslm-sgm:SECTNO">§ 221.120</num>
<heading style="-uslm-sgm:SUBJECT">Allocation of stock collateral to purpose and nonpurpose credits to same customer.</heading>
<paragraph identifier="/us/cfr/t12/s221.120/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> A bank proposes to extend two credits (Credits A and B) to its customer. Although the two credits are proposed to be extended at the same time, each would be evidenced by a separate agreement. Credit A would be extended for the purpose of providing the customer with working capital (nonpurpose credit), collateralized by margin stock. Credit B would be extended for the purpose of purchasing or carrying margin stock (purpose credit), without collateral or on collateral other than stock.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.120/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> This part allows a bank to extend purpose and nonpurpose credits simultaneously or successively to the same customer. This rule is expressed in <ref href="/us/cfr/t12/s221.3/d/4">§ 221.3(d)(4)</ref> which provides in substance that for any nonpurpose credit to the same customer, the lender shall in good faith require as much collateral <?page num="52"?>not already identified to the customer's purpose credit as the lender would require if it held neither the purpose loan nor the identified collateral. This rule in <ref href="/us/cfr/t12/s221.3/d/4">§ 221.3(d)(4)</ref> also takes into account that the lender would not necessarily be required to hold collateral for the nonpurpose credit if, consistent with good faith banking practices, it would normally make this kind of nonpurpose loan without collateral.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.120/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The Board views <ref href="/us/cfr/t12/s221.3/d/4">§ 221.3(d)(4)</ref>, when read in conjunction with <ref href="/us/cfr/t12/s221.3/c">§ 221.3(c)</ref> and (f), as requiring that whenever a lender extends two credits to the same customer, one a purpose credit and the other nonpurpose, any margin stock collateral must first be identified with and attributed to the purpose loan by taking into account the maximum loan value of such collateral as prescribed in <ref href="/us/cfr/t12/s221.7">§ 221.7</ref> (the Supplement).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.120/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The Board is further of the opinion that under the foregoing circumstances Credit B would be indirectly secured by stock, despite the fact that there would be separate loan agreements for both credits. This conclusion flows from the circumstance that the lender would hold in its possession stock collateral to which it would have access with respect to Credit B, despite any ostensible allocation of such collateral to Credit A.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.121">
<num value="221.121" style="-uslm-sgm:SECTNO">§ 221.121</num>
<heading style="-uslm-sgm:SUBJECT">Extension of credit in certain stock option and stock purchase plans.</heading>
<content style="-uslm-sgm:P">Questions have been raised as to whether certain stock option and stock purchase plans involve extensions of credit subject to this part when the participant is free to cancel his participation at any time prior to full payment, but in the event of cancellation the participant remains liable for damages. It thus appears that the participant has the opportunity to gain and bears the risk of loss from the time the transaction is executed and payment is deferred. In some cases brought to the Board's attention damages are related to the market price of the stock, but in others, there may be no such relationship. In either of these circumstances, it is the Board's view that such plans involve extensions of credit. Accordingly, where the security being purchased is a margin security and the credit is secured, directly or indirectly, by any margin security, the creditor must register and the credit must conform with either the regular margin requirements of <ref href="/us/cfr/t12/s221.3/a">§ 221.3(a)</ref> or the special “plan-lender” provisions set forth in <ref href="/us/cfr/t12/s221.4">§ 221.4</ref>, whichever is applicable. This assumes, of course, that the amount of credit extended is such that the creditor is subject to the registration requirements of <ref href="/us/cfr/t12/s221.3/b">§ 221.3(b)</ref>.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.122">
<num value="221.122" style="-uslm-sgm:SECTNO">§ 221.122</num>
<heading style="-uslm-sgm:SUBJECT">Applicability of margin requirements to credit in connection with Insurance Premium Funding Programs.</heading>
<paragraph identifier="/us/cfr/t12/s221.122/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has been asked numerous questions regarding purpose credit in connection with insurance premium funding programs. The inquiries are included in a set of guidelines in the format of questions and answers. (The guidelines are available pursuant to the Board's Rules Regarding Availability of Information, <ref href="/us/cfr/t12/p261">12 CFR part 261</ref>.) A glossary of terms customarily used in connection with insurance premium funding credit activities is included in the guidelines. Under a typical insurance premium funding program, a borrower acquires mutual fund shares for cash, or takes fund shares which he already owns, and then uses the loan value (currently 50 percent as set by the Board) to buy insurance. Usually, a funding company (the issuer) will sell both the fund shares and the insurance through either independent broker/dealers or subsidiaries or affiliates of the issuer. A typical plan may run for 10 or 15 years with annual insurance premiums due. To illustrate, assuming an annual insurance premium of $300, the participant is required to put up mutual fund shares equivalent to 250 percent of the premium or $600 ($600 × 50 percent loan value equals $300 the amount of the insurance premium which is also the amount of the credit extended).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.122/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> The guidelines referenced in paragraph (a) of this section also:</chapeau>
<paragraph identifier="/us/cfr/t12/s221.122/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Clarify an earlier 1969 Board interpretation to show that the public offering price of mutual fund shares (which includes the front load, or sales commission) may be used as a measure of their current market value when the shares serve as collateral on a purpose <?page num="53"?>credit throughout the day of the purchase of the fund shares; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.122/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Relax a 1965 Board position in connection with accepting purpose statements by mail.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.122/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> It is the Board's view that when it is clearly established that a purpose statement supports a purpose credit then such statement executed by the borrower may be accepted by mail, provided it is received and also executed by the lender before the credit is extended.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.123">
<num value="221.123" style="-uslm-sgm:SECTNO">§ 221.123</num>
<heading style="-uslm-sgm:SUBJECT">Combined credit for exercising employee stock options and paying income taxes incurred as a result of such exercise.</heading>
<paragraph identifier="/us/cfr/t12/s221.123/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Section 221.4(a) and (b), which provides special treatment for credit extended under employee stock option plans, was designed to encourage their use in recognition of their value in giving an employee a proprietary interest in the business. Taking a position that might discourage the exercise of options because of tax complications would conflict with the purpose of <ref href="/us/cfr/t12/s221.4/a">§ 221.4(a)</ref> and (b).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.123/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Accordingly, the Board has concluded that the combined loans for the exercise of the option and the payment of the taxes in connection therewith under plans complying with <ref href="/us/cfr/t12/s221.4/a/2">§ 221.4(a)(2)</ref> may be regarded as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">purpose credit</inline> within the meaning of <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.124">
<num value="221.124" style="-uslm-sgm:SECTNO">§ 221.124</num>
<heading style="-uslm-sgm:SUBJECT">Purchase of debt securities to finance corporate takeovers.</heading>
<paragraph identifier="/us/cfr/t12/s221.124/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Petitions have been filed with the Board raising questions as to whether the margin requirements in this part apply to two types of corporate acquisitions in which debt securities are issued to finance the acquisition of margin stock of a target company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.124/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> In the first situation, the acquiring company, Company A, controls a shell corporation that would make a tender offer for the stock of Company B, which is margin stock (as defined in <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>). The shell corporation has virtually no operations, has no significant business function other than to acquire and hold the stock of Company B, and has substantially no assets other than the margin stock to be acquired. To finance the tender offer, the shell corporation would issue debt securities which, by their terms, would be unsecured. If the tender offer is successful, the shell corporation would seek to merge with Company B. However, the tender offer seeks to acquire fewer shares of Company B than is necessary under state law to effect a short form merger with Company B, which could be consummated without the approval of shareholders or the board of directors of Company B.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.124/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The purchase of the debt securities issued by the shell corporation to finance the acquisition clearly involves purpose credit (as defined in <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>). In addition, such debt securities would be purchased only by sophisticated investors in very large minimum denominations, so that the purchasers may be lenders for purposes of this part. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s221.3/b">§ 221.3(b)</ref>. Since the debt securities contain no direct security agreement involving the margin stock, applicability of the lending restrictions of this part turns on whether the arrangement constitutes an extension of credit that is secured indirectly by margin stock.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.124/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> As the Board has recognized, indirect security can encompass a wide variety of arrangements between lenders and borrowers with respect to margin stock collateral that serve to protect the lenders' interest in assuring that a credit is repaid where the lenders do not have a conventional direct security interest in the collateral. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s221.124">§ 221.124</ref>. However, credit is not “indirectly secured” by margin stock if the lender in good faith has not relied on the margin stock as collateral extending or maintaining credit. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s221.2">§ 221.2</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.124/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The Board is of the view that, in the situation described in paragraph (b) of this section, the debt securities would be presumed to be indirectly secured by the margin stock to be acquired by the shell acquisition vehicle. The staff has previously expressed the view that nominally unsecured credit extended to an investment company, a substantial portion of whose assets consist of margin stock, is indirectly secured by the margin stock. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Federal Reserve Regulatory Service 5–917.12. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s261.10/f">12 CFR 261.10(f)</ref> for information on how to obtain Board publications.) This opinion notes that the investment company has substantially no assets other than margin stock to <?page num="54"?>support indebtedness and thus credit could not be extended to such a company in good faith without reliance on the margin stock as collateral.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.124/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> The Board believes that this rationale applies to the debt securities issued by the shell corporation described in paragraph (b) of this section. At the time the debt securities are issued, the shell corporation has substantially no assets to support the credit other than the margin stock that it has acquired or intends to acquire and has no significant business function other than to hold the stock of the target company in order to facilitate the acquisition. Moreover, it is possible that the shell may hold the margin stock for a significant and indefinite period of time, if defensive measures by the target prevent consummation of the acquisition. Because of the difficulty in predicting the outcome of a contested takeover at the time that credit is committed to the shell corporation, the Board believes that the purchasers of the debt securities could not, in good faith, lend without reliance on the margin stock as collateral. The presumption that the debt securities are indirectly secured by margin stock would not apply if there is specific evidence that lenders could in good faith rely on assets other than margin stock as collateral, such as a guaranty of the debt securities by the shell corporation's parent company or another company that has substantial non-margin stock assets or cash flow. This presumption would also not apply if there is a merger agreement between the acquiring and target companies entered into at the time the commitment is made to purchase the debt securities or in any event before loan funds are advanced. In addition, the presumption would not apply if the obligation of the purchasers of the debt securities to advance funds to the shell corporation is contingent on the shell's acquisition of the minimum number of shares necessary under applicable state law to effect a merger between the acquiring and target companies without the approval of either the shareholders or directors of the target company. In these two situations where the merger will take place promptly, the Board believes the lenders could reasonably be presumed to be relying on the assets of the target for repayment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.124/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> In addition, the Board is of the view that the debt securities described in paragraph (b) of this section are indirectly secured by margin stock because there is a practical restriction on the ability of the shell corporation to dispose of the margin stock of the target company. Indirectly secured is defined in <ref href="/us/cfr/t12/s221.2">§ 221.2</ref> to include any arrangement under which the customer's right or ability to sell, pledge, or otherwise dispose of margin stock owned by the customer is in any way restricted while the credit remains outstanding. The purchasers of the debt securities issued by a shell corporation to finance a takeover attempt clearly understand that the shell corporation intends to acquire the margin stock of the target company in order to effect the acquisition of that company. This understanding represents a practical restriction on the ability of the shell corporation to dispose of the target's margin stock and to acquire other assets with the proceeds of the credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.124/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> In the second situation, Company C, an operating company with substantial assets or cash flow, seeks to acquire Company D, which is significantly larger than Company C. Company C establishes a shell corporation that together with Company C makes a tender offer for the shares of Company D, which is margin stock. To finance the tender offer, the shell corporation would obtain a bank loan that complies with the margin lending restrictions of this part and Company C would issue debt securities that would not be directly secured by any margin stock. The Board is of the opinion that these debt securities should not be presumed to be indirectly secured by the margin stock of Company D, since, as an operating business, Company C has substantial assets or cash flow without regard to the margin stock of Company D. Any presumption would not be appropriate because the purchasers of the debt securities may be relying on assets other than margin stock of Company D for repayment of the credit.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s221.125"><?page num="55"?>
<num value="221.125" style="-uslm-sgm:SECTNO">§ 221.125</num>
<heading style="-uslm-sgm:SUBJECT">Credit to brokers and dealers.</heading>
<paragraph identifier="/us/cfr/t12/s221.125/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The National Securities Markets Improvement Act of 1996 (<ref href="/us/pl/104/290">Pub. L. 104–290</ref>, <ref href="/us/stat/110/3416">110 Stat. 3416</ref>) restricts the Board's margin authority by repealing section 8(a) of the Securities Exchange Act of 1934 (the Exchange Act) and amending section 7 of the Exchange Act (<ref href="/us/usc/t15/s78g">15 U.S.C. 78g</ref>) to exclude the borrowing by a member of a national securities exchange or a registered broker or dealer “a substantial portion of whose business consists of transactions with persons other than brokers or dealers” and borrowing by a member of a national securities exchange or a registered broker or dealer to finance its activities as a market maker or an underwriter. Notwithstanding this exclusion, the Board may impose such rules and regulations if it determines they are “necessary or appropriate in the public interest or for the protection of investors.”</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s221.125/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The Board has not found that it is necessary or appropriate in the public interest or for the protection of investors to impose rules and regulations regarding loans to brokers and dealers covered by the National Securities Markets Improvement Act of 1996.
</content>
</paragraph>
</section>
</level>
</part>
<ear style="-uslm-sgm:EAR">Pt. 222</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p222">
<num value="222" style="-uslm-sgm:HED">PART 222—</num>
<heading style="-uslm-sgm:HED">FAIR CREDIT REPORTING (REGULATION V) </heading>
<toc style="-uslm-sgm:CONTENTS">
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p222/spA">Subpart A—</designator>
<label>General Provisions</label>
</headingItem>
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.1">222.1</designator>
<label style="-uslm-sgm:SUBJECT">Purpose, scope, and effective dates.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.2">222.2</designator>
<label style="-uslm-sgm:SUBJECT">Examples.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.3">222.3</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:RESERVED" role="reserved">
<designator href="/us/cfr/t12/p222/spB">Subpart B </designator>
<label>[Reserved]
</label>
</headingItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p222/spC">Subpart C—</designator>
<label>Affiliate Marketing</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.20">222.20</designator>
<label style="-uslm-sgm:SUBJECT">Coverage and definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.21">222.21</designator>
<label style="-uslm-sgm:SUBJECT">Affiliate marketing opt-out and exceptions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.22">222.22</designator>
<label style="-uslm-sgm:SUBJECT">Scope and duration of opt-out.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.23">222.23</designator>
<label style="-uslm-sgm:SUBJECT">Contents of opt-out notice; consolidated and equivalent notices.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.24">222.24</designator>
<label style="-uslm-sgm:SUBJECT">Reasonable opportunity to opt out.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.25">222.25</designator>
<label style="-uslm-sgm:SUBJECT">Reasonable and simple methods of opting out.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.26">222.26</designator>
<label style="-uslm-sgm:SUBJECT">Delivery of opt-out notices.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.27">222.27</designator>
<label style="-uslm-sgm:SUBJECT">Renewal of opt-out.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.28">222.28</designator>
<label style="-uslm-sgm:SUBJECT">Effective date, compliance date, and prospective application.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p222/spD">Subpart D—</designator>
<label>Medical Information</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.30">222.30</designator>
<label style="-uslm-sgm:SUBJECT">Obtaining or using medical information in connection with a determination of eligibility for credit.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.31">222.31</designator>
<label style="-uslm-sgm:SUBJECT">Limits on redisclosure of information.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.32">222.32</designator>
<label style="-uslm-sgm:SUBJECT">Sharing medical information with affiliates.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p222/spE">Subpart E—</designator>
<label>Duties of Furnishers of Information</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.40">222.40</designator>
<label style="-uslm-sgm:SUBJECT">Scope.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.41">222.41</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.42">222.42</designator>
<label style="-uslm-sgm:SUBJECT">Reasonable policies and procedures concerning the accuracy and integrity of furnished information.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.43">222.43</designator>
<label style="-uslm-sgm:SUBJECT">Direct disputes.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:RESERVED" role="reserved">
<designator href="/us/cfr/t12/p222/spF">Subpart F </designator>
<label>[Reserved]
</label>
</headingItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p222/spH">Subpart H—</designator>
<label>Duties of Users Regarding Risk-Based Pricing</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.70">222.70</designator>
<label style="-uslm-sgm:SUBJECT">Scope.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.71">222.71</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.72">222.72</designator>
<label style="-uslm-sgm:SUBJECT">General requirements for risk-based pricing notices.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.73">222.73</designator>
<label style="-uslm-sgm:SUBJECT">Content, form, and timing of risk-based pricing notices.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.74">222.74</designator>
<label style="-uslm-sgm:SUBJECT">Exceptions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.75">222.75</designator>
<label style="-uslm-sgm:SUBJECT">Rules of construction.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p222/spI">Subpart I—</designator>
<label>Duties of Users of Consumer Reports Regarding Address Discrepancies and Records Disposal</label>
</headingItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.80-222.81">222.80–222.81</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.82">222.82</designator>
<label style="-uslm-sgm:SUBJECT">Duties of users regarding address discrepancies.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.83">222.83</designator>
<label style="-uslm-sgm:SUBJECT">Disposal of consumer information.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p222/spJ">Subpart J—</designator>
<label>Identity Theft Red Flags</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.90">222.90</designator>
<label style="-uslm-sgm:SUBJECT">Duties regarding the detection, prevention, and mitigation of identity theft.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s222.91">222.91</designator>
<label style="-uslm-sgm:SUBJECT">Duties of card issuers regarding changes of address.</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appA">Appendix A to Part 222 </designator>
<label>[Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appB">Appendix B to Part 222—</designator>
<label>Model Notices of Furnishing Negative Information</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appC">Appendix C to Part 222—</designator>
<label>Model Forms for Opt-Out Notices</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appD">Appendix D to Part 222 </designator>
<label>[Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appE">Appendix E to Part 222—</designator>
<label>Interagency Guidelines Concerning the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appF–G">Appendix F–G to Part 222 </designator>
<label>[Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appH">Appendix H to Part 222—</designator>
<label>Model Forms for Risk-Based Pricing and Credit Score Disclosure Exception Notices</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appI">Appendix I to Part 222 </designator>
<label>[Reserved]
<?page num="56"?></label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p222/spJ/appJ">Appendix J to Part 222—</designator>
<label> Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation</label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t15/s1681b">15 U.S.C. 1681b</ref>, 1681c, 1681m and 1681s; Secs. 3, 214, and 216, <ref href="/us/pl/108/159">Pub. L. 108–159</ref>, <ref href="/us/stat/117/1952">117 Stat. 1952</ref>.</authority>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. V, <ref href="/us/fr/68/74469">68 FR 74469</ref>, <date date="2003-12-24">Dec. 24, 2003</date>, unless otherwise noted.
</source>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spA">
<num value="A" style="-uslm-sgm:HED">Subpart A—</num>
<heading style="-uslm-sgm:HED">General Provisions
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.1">
<num value="222.1" style="-uslm-sgm:SECTNO">§ 222.1</num>
<heading style="-uslm-sgm:SUBJECT">Purpose, scope, and effective dates. </heading>
<paragraph identifier="/us/cfr/t12/s222.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Purpose.</heading>
<content> The purpose of this part is to implement the Fair Credit Reporting Act. This part generally applies to persons that obtain and use information about consumers to determine the consumer's eligibility for products, services, or employment, share such information among affiliates, and furnish information to consumer reporting agencies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Scope.</heading>
<paragraph role="reserved" identifier="/us/cfr/t12/s222.1/b/1" class="inline">
<num value="1"> (1)</num>
<content> [Reserved]</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Institutions covered.</heading>
<paragraph identifier="/us/cfr/t12/s222.1/b/2/i" class="inline">
<num value="i"> (i)</num>
<content> Except as otherwise provided in this part, the regulations in this part apply to banks that are members of the Federal Reserve System (other than national banks) and their respective operating subsidiaries that are not functionally regulated within the meaning of section 5(c)(5) of the Bank Holding Company Act, as amended (<ref href="/us/usc/t12/s1844/c/5">12 U.S.C. 1844(c)(5)</ref>), branches and Agencies of foreign banks (other than Federal branches, Federal Agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, organizations operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and bank holding companies and affiliates of such holding companies, but do not apply to affiliates of bank holding companies that are depository institutions regulated by another federal banking agency or to consumer reporting agencies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> For purposes of appendix B to this part, financial institutions as defined in section 509 of the Gramm-Leach-Bliley Act (<ref href="/us/usc/t12/s6809">12 U.S.C. 6809</ref>), may use the model notices in appendix B to this part to comply with the notice requirement in section 623(a)(7) of the Fair Credit Reporting Act (<ref href="/us/usc/t15/s1681s–2/a/7">15 U.S.C. 1681s–2(a)(7)</ref>).</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Effective dates.</heading>
<chapeau> The applicable provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), <ref href="/us/pl/108/159">Pub. L. 108–159</ref>, <ref href="/us/stat/117/1952">117 Stat. 1952</ref>, shall be effective in accordance with the following schedule: </chapeau>
<paragraph identifier="/us/cfr/t12/s222.1/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Provisions effective <date date="2003-12-31">December 31, 2003</date>.</heading>
<paragraph identifier="/us/cfr/t12/s222.1/c/1/i" class="inline">
<num value="i"> (i)</num>
<content> Sections 151(a)(2), 212(e), 214(c), 311(b), and 711, concerning the relation to state laws; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Each of the provisions of the FACT Act that authorizes an agency to issue a regulation or to take other action to implement the applicable provision of the FACT Act or the applicable provision of the Fair Credit Reporting Act, as amended by the FACT Act, but only with respect to that agency's authority to propose and adopt the implementing regulation or to take such other action. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Provisions effective <date date="2004-03-31">March 31, 2004</date>.</heading>
<paragraph identifier="/us/cfr/t12/s222.1/c/2/i" class="inline">
<num value="i"> (i)</num>
<content> Section 111, concerning the definitions; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Section 156, concerning the statute of limitations; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Sections 312(d), (e), and (f), concerning the furnisher liability exception, liability and enforcement, and rule of construction, respectively; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Section 313(a), concerning action regarding complaints; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Section 611, concerning communications for certain employee investigations; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Section 811, concerning clerical amendments. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Provisions effective <date date="2004-12-01">December 1, 2004</date>.</heading>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/i" class="inline">
<num value="i"> (i)</num>
<content> Section 112, concerning fraud alerts and active duty alerts; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Section 114, concerning procedures for the identification of possible instances of identity theft; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Section 115, concerning truncation of the social security number in a consumer report; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Section 151(a)(1), concerning the summary of rights of identity theft victims; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Section 152, concerning blocking of information resulting from identity theft; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Section 153, concerning the coordination of identity theft complaint investigations; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Section 154, concerning the prevention of repollution of consumer reports;
<?page num="57"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> Section 155, concerning notice by debt collectors with respect to fraudulent information; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<content> Section 211(c), concerning a summary of rights of consumers; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/x" style="-uslm-sgm:P">
<num value="x">(x)</num>
<content> Section 212(a)–(d), concerning the disclosure of credit scores; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xi" style="-uslm-sgm:P">
<num value="xi">(xi)</num>
<content> Section 213(c), concerning enhanced disclosure of the means available to opt out of prescreened lists; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xii" style="-uslm-sgm:P">
<num value="xii">(xii)</num>
<content> Section 217(a), concerning the duty to provide notice to a consumer; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xiii" style="-uslm-sgm:P">
<num value="xiii">(xiii)</num>
<content> Section 311(a), concerning the risk-based pricing notice; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xiv" style="-uslm-sgm:P">
<num value="xiv">(xiv)</num>
<content> Section 312(a)–(c), concerning procedures to enhance the accuracy and integrity of information furnished to consumer reporting agencies; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xv" style="-uslm-sgm:P">
<num value="xv">(xv)</num>
<content> Section 314, concerning improved disclosure of the results of reinvestigation; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xvi" style="-uslm-sgm:P">
<num value="xvi">(xvi)</num>
<content> Section 315, concerning reconciling addresses; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xvii" style="-uslm-sgm:P">
<num value="xvii">(xvii)</num>
<content> Section 316, concerning notice of dispute through reseller; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.1/c/3/xviii" style="-uslm-sgm:P">
<num value="xviii">(xviii)</num>
<content> Section 317, concerning the duty to conduct a reasonable reinvestigation. </content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/68/74469">68 FR 74469</ref>, <date date="2003-12-24">Dec. 24, 2003</date>, as amended at <ref href="/us/fr/69/6530">69 FR 6530</ref>, <date date="2004-02-11" role="amended">Feb. 11, 2004</date>; <ref href="/us/fr/69/33284">69 FR 33284</ref>, <date date="2004-06-15" role="amended">June 15, 2004</date>; <ref href="/us/fr/69/77618">69 FR 77618</ref>, <date date="2004-12-28" role="amended">Dec. 28, 2004</date>; <ref href="/us/fr/72/62954">72 FR 62954</ref>, <date date="2007-11-07" role="amended">Nov. 7, 2007</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.2">
<num value="222.2" style="-uslm-sgm:SECTNO">§ 222.2</num>
<heading style="-uslm-sgm:SUBJECT">Examples.</heading>
<content>
<p style="-uslm-sgm:P">The examples in this part are not exclusive. Compliance with an example, to the extent applicable, constitutes compliance with this part. Examples in a paragraph illustrate only the issue described in the paragraph and do not illustrate any other issue that may arise in this part.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/70/70678">70 FR 70678</ref>, <date date="2005-11-22">Nov. 22, 2005</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s222.3">
<num value="222.3" style="-uslm-sgm:SECTNO">§ 222.3</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">For purposes of this part, unless explicitly stated otherwise:</p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Act</inline> means the Fair Credit Reporting Act (<ref href="/us/usc/t15/s1681">15 U.S.C. 1681</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate</inline> means any company that is related by common ownership or common corporate control with another company.</p>
<p style="-uslm-sgm:P" role="reserved">(c) [Reserved]</p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Company</inline> means any corporation, limited liability company, business trust, general or limited partnership, association, or similar organization.</p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer</inline> means an individual.</p>
<p style="-uslm-sgm:P" role="reserved">(f)–(h) [Reserved]</p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Common ownership or common corporate control</inline> means a relationship between two companies under which:</p>
<p style="-uslm-sgm:P">(1) One company has, with respect to the other company:</p>
<p style="-uslm-sgm:P">(i) Ownership, control, or power to vote 25 percent or more of the outstanding shares of any class of voting security of a company, directly or indirectly, or acting through one or more other persons;</p>
<p style="-uslm-sgm:P">(ii) Control in any manner over the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of a company; or</p>
<p style="-uslm-sgm:P">(iii) The power to exercise, directly or indirectly, a controlling influence over the management or policies of a company, as the Board determines; or</p>
<p style="-uslm-sgm:P">(2) Any other person has, with respect to both companies, a relationship described in paragraphs (i)(1)(i) through (i)(1)(iii) of this section.</p>
<p style="-uslm-sgm:P" role="reserved">(j) [Reserved]</p>
<p style="-uslm-sgm:P">(k) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Medical information</inline> means:</p>
<p style="-uslm-sgm:P">(1) Information or data, whether oral or recorded, in any form or medium, created by or derived from a health care provider or the consumer, that relates to:</p>
<p style="-uslm-sgm:P">(i) The past, present, or future physical, mental, or behavioral health or condition of an individual;</p>
<p style="-uslm-sgm:P">(ii) The provision of health care to an individual; or</p>
<p style="-uslm-sgm:P">(iii) The payment for the provision of health care to an individual.</p>
<p style="-uslm-sgm:P">(2) The term does not include:</p>
<p style="-uslm-sgm:P">(i) The age or gender of a consumer;</p>
<p style="-uslm-sgm:P">(ii) Demographic information about the consumer, including a consumer's residence address or e-mail address;</p>
<p style="-uslm-sgm:P">(iii) Any other information about a consumer that does not relate to the physical, mental, or behavioral health or condition of a consumer, including the existence or value of any insurance policy; or</p>
<p style="-uslm-sgm:P">(iv) Information that does not identify a specific consumer.</p>
<p style="-uslm-sgm:P">(l) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person</inline> means any individual, partnership, corporation, trust, estate cooperative, association, government or governmental subdivision or agency, or other entity.</p>
<source style="-uslm-sgm:CITA">[Reg. V, <ref href="/us/fr/70/70678">70 FR 70678</ref>, <date date="2005-11-22">Nov. 22, 2005</date>, as amended at <ref href="/us/fr/72/63756">72 FR 63756</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>]
</source>
</content>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" role="reserved" identifier="/us/cfr/t12/p222/spB"><?page num="58"?>
<num value="B" style="-uslm-sgm:RESERVED">Subpart B </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spC">
<num value="C" style="-uslm-sgm:HED">Subpart C—</num>
<heading style="-uslm-sgm:HED">Affiliate Marketing</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. V, <ref href="/us/fr/72/62955">72 FR 62955</ref>, <date date="2007-11-07">Nov. 7, 2007</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s222.20">
<num value="222.20" style="-uslm-sgm:SECTNO">§ 222.20</num>
<heading style="-uslm-sgm:SUBJECT">Coverage and definitions.</heading>
<content>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> Subpart C of this part applies to member banks of the Federal Reserve System (other than national banks) and their respective operating subsidiaries that are not functionally regulated within the meaning of section 5(c)(5) of the Bank Holding Company Act, as amended (<ref href="/us/usc/t12/s1844/c/5">12 U.S.C. 1844(c)(5)</ref>), branches and Agencies of foreign banks (other than Federal branches, Federal Agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definitions.</inline> For purposes of this subpart:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous.</inline> The term “clear and conspicuous” means reasonably understandable and designed to call attention to the nature and significance of the information presented.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Concise</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> The term “concise” means a reasonably brief expression or statement.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combination with other required disclosures.</inline> A notice required by this subpart may be concise even if it is combined with other disclosures required or authorized by federal or state law.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility information.</inline> The term “eligibility information” means any information the communication of which would be a consumer report if the exclusions from the definition of “consumer report” in section 603(d)(2)(A) of the Act did not apply. Eligibility information does not include aggregate or blind data that does not contain personal identifiers such as account numbers, names, or addresses.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pre-existing business relationship</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> The term “pre-existing business relationship” means a relationship between a person, or a person's licensed agent, and a consumer based on—</p>
<p style="-uslm-sgm:P">(A) A financial contract between the person and the consumer which is in force on the date on which the consumer is sent a solicitation covered by this subpart;</p>
<p style="-uslm-sgm:P">(B) The purchase, rental, or lease by the consumer of the person's goods or services, or a financial transaction (including holding an active account or a policy in force or having another continuing relationship) between the consumer and the person, during the 18-month period immediately preceding the date on which the consumer is sent a solicitation covered by this subpart; or</p>
<p style="-uslm-sgm:P">(C) An inquiry or application by the consumer regarding a product or service offered by that person during the three-month period immediately preceding the date on which the consumer is sent a solicitation covered by this subpart.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of pre-existing business relationships.</inline> (A) If a consumer has a time deposit account, such as a certificate of deposit, at a depository institution that is currently in force, the depository institution has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services.</p>
<p style="-uslm-sgm:P">(B) If a consumer obtained a certificate of deposit from a depository institution, but did not renew the certificate at maturity, the depository institution has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for 18 months after the date of maturity of the certificate of deposit.</p>
<p style="-uslm-sgm:P">(C) If a consumer obtains a mortgage, the mortgage lender has a pre-existing business relationship with the consumer. If the mortgage lender sells the consumer's entire loan to an investor, the mortgage lender has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for 18 months after the date it sells the loan, and the investor has a pre-existing <?page num="59"?>business relationship with the consumer upon purchasing the loan. If, however, the mortgage lender sells a fractional interest in the consumer's loan to an investor but also retains an ownership interest in the loan, the mortgage lender continues to have a pre-existing business relationship with the consumer, but the investor does not have a pre-existing business relationship with the consumer. If the mortgage lender retains ownership of the loan, but sells ownership of the servicing rights to the consumer's loan, the mortgage lender continues to have a pre-existing business relationship with the consumer. The purchaser of the servicing rights also has a pre-existing business relationship with the consumer as of the date it purchases ownership of the servicing rights, but only if it collects payments from or otherwise deals directly with the consumer on a continuing basis.</p>
<p style="-uslm-sgm:P">(D) If a consumer applies to a depository institution for a product or service that it offers, but does not obtain a product or service from or enter into a financial contract or transaction with the institution, the depository institution has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the application.</p>
<p style="-uslm-sgm:P">(E) If a consumer makes a telephone inquiry to a depository institution about its products or services and provides contact information to the institution, but does not obtain a product or service from or enter into a financial contract or transaction with the institution, the depository institution has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the inquiry.</p>
<p style="-uslm-sgm:P">(F) If a consumer makes an inquiry to a depository institution by e-mail about its products or services, but does not obtain a product or service from or enter into a financial contract or transaction with the institution, the depository institution has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the inquiry.</p>
<p style="-uslm-sgm:P">(G) If a consumer has an existing relationship with a depository institution that is part of a group of affiliated companies, makes a telephone call to the centralized call center for the group of affiliated companies to inquire about products or services offered by the insurance affiliate, and provides contact information to the call center, the call constitutes an inquiry to the insurance affiliate that offers those products or services. The insurance affiliate has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from its affiliated depository institution to make solicitations to the consumer about its products or services for three months after the date of the inquiry.</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples where no pre-existing business relationship is created.</inline> (A) If a consumer makes a telephone call to a centralized call center for a group of affiliated companies to inquire about the consumer's existing account at a depository institution, the call does not constitute an inquiry to any affiliate other than the depository institution that holds the consumer's account and does not establish a pre-existing business relationship between the consumer and any affiliate of the account-holding depository institution.</p>
<p style="-uslm-sgm:P">(B) If a consumer who has a deposit account with a depository institution makes a telephone call to an affiliate of the institution to ask about the affiliate's retail locations and hours, but does not make an inquiry about the affiliate's products or services, the call does not constitute an inquiry and does not establish a pre-existing business relationship between the consumer and the affiliate. Also, the affiliate's capture of the consumer's telephone number does not constitute an inquiry and does not establish a pre-existing business relationship between the consumer and the affiliate.
<?page num="60"?></p>
<p style="-uslm-sgm:P">(C) If a consumer makes a telephone call to a depository institution in response to an advertisement that offers a free promotional item to consumers who call a toll-free number, but the advertisement does not indicate that the depository institution's products or services will be marketed to consumers who call in response, the call does not create a pre-existing business relationship between the consumer and the depository institution because the consumer has not made an inquiry about a product or service offered by the institution, but has merely responded to an offer for a free promotional item.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Solicitation</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> The term “solicitation” means the marketing of a product or service initiated by a person to a particular consumer that is—</p>
<p style="-uslm-sgm:P">(A) Based on eligibility information communicated to that person by its affiliate as described in this subpart; and</p>
<p style="-uslm-sgm:P">(B) Intended to encourage the consumer to purchase or obtain such product or service.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusion of marketing directed at the general public.</inline> A solicitation does not include marketing communications that are directed at the general public. For example, television, general circulation magazine, and billboard advertisements do not constitute solicitations, even if those communications are intended to encourage consumers to purchase products and services from the person initiating the communications.</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of solicitations.</inline> A solicitation would include, for example, a telemarketing call, direct mail, e-mail, or other form of marketing communication directed to a particular consumer that is based on eligibility information received from an affiliate.</p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">You</inline> means a person described in paragraph (a) of this section.
</p>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.21">
<num value="222.21" style="-uslm-sgm:SECTNO">§ 222.21</num>
<heading style="-uslm-sgm:SUBJECT">Affiliate marketing opt-out and exceptions.</heading>
<paragraph identifier="/us/cfr/t12/s222.21/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Initial notice and opt-out requirement—</heading>
<paragraph identifier="/us/cfr/t12/s222.21/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> You may not use eligibility information about a consumer that you receive from an affiliate to make a solicitation for marketing purposes to the consumer, unless—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.21/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> It is clearly and conspicuously disclosed to the consumer in writing or, if the consumer agrees, electronically, in a concise notice that you may use eligibility information about that consumer received from an affiliate to make solicitations for marketing purposes to the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The consumer is provided a reasonable opportunity and a reasonable and simple method to “opt out,” or prohibit you from using eligibility information to make solicitations for marketing purposes to the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The consumer has not opted out.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Example.</heading>
<content> A consumer has a homeowner's insurance policy with an insurance company. The insurance company furnishes eligibility information about the consumer to its affiliated depository institution. Based on that eligibility information, the depository institution wants to make a solicitation to the consumer about its home equity loan products. The depository institution does not have a pre-existing business relationship with the consumer and none of the other exceptions apply. The depository institution is prohibited from using eligibility information received from its insurance affiliate to make solicitations to the consumer about its home equity loan products unless the consumer is given a notice and opportunity to opt out and the consumer does not opt out.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Affiliates who may provide the notice.</heading>
<chapeau> The notice required by this paragraph must be provided:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.21/a/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> By an affiliate that has or has previously had a pre-existing business relationship with the consumer; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> As part of a joint notice from two or more members of an affiliated group of companies, provided that at least one of the affiliates on the joint notice has or has previously had a pre-existing business relationship with the consumer.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Making solicitations—</heading>
<paragraph identifier="/us/cfr/t12/s222.21/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> For purposes of this subpart, you make a solicitation for marketing purposes if—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.21/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> You receive eligibility information from an affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> You use that eligibility information to do one or more of the following:
<?page num="61"?></chapeau>
<paragraph identifier="/us/cfr/t12/s222.21/b/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Identify the consumer or type of consumer to receive a solicitation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Establish criteria used to select the consumer to receive a solicitation; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Decide which of your products or services to market to the consumer or tailor your solicitation to that consumer; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> As a result of your use of the eligibility information, the consumer is provided a solicitation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Receiving eligibility information from an affiliate, including through a common database.</heading>
<content> You may receive eligibility information from an affiliate in various ways, including when the affiliate places that information into a common database that you may access.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Receipt or use of eligibility information by your service provider.</heading>
<content> Except as provided in paragraph (b)(5) of this section, you receive or use an affiliate's eligibility information if a service provider acting on your behalf (whether an affiliate or a nonaffiliated third party) receives or uses that information in the manner described in paragraphs (b)(1)(i) or (b)(1)(ii) of this section. All relevant facts and circumstances will determine whether a person is acting as your service provider when it receives or uses an affiliate's eligibility information in connection with marketing your products and services.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Use by an affiliate of its own eligibility information.</heading>
<chapeau> Unless you have used eligibility information that you receive from an affiliate in the manner described in paragraph (b)(1)(ii) of this section, you do not make a solicitation subject to this subpart if your affiliate:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.21/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Uses its own eligibility information that it obtained in connection with a pre-existing business relationship it has or had with the consumer to market your products or services to the consumer; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Directs its service provider to use the affiliate's own eligibility information that it obtained in connection with a pre-existing business relationship it has or had with the consumer to market your products or services to the consumer, and you do not communicate directly with the service provider regarding that use.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Use of eligibility information by a service provider—</heading>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> You do not make a solicitation subject to Subpart C of this part if a service provider (including an affiliated or third-party service provider that maintains or accesses a common database that you may access) receives eligibility information from your affiliate that your affiliate obtained in connection with a pre-existing business relationship it has or had with the consumer and uses that eligibility information to market your products or services to the consumer, so long as—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Your affiliate controls access to and use of its eligibility information by the service provider (including the right to establish the specific terms and conditions under which the service provider may use such information to market your products or services);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Your affiliate establishes specific terms and conditions under which the service provider may access and use the affiliate's eligibility information to market your products and services (or those of affiliates generally) to the consumer, such as the identity of the affiliated companies whose products or services may be marketed to the consumer by the service provider, the types of products or services of affiliated companies that may be marketed, and the number of times the consumer may receive marketing materials, and periodically evaluates the service provider's compliance with those terms and conditions;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Your affiliate requires the service provider to implement reasonable policies and procedures designed to ensure that the service provider uses the affiliate's eligibility information in accordance with the terms and conditions established by the affiliate relating to the marketing of your products or services;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Your affiliate is identified on or with the marketing materials provided to the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> You do not directly use your affiliate's eligibility information in the manner described in paragraph (b)(1)(ii) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Writing requirements.</heading>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/ii/A" class="inline">
<num value="A"> (A)</num>
<content> The requirements of paragraphs (b)(5)(i)(A) and (C) of this section must be set forth in a written agreement between your affiliate and the service provider; and
<?page num="62"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/5/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The specific terms and conditions established by your affiliate as provided in paragraph (b)(5)(i)(B) of this section must be set forth in writing.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Examples of making solicitations.</heading>
<paragraph identifier="/us/cfr/t12/s222.21/b/6/i" class="inline">
<num value="i"> (i)</num>
<content> A consumer has a deposit account with a depository institution, which is affiliated with an insurance company. The insurance company receives eligibility information about the consumer from the depository institution. The insurance company uses that eligibility information to identify the consumer to receive a solicitation about insurance products, and, as a result, the insurance company provides a solicitation to the consumer about its insurance products. Pursuant to paragraph (b)(1) of this section, the insurance company has made a solicitation to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The same facts as in the example in paragraph (b)(6)(i) of this section, except that after using the eligibility information to identify the consumer to receive a solicitation about insurance products, the insurance company asks the depository institution to send the solicitation to the consumer and the depository institution does so. Pursuant to paragraph (b)(1) of this section, the insurance company has made a solicitation to the consumer because it used eligibility information about the consumer that it received from an affiliate to identify the consumer to receive a solicitation about its products or services, and, as a result, a solicitation was provided to the consumer about the insurance company's products.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The same facts as in the example in paragraph (b)(6)(i) of this section, except that eligibility information about consumers that have deposit accounts with the depository institution is placed into a common database that all members of the affiliated group of companies may independently access and use. Without using the depository institution's eligibility information, the insurance company develops selection criteria and provides those criteria, marketing materials, and related instructions to the depository institution. The depository institution reviews eligibility information about its own consumers using the selection criteria provided by the insurance company to determine which consumers should receive the insurance company's marketing materials and sends marketing materials about the insurance company's products to those consumers. Even though the insurance company has received eligibility information through the common database as provided in paragraph (b)(2) of this section, it did not use that information to identify consumers or establish selection criteria; instead, the depository institution used its own eligibility information. Therefore, pursuant to paragraph (b)(4)(i) of this section, the insurance company has not made a solicitation to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/6/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The same facts as in the example in paragraph (b)(6)(iii) of this section, except that the depository institution provides the insurance company's criteria to the depository institution's service provider and directs the service provider to use the depository institution's eligibility information to identify depository institution consumers who meet the criteria and to send the insurance company's marketing materials to those consumers. The insurance company does not communicate directly with the service provider regarding the use of the depository institution's information to market its products to the depository institution's consumers. Pursuant to paragraph (b)(4)(ii) of this section, the insurance company has not made a solicitation to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/6/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> An affiliated group of companies includes a depository institution, an insurance company, and a service provider. Each affiliate in the group places information about its consumers into a common database. The service provider has access to all information in the common database. The depository institution controls access to and use of its eligibility information by the service provider. This control is set forth in a written agreement between the depository institution and the service provider. The written agreement also requires the service provider to establish reasonable policies and procedures designed to ensure that the service provider uses the depository institution's eligibility information in accordance with specific terms and conditions established by the depository institution <?page num="63"?>relating to the marketing of the products and services of all affiliates, including the insurance company. In a separate written communication, the depository institution specifies the terms and conditions under which the service provider may use the depository institution's eligibility information to market the insurance company's products and services to the depository institution's consumers. The specific terms and conditions are: A list of affiliated companies (including the insurance company) whose products or services may be marketed to the depository institution's consumers by the service provider; the specific products or types of products that may be marketed to the depository institution's consumers by the service provider; the categories of eligibility information that may be used by the service provider in marketing products or services to the depository institution's consumers; the types or categories of the depository institution's consumers to whom the service provider may market products or services of depository institution affiliates; the number and/or types of marketing communications that the service provider may send to the depository institution's consumers; and the length of time during which the service provider may market the products or services of the depository institution's affiliates to its consumers. The depository institution periodically evaluates the service provider's compliance with these terms and conditions. The insurance company asks the service provider to market insurance products to certain consumers who have deposit accounts with the depository institution. Without using the depository institution's eligibility information, the insurance company develops selection criteria and provides those criteria, marketing materials, and related instructions to the service provider. The service provider uses the depository institution's eligibility information from the common database to identify the depository institution's consumers to whom insurance products will be marketed. When the insurance company's marketing materials are provided to the identified consumers, the name of the depository institution is displayed on the insurance marketing materials, an introductory letter that accompanies the marketing materials, an account statement that accompanies the marketing materials, or the envelope containing the marketing materials. The requirements of paragraph (b)(5) of this section have been satisfied, and the insurance company has not made a solicitation to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/b/6/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> The same facts as in the example in paragraph (b)(6)(v) of this section, except that the terms and conditions permit the service provider to use the depository institution's eligibility information to market the products and services of other affiliates to the depository institution's consumers whenever the service provider deems it appropriate to do so. The service provider uses the depository institution's eligibility information in accordance with the discretion afforded to it by the terms and conditions. Because the terms and conditions are not specific, the requirements of paragraph (b)(5) of this section have not been satisfied.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exceptions.</heading>
<chapeau> The provisions of this subpart do not apply to you if you use eligibility information that you receive from an affiliate:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.21/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> To make a solicitation for marketing purposes to a consumer with whom you have a pre-existing business relationship;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> To facilitate communications to an individual for whose benefit you provide employee benefit or other services pursuant to a contract with an employer related to and arising out of the current employment relationship or status of the individual as a participant or beneficiary of an employee benefit plan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> To perform services on behalf of an affiliate, except that this subparagraph shall not be construed as permitting you to send solicitations on behalf of an affiliate if the affiliate would not be permitted to send the solicitation as a result of the election of the consumer to opt out under this subpart;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> In response to a communication about your products or services initiated by the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> In response to an authorization or request by the consumer to receive solicitations; or
<?page num="64"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/c/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> If your compliance with this subpart would prevent you from complying with any provision of State insurance laws pertaining to unfair discrimination in any State in which you are lawfully doing business.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Examples of exceptions—</heading>
<paragraph identifier="/us/cfr/t12/s222.21/d/1" class="inline">
<num value="1">(1) </num>
<heading>Example of the pre-existing business relationship exception.</heading>
<content> A consumer has a deposit account with a depository institution. The consumer also has a relationship with the depository institution's securities affiliate for management of the consumer's securities portfolio. The depository institution receives eligibility information about the consumer from its securities affiliate and uses that information to make a solicitation to the consumer about the depository institution's wealth management services. The depository institution may make this solicitation even if the consumer has not been given a notice and opportunity to opt out because the depository institution has a pre-existing business relationship with the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples of service provider exception.</heading>
<paragraph identifier="/us/cfr/t12/s222.21/d/2/i" class="inline">
<num value="i"> (i)</num>
<content> A consumer has an insurance policy issued by an insurance company. The insurance company furnishes eligibility information about the consumer to its affiliated depository institution. Based on that eligibility information, the depository institution wants to make a solicitation to the consumer about its deposit products. The depository institution does not have a pre-existing business relationship with the consumer and none of the other exceptions in paragraph (c) of this section apply. The consumer has been given an opt-out notice and has elected to opt out of receiving such solicitations. The depository institution asks a service provider to send the solicitation to the consumer on its behalf. The service provider may not send the solicitation on behalf of the depository institution because, as a result of the consumer's opt-out election, the depository institution is not permitted to make the solicitation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The same facts as in paragraph (d)(2)(i) of this section, except the consumer has been given an opt-out notice, but has not elected to opt out. The depository institution asks a service provider to send the solicitation to the consumer on its behalf. The service provider may send the solicitation on behalf of the depository institution because, as a result of the consumer's not opting out, the depository institution is permitted to make the solicitation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Examples of consumer-initiated communications.</heading>
<paragraph identifier="/us/cfr/t12/s222.21/d/3/i" class="inline">
<num value="i"> (i)</num>
<content> A consumer who has a deposit account with a depository institution initiates a communication with the depository institution's credit card affiliate to request information about a credit card. The credit card affiliate may use eligibility information about the consumer it obtains from the depository institution or any other affiliate to make solicitations regarding credit card products in response to the consumer-initiated communication.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A consumer who has a deposit account with a depository institution contacts the institution to request information about how to save and invest for a child's college education without specifying the type of product in which the consumer may be interested. Information about a range of different products or services offered by the depository institution and one or more affiliates of the institution may be responsive to that communication. Such products or services may include the following: Mutual funds offered by the institution's mutual fund affiliate; section 529 plans offered by the institution, its mutual fund affiliate, or another securities affiliate; or trust services offered by a different financial institution in the affiliated group. Any affiliate offering investment products or services that would be responsive to the consumer's request for information about saving and investing for a child's college education may use eligibility information to make solicitations to the consumer in response to this communication.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A credit card issuer makes a marketing call to the consumer without using eligibility information received from an affiliate. The issuer leaves a voice-mail message that invites the consumer to call a toll-free number to apply for the issuer's credit card. If the consumer calls the toll-free number to inquire about the credit card, the call is a consumer-initiated communication about a product or service and the credit card issuer may <?page num="65"?>now use eligibility information it receives from its affiliates to make solicitations to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A consumer calls a depository institution to ask about retail locations and hours, but does not request information about products or services. The institution may not use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services because the consumer-initiated communication does not relate to the depository institution's products or services. Thus, the use of eligibility information received from an affiliate would not be responsive to the communication and the exception does not apply.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> A consumer calls a depository institution to ask about retail locations and hours. The customer service representative asks the consumer if there is a particular product or service about which the consumer is seeking information. The consumer responds that the consumer wants to stop in and find out about certificates of deposit. The customer service representative offers to provide that information by telephone and mail additional information and application materials to the consumer. The consumer agrees and provides or confirms contact information for receipt of the materials to be mailed. The depository institution may use eligibility information it receives from an affiliate to make solicitations to the consumer about certificates of deposit because such solicitations would respond to the consumer-initiated communication about products or services.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Examples of consumer authorization or request for solicitations.</heading>
<paragraph identifier="/us/cfr/t12/s222.21/d/4/i" class="inline">
<num value="i"> (i)</num>
<content> A consumer who obtains a mortgage from a mortgage lender authorizes or requests information about homeowner's insurance offered by the mortgage lender's insurance affiliate. Such authorization or request, whether given to the mortgage lender or to the insurance affiliate, would permit the insurance affiliate to use eligibility information about the consumer it obtains from the mortgage lender or any other affiliate to make solicitations to the consumer about homeowner's insurance.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A consumer completes an online application to apply for a credit card from a credit card issuer. The issuer's online application contains a blank check box that the consumer may check to authorize or request information from the credit card issuer's affiliates. The consumer checks the box. The consumer has authorized or requested solicitations from the card issuer's affiliates.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A consumer completes an online application to apply for a credit card from a credit card issuer. The issuer's online application contains a pre-selected check box indicating that the consumer authorizes or requests information from the issuer's affiliates. The consumer does not deselect the check box. The consumer has not authorized or requested solicitations from the card issuer's affiliates.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/d/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The terms and conditions of a credit card account agreement contain preprinted boilerplate language stating that by applying to open an account the consumer authorizes or requests to receive solicitations from the credit card issuer's affiliates. The consumer has not authorized or requested solicitations from the card issuer's affiliates.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.21/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Relation to affiliate-sharing notice and opt-out.</heading>
<content> Nothing in this subpart limits the responsibility of a person to comply with the notice and opt-out provisions of section 603(d)(2)(A)(iii) of the Act where applicable.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.22">
<num value="222.22" style="-uslm-sgm:SECTNO">§ 222.22</num>
<heading style="-uslm-sgm:SUBJECT">Scope and duration of opt-out.</heading>
<paragraph identifier="/us/cfr/t12/s222.22/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope of opt-out—</heading>
<paragraph identifier="/us/cfr/t12/s222.22/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Except as otherwise provided in this section, the consumer's election to opt out prohibits any affiliate covered by the opt-out notice from using eligibility information received from another affiliate as described in the notice to make solicitations to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Continuing relationship—</heading>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> If the consumer establishes a continuing relationship with you or your affiliate, an opt-out notice may apply to eligibility information obtained in connection with—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A single continuing relationship or multiple continuing relationships that the consumer establishes with you or your affiliates, including continuing relationships established subsequent to delivery of the opt-out notice, so long <?page num="66"?>as the notice adequately describes the continuing relationships covered by the opt-out; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Any other transaction between the consumer and you or your affiliates as described in the notice.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Examples of continuing relationships. A consumer has a continuing relationship with you or your affiliate if the consumer—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Opens a deposit or investment account with you or your affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Obtains a loan for which you or your affiliate owns the servicing rights;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Purchases an insurance product from you or your affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Holds an investment product through you or your affiliate, such as when you act or your affiliate acts as a custodian for securities or for assets in an individual retirement arrangement;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Enters into an agreement or understanding with you or your affiliate whereby you or your affiliate undertakes to arrange or broker a home mortgage loan for the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> Enters into a lease of personal property with you or your affiliate; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/2/ii/G" style="-uslm-sgm:P">
<num value="G">(G)</num>
<content> Obtains financial, investment, or economic advisory services from you or your affiliate for a fee.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>No continuing relationship—</heading>
<paragraph identifier="/us/cfr/t12/s222.22/a/3/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> If there is no continuing relationship between a consumer and you or your affiliate, and you or your affiliate obtain eligibility information about a consumer in connection with a transaction with the consumer, such as an isolated transaction or a credit application that is denied, an opt-out notice provided to the consumer only applies to eligibility information obtained in connection with that transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Examples of isolated transactions.</heading>
<chapeau> An isolated transaction occurs if—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.22/a/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The consumer uses your or your affiliate's ATM to withdraw cash from an account at another financial institution; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> You or your affiliate sells the consumer a cashier's check or money order, airline tickets, travel insurance, or traveler's checks in isolated transactions.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Menu of alternatives.</heading>
<content> A consumer may be given the opportunity to choose from a menu of alternatives when electing to prohibit solicitations, such as by electing to prohibit solicitations from certain types of affiliates covered by the opt-out notice but not other types of affiliates covered by the notice, electing to prohibit solicitations based on certain types of eligibility information but not other types of eligibility information, or electing to prohibit solicitations by certain methods of delivery but not other methods of delivery. However, one of the alternatives must allow the consumer to prohibit all solicitations from all of the affiliates that are covered by the notice.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Special rule for a notice following termination of all continuing relationships—</heading>
<paragraph identifier="/us/cfr/t12/s222.22/a/5/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> A consumer must be given a new opt-out notice if, after all continuing relationships with you or your affiliate(s) are terminated, the consumer subsequently establishes another continuing relationship with you or your affiliate(s) and the consumer's eligibility information is to be used to make a solicitation. The new opt-out notice must apply, at a minimum, to eligibility information obtained in connection with the new continuing relationship. Consistent with paragraph (b) of this section, the consumer's decision not to opt out after receiving the new opt-out notice would not override a prior opt-out election by the consumer that applies to eligibility information obtained in connection with a terminated relationship, regardless of whether the new opt-out notice applies to eligibility information obtained in connection with the terminated relationship.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/a/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Example.</heading>
<content> A consumer has a checking account with a depository institution that is part of an affiliated group. The consumer closes the checking account. One year after closing the checking account, the consumer opens a savings account with the same depository institution. The consumer must be given a new notice and opportunity to opt out before the depository institution's affiliates may make solicitations to the consumer using eligibility information obtained by the depository institution in connection with the new savings account relationship, regardless of whether the consumer opted out <?page num="67"?>in connection with the checking account.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Duration of opt-out.</heading>
<content> The election of a consumer to opt out must be effective for a period of at least five years (the “opt-out period”) beginning when the consumer's opt-out election is received and implemented, unless the consumer subsequently revokes the opt-out in writing or, if the consumer agrees, electronically. An opt-out period of more than five years may be established, including an opt-out period that does not expire unless revoked by the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.22/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Time of opt-out.</heading>
<content> A consumer may opt out at any time.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.23">
<num value="222.23" style="-uslm-sgm:SECTNO">§ 222.23</num>
<heading style="-uslm-sgm:SUBJECT">Contents of opt-out notice; consolidated and equivalent notices.</heading>
<paragraph identifier="/us/cfr/t12/s222.23/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Contents of opt-out notice—</heading>
<paragraph identifier="/us/cfr/t12/s222.23/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A notice must be clear, conspicuous, and concise, and must accurately disclose:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.23/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The name of the affiliate(s) providing the notice. If the notice is provided jointly by multiple affiliates and each affiliate shares a common name, such as “ABC,” then the notice may indicate that it is being provided by multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by “all of the ABC companies,” “the ABC banking, credit card, insurance, and securities companies,” or by listing the name of each affiliate providing the notice. But if the affiliates providing the joint notice do not all share a common name, then the notice must either separately identify each affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice is provided by “all of the ABC and XYZ companies” or by “the ABC banking and credit card companies and the XYZ insurance companies”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A list of the affiliates or types of affiliates whose use of eligibility information is covered by the notice, which may include companies that become affiliates after the notice is provided to the consumer. If each affiliate covered by the notice shares a common name, such as “ABC,” then the notice may indicate that it applies to multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by “all of the ABC companies,” “the ABC banking, credit card, insurance, and securities companies,” or by listing the name of each affiliate providing the notice. But if the affiliates covered by the notice do not all share a common name, then the notice must either separately identify each covered affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice applies to “all of the ABC and XYZ companies” or to “the ABC banking and credit card companies and the XYZ insurance companies”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A general description of the types of eligibility information that may be used to make solicitations to the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> That the consumer may elect to limit the use of eligibility information to make solicitations to the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> That the consumer's election will apply for the specified period of time stated in the notice and, if applicable, that the consumer will be allowed to renew the election once that period expires;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> If the notice is provided to consumers who may have previously opted out, such as if a notice is provided to consumers annually, that the consumer who has chosen to limit solicitations does not need to act again until the consumer receives a renewal notice; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/1/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> A reasonable and simple method for the consumer to opt out.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Joint relationships.</heading>
<paragraph identifier="/us/cfr/t12/s222.23/a/2/i" class="inline">
<num value="i"> (i)</num>
<content> If two or more consumers jointly obtain a product or service, a single opt-out notice may be provided to the joint consumers. Any of the joint consumers may exercise the right to opt out.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The opt-out notice must explain how an opt-out direction by a joint consumer will be treated. An opt-out direction by a joint consumer may be treated as applying to all of the associated joint consumers, or each joint consumer may be permitted to opt out separately. If each joint consumer is permitted to opt out separately, one of the joint consumers must be permitted <?page num="68"?>to opt out on behalf of all of the joint consumers and the joint consumers must be permitted to exercise their separate rights to opt out in a single response.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> It is impermissible to require <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">all</inline> joint consumers to opt out before implementing <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any</inline> opt-out direction.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Alternative contents.</heading>
<content> If the consumer is afforded a broader right to opt out of receiving marketing than is required by this subpart, the requirements of this section may be satisfied by providing the consumer with a clear, conspicuous, and concise notice that accurately discloses the consumer's opt-out rights.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Model notices.</heading>
<content> Model notices are provided in appendix C of this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Coordinated and consolidated notices.</heading>
<content> A notice required by this subpart may be coordinated and consolidated with any other notice or disclosure required to be issued under any other provision of law by the entity providing the notice, including but not limited to the notice described in section 603(d)(2)(A)(iii) of the Act and the Gramm-Leach-Bliley Act privacy notice.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.23/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Equivalent notices.</heading>
<content> A notice or other disclosure that is equivalent to the notice required by this subpart, and that is provided to a consumer together with disclosures required by any other provision of law, satisfies the requirements of this section.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.24">
<num value="222.24" style="-uslm-sgm:SECTNO">§ 222.24</num>
<heading style="-uslm-sgm:SUBJECT">Reasonable opportunity to opt out.</heading>
<paragraph identifier="/us/cfr/t12/s222.24/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> You must not use eligibility information about a consumer that you receive from an affiliate to make a solicitation to the consumer about your products or services, unless the consumer is provided a reasonable opportunity to opt out, as required by <ref href="/us/cfr/t12/s222.21/a/1/ii">§ 222.21(a)(1)(ii)</ref> of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.24/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Examples of a reasonable opportunity to opt out.</heading>
<chapeau> The consumer is given a reasonable opportunity to opt out if:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.24/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>By mail.</heading>
<content> The opt-out notice is mailed to the consumer. The consumer is given 30 days from the date the notice is mailed to elect to opt out by any reasonable means.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.24/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>By electronic means.</heading>
<paragraph identifier="/us/cfr/t12/s222.24/b/2/i" class="inline">
<num value="i"> (i)</num>
<content> The opt-out notice is provided electronically to the consumer, such as by posting the notice at an Internet Web site at which the consumer has obtained a product or service. The consumer acknowledges receipt of the electronic notice. The consumer is given 30 days after the date the consumer acknowledges receipt to elect to opt out by any reasonable means.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.24/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The opt-out notice is provided to the consumer by e-mail where the consumer has agreed to receive disclosures by e-mail from the person sending the notice. The consumer is given 30 days after the e-mail is sent to elect to opt out by any reasonable means.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.24/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>At the time of an electronic transaction.</heading>
<content> The opt-out notice is provided to the consumer at the time of an electronic transaction, such as a transaction conducted on an Internet Web site. The consumer is required to decide, as a necessary part of proceeding with the transaction, whether to opt out before completing the transaction. There is a simple process that the consumer may use to opt out at that time using the same mechanism through which the transaction is conducted.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.24/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>At the time of an in-person transaction.</heading>
<content> The opt-out notice is provided to the consumer in writing at the time of an in-person transaction. The consumer is required to decide, as a necessary part of proceeding with the transaction, whether to opt out before completing the transaction, and is not permitted to complete the transaction without making a choice. There is a simple process that the consumer may use during the course of the in-person transaction to opt out, such as completing a form that requires consumers to write a “yes” or “no” to indicate their opt-out preference or that requires the consumer to check one of two blank check boxes—one that allows consumers to indicate that they want to opt out and one that allows consumers to indicate that they do not want to opt out.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.24/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>By including in a privacy notice.</heading>
<content> The opt-out notice is included in a Gramm-Leach-Bliley Act privacy notice. The consumer is allowed to exercise the opt-out within a reasonable period of time and in the same manner as the opt-out under that privacy notice.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.25"><?page num="69"?>
<num value="222.25" style="-uslm-sgm:SECTNO">§ 222.25</num>
<heading style="-uslm-sgm:SUBJECT">Reasonable and simple methods of opting out.</heading>
<paragraph identifier="/us/cfr/t12/s222.25/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> You must not use eligibility information about a consumer that you receive from an affiliate to make a solicitation to the consumer about your products or services, unless the consumer is provided a reasonable and simple method to opt out, as required by <ref href="/us/cfr/t12/s222.21/a/1/ii">§ 222.21(a)(1)(ii)</ref> of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Examples—</heading>
<paragraph identifier="/us/cfr/t12/s222.25/b/1" class="inline">
<num value="1">(1) </num>
<heading>Reasonable and simple opt-out methods.</heading>
<chapeau> Reasonable and simple methods for exercising the opt-out right include—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.25/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Designating a check-off box in a prominent position on the opt-out form;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Including a reply form and a self-addressed envelope together with the opt-out notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Providing an electronic means to opt out, such as a form that can be electronically mailed or processed at an Internet Web site, if the consumer agrees to the electronic delivery of information;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Providing a toll-free telephone number that consumers may call to opt out; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Allowing consumers to exercise all of their opt-out rights described in a consolidated opt-out notice that includes the privacy opt-out under the Gramm-Leach-Bliley Act, <ref href="/us/usc/t15/s6801">15 U.S.C. 6801</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> the affiliate sharing opt-out under the Act, and the affiliate marketing opt-out under the Act, by a single method, such as by calling a single toll-free telephone number.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Opt-out methods that are not reasonable and simple.</heading>
<chapeau> Reasonable and simple methods for exercising an opt-out right <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">do not</inline> include—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.25/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Requiring the consumer to write his or her own letter;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Requiring the consumer to call or write to obtain a form for opting out, rather than including the form with the opt-out notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Requiring the consumer who receives the opt-out notice in electronic form only, such as through posting at an Internet Web site, to opt out solely by paper mail or by visiting a different Web site without providing a link to that site.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.25/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Specific opt-out means.</heading>
<content> Each consumer may be required to opt out through a specific means, as long as that means is reasonable and simple for that consumer.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.26">
<num value="222.26" style="-uslm-sgm:SECTNO">§ 222.26</num>
<heading style="-uslm-sgm:SUBJECT">Delivery of opt-out notices.</heading>
<paragraph identifier="/us/cfr/t12/s222.26/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> The opt-out notice must be provided so that each consumer can reasonably be expected to receive actual notice. For opt-out notices provided electronically, the notice may be provided in compliance with either the electronic disclosure provisions in this subpart or the provisions in section 101 of the Electronic Signatures in Global and National Commerce Act, <ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.26/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Examples of reasonable expectation of actual notice.</heading>
<chapeau> A consumer may reasonably be expected to receive actual notice if the affiliate providing the notice:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.26/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Hand-delivers a printed copy of the notice to the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.26/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Mails a printed copy of the notice to the last known mailing address of the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.26/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Provides a notice by e-mail to a consumer who has agreed to receive electronic disclosures by e-mail from the affiliate providing the notice; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.26/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Posts the notice on the Internet Web site at which the consumer obtained a product or service electronically and requires the consumer to acknowledge receipt of the notice.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.26/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Examples of no reasonable expectation of actual notice.</heading>
<chapeau> A consumer may <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> reasonably be expected to receive actual notice if the affiliate providing the notice:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.26/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Only posts the notice on a sign in a branch or office or generally publishes the notice in a newspaper;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.26/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Sends the notice via e-mail to a consumer who has not agreed to receive electronic disclosures by e-mail from the affiliate providing the notice; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.26/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Posts the notice on an Internet Web site without requiring the consumer to acknowledge receipt of the notice.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.27">
<num value="222.27" style="-uslm-sgm:SECTNO">§ 222.27</num>
<heading style="-uslm-sgm:SUBJECT">Renewal of opt-out.</heading>
<paragraph identifier="/us/cfr/t12/s222.27/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Renewal notice and opt-out requirement—</heading>
<paragraph identifier="/us/cfr/t12/s222.27/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> After the opt-out period expires, you may not make solicitations based on eligibility information you receive from an affiliate to a <?page num="70"?>consumer who previously opted out, unless:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.27/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The consumer has been given a renewal notice that complies with the requirements of this section and <ref href="/us/cfr/t12/s222.24">§§ 222.24</ref> through 222.26 of this part, and a reasonable opportunity and a reasonable and simple method to renew the opt-out, and the consumer does not renew the opt-out; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> An exception in <ref href="/us/cfr/t12/s222.21/c">§ 222.21(c)</ref> of this part applies.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Renewal period.</heading>
<content> Each opt-out renewal must be effective for a period of at least five years as provided in <ref href="/us/cfr/t12/s222.22/b">§ 222.22(b)</ref> of this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Affiliates who may provide the notice.</heading>
<chapeau> The notice required by this paragraph must be provided:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.27/a/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> By the affiliate that provided the previous opt-out notice, or its successor; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> As part of a joint renewal notice from two or more members of an affiliated group of companies, or their successors, that jointly provided the previous opt-out notice.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Contents of renewal notice.</heading>
<chapeau> The renewal notice must be clear, conspicuous, and concise, and must accurately disclose:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.27/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The name of the affiliate(s) providing the notice. If the notice is provided jointly by multiple affiliates and each affiliate shares a common name, such as “ABC,” then the notice may indicate that it is being provided by multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by “all of the ABC companies,” “the ABC banking, credit card, insurance, and securities companies,” or by listing the name of each affiliate providing the notice. But if the affiliates providing the joint notice do not all share a common name, then the notice must either separately identify each affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice is provided by “all of the ABC and XYZ companies” or by “the ABC banking and credit card companies and the XYZ insurance companies”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A list of the affiliates or types of affiliates whose use of eligibility information is covered by the notice, which may include companies that become affiliates after the notice is provided to the consumer. If each affiliate covered by the notice shares a common name, such as “ABC,” then the notice may indicate that it applies to multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by “all of the ABC companies,” “the ABC banking, credit card, insurance, and securities companies,” or by listing the name of each affiliate providing the notice. But if the affiliates covered by the notice do not all share a common name, then the notice must either separately identify each covered affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice applies to “all of the ABC and XYZ companies” or to “the ABC banking and credit card companies and the XYZ insurance companies”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A general description of the types of eligibility information that may be used to make solicitations to the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> That the consumer previously elected to limit the use of certain information to make solicitations to the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> That the consumer's election has expired or is about to expire;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> That the consumer may elect to renew the consumer's previous election;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> If applicable, that the consumer's election to renew will apply for the specified period of time stated in the notice and that the consumer will be allowed to renew the election once that period expires; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/b/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> A reasonable and simple method for the consumer to opt out.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Timing of the renewal notice—</heading>
<paragraph identifier="/us/cfr/t12/s222.27/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A renewal notice may be provided to the consumer either—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.27/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A reasonable period of time before the expiration of the opt-out period; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any time after the expiration of the opt-out period but before solicitations that would have been prohibited by the expired opt-out are made to the consumer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Combination with annual privacy notice.</heading>
<content> If you provide an annual privacy <?page num="71"?>notice under the Gramm-Leach-Bliley Act, <ref href="/us/usc/t15/s6801">15 U.S.C. 6801</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> providing a renewal notice with the last annual privacy notice provided to the consumer before expiration of the opt-out period is a reasonable period of time before expiration of the opt-out in all cases.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.27/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>No effect on opt-out period.</heading>
<content> An opt-out period may not be shortened by sending a renewal notice to the consumer before expiration of the opt-out period, even if the consumer does not renew the opt out.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.28">
<num value="222.28" style="-uslm-sgm:SECTNO">§ 222.28</num>
<heading style="-uslm-sgm:SUBJECT">Effective date, compliance date, and prospective application.</heading>
<paragraph identifier="/us/cfr/t12/s222.28/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Effective date.</heading>
<content> This subpart is effective <date date="2008-01-01">January 1, 2008</date>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.28/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Mandatory compliance date.</heading>
<content> Compliance with this subpart is required not later than <date date="2008-10-01">October 1, 2008</date>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.28/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Prospective application.</heading>
<content> The provisions of this subpart shall not prohibit you from using eligibility information that you receive from an affiliate to make solicitations to a consumer if you receive such information prior to <date date="2008-10-01">October 1, 2008</date>. For purposes of this section, you are deemed to receive eligibility information when such information is placed into a common database and is accessible by you.
</content>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spD">
<num value="D" style="-uslm-sgm:HED">Subpart D—</num>
<heading style="-uslm-sgm:HED">Medical Information </heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/70/70679">70 FR 70679</ref>, <date date="2005-11-22">Nov. 22, 2005</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.30">
<num value="222.30" style="-uslm-sgm:SECTNO">§ 222.30</num>
<heading style="-uslm-sgm:SUBJECT">Obtaining or using medical information in connection with a determination of eligibility for credit.</heading>
<paragraph identifier="/us/cfr/t12/s222.30/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<chapeau> This section applies to</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Any of the following that participates as a creditor in a transaction—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A bank that is a member of the Federal Reserve System (other than national banks) and its subsidiaries;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A branch or Agency of a foreign bank (other than Federal branches, Federal Agencies, and insured State branches of foreign banks) and its subsidiaries;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A commercial lending company owned or controlled by foreign banks;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> An organization operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/a/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> A bank holding company and an affiliate of such holding company (other than depository institutions and consumer reporting agencies); or</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any other person that participates as a creditor in a transaction involving a person described in paragraph (a)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>General prohibition on obtaining or using medical information—</heading>
<paragraph identifier="/us/cfr/t12/s222.30/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A creditor may not obtain or use medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit, except as provided in this section.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s222.30/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Definitions.</heading>
<content>
<p> (i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit</inline> has the same meaning as in section 702 of the Equal Credit Opportunity Act, <ref href="/us/usc/t15/s1691a">15 U.S.C. 1691a</ref>.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor</inline> has the same meaning as in section 702 of the Equal Credit Opportunity Act, <ref href="/us/usc/t15/s1691a">15 U.S.C. 1691a</ref>.</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility, or continued eligibility, for credit</inline> means the consumer's qualification or fitness to receive, or continue to receive, credit, including the terms on which credit is offered. The term does not include:</p>
<p style="-uslm-sgm:P">(A) Any determination of the consumer's qualification or fitness for employment, insurance (other than a credit insurance product), or other non-credit products or services;</p>
<p style="-uslm-sgm:P">(B) Authorizing, processing, or documenting a payment or transaction on behalf of the consumer in a manner that does not involve a determination of the consumer's eligibility, or continued eligibility, for credit; or</p>
<p style="-uslm-sgm:P">(C) Maintaining or servicing the consumer's account in a manner that does not involve a determination of the consumer's eligibility, or continued eligibility, for credit.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Rule of construction for obtaining and using unsolicited medical information—</heading>
<paragraph identifier="/us/cfr/t12/s222.30/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A creditor does not obtain medical information in violation of the prohibition if it receives medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit without specifically requesting medical information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Use of unsolicited medical information.</heading>
<content> A creditor that receives unsolicited medical information in the manner described in paragraph (c)(1) of this <?page num="72"?>section may use that information in connection with any determination of the consumer's eligibility, or continued eligibility, for credit to the extent the creditor can rely on at least one of the exceptions in <ref href="/us/cfr/t12/s222.30/d">§ 222.30(d)</ref> or (e).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Examples.</heading>
<chapeau> A creditor does not obtain medical information in violation of the prohibition if, for example:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> In response to a general question regarding a consumer's debts or expenses, the creditor receives information that the consumer owes a debt to a hospital.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In a conversation with the creditor's loan officer, the consumer informs the creditor that the consumer has a particular medical condition.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/c/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> In connection with a consumer's application for an extension of credit, the creditor requests a consumer report from a consumer reporting agency and receives medical information in the consumer report furnished by the agency even though the creditor did not specifically request medical information from the consumer reporting agency.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Financial information exception for obtaining and using medical information—</heading>
<paragraph identifier="/us/cfr/t12/s222.30/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A creditor may obtain and use medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit so long as:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The information is the type of information routinely used in making credit eligibility determinations, such as information relating to debts, expenses, income, benefits, assets, collateral, or the purpose of the loan, including the use of proceeds;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The creditor does not take the consumer's physical, mental, or behavioral health, condition or history, type of treatment, or prognosis into account as part of any such determination.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples.</heading>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/i" class="inline">
<num value="i"> (i) </num>
<heading>Examples of the types of information routinely used in making credit eligibility determinations.</heading>
<chapeau> Paragraph (d)(1)(i) of this section permits a creditor, for example, to obtain and use information about:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The dollar amount, repayment terms, repayment history, and similar information regarding medical debts to calculate, measure, or verify the repayment ability of the consumer, the use of proceeds, or the terms for granting credit;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The value, condition, and lien status of a medical device that may serve as collateral to secure a loan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The dollar amount and continued eligibility for disability income, workers' compensation income, or other benefits related to health or a medical condition that is relied on as a source of repayment; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The identity of creditors to whom outstanding medical debts are owed in connection with an application for credit, including but not limited to, a transaction involving the consolidation of medical debts.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Examples of uses of medical information consistent with the exception.</heading>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/ii/A" class="inline">
<num value="A"> (A)</num>
<content> A consumer includes on an application for credit information about two $20,000 debts. One debt is to a hospital; the other debt is to a retailer. The creditor contacts the hospital and the retailer to verify the amount and payment status of the debts. The creditor learns that both debts are more than 90 days past due. Any two debts of this size that are more than 90 days past due would disqualify the consumer under the creditor's established underwriting criteria. The creditor denies the application on the basis that the consumer has a poor repayment history on outstanding debts. The creditor has used medical information in a manner and to an extent no less favorable than it would use comparable non-medical information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A consumer indicates on an application for a $200,000 mortgage loan that she receives $15,000 in long-term disability income each year from her former employer and has no other income. Annual income of $15,000, regardless of source, would not be sufficient to support the requested amount of credit. The creditor denies the application on the basis that the projected debt-to-income ratio of the consumer does not meet the creditor's underwriting criteria. The creditor has used <?page num="73"?>medical information in a manner and to an extent that is no less favorable than it would use comparable non-medical information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A consumer includes on an application for a $10,000 home equity loan that he has a $50,000 debt to a medical facility that specializes in treating a potentially terminal disease. The creditor contacts the medical facility to verify the debt and obtain the repayment history and current status of the loan. The creditor learns that the debt is current. The applicant meets the income and other requirements of the creditor's underwriting guidelines. The creditor grants the application. The creditor has used medical information in accordance with the exception.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Examples of uses of medical information inconsistent with the exception.</heading>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/iii/A" class="inline">
<num value="A"> (A)</num>
<content> A consumer applies for $25,000 of credit and includes on the application information about a $50,000 debt to a hospital. The creditor contacts the hospital to verify the amount and payment status of the debt, and learns that the debt is current and that the consumer has no delinquencies in her repayment history. If the existing debt were instead owed to a retail department store, the creditor would approve the application and extend credit based on the amount and repayment history of the outstanding debt. The creditor, however, denies the application because the consumer is indebted to a hospital. The creditor has used medical information, here the identity of the medical creditor, in a manner and to an extent that is less favorable than it would use comparable non-medical information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A consumer meets with a loan officer of a creditor to apply for a mortgage loan. While filling out the loan application, the consumer informs the loan officer orally that she has a potentially terminal disease. The consumer meets the creditor's established requirements for the requested mortgage loan. The loan officer recommends to the credit committee that the consumer be denied credit because the consumer has that disease. The credit committee follows the loan officer's recommendation and denies the application because the consumer has a potentially terminal disease. The creditor has used medical information in a manner inconsistent with the exception by taking into account the consumer's physical, mental, or behavioral health, condition, or history, type of treatment, or prognosis as part of a determination of eligibility or continued eligibility for credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/d/2/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A consumer who has an apparent medical condition, such as a consumer who uses a wheelchair or an oxygen tank, meets with a loan officer to apply for a home equity loan. The consumer meets the creditor's established requirements for the requested home equity loan and the creditor typically does not require consumers to obtain a debt cancellation contract, debt suspension agreement, or credit insurance product in connection with such loans. However, based on the consumer's apparent medical condition, the loan officer recommends to the credit committee that credit be extended to the consumer only if the consumer obtains a debt cancellation contract, debt suspension agreement, or credit insurance product from a nonaffiliated third party. The credit committee agrees with the loan officer's recommendation. The loan officer informs the consumer that the consumer must obtain a debt cancellation contract, debt suspension agreement, or credit insurance product from a nonaffiliated third party to qualify for the loan. The consumer obtains one of these products and the creditor approves the loan. The creditor has used medical information in a manner inconsistent with the exception by taking into account the consumer's physical, mental, or behavioral health, condition, or history, type of treatment, or prognosis in setting conditions on the consumer's eligibility for credit.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Specific exceptions for obtaining and using medical information—</heading>
<paragraph identifier="/us/cfr/t12/s222.30/e/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A creditor may obtain and use medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> To determine whether the use of a power of attorney or legal representative that is triggered by a medical condition or event is necessary and appropriate or whether the consumer has the <?page num="74"?>legal capacity to contract when a person seeks to exercise a power of attorney or act as legal representative for a consumer based on an asserted medical condition or event;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> To comply with applicable requirements of local, state, or Federal laws;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> To determine, at the consumer's request, whether the consumer qualifies for a legally permissible special credit program or credit-related assistance program that is—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Designed to meet the special needs of consumers with medical conditions; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> Established and administered pursuant to a written plan that—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/iii/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Identifies the class of persons that the program is designed to benefit; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/iii/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Sets forth the procedures and standards for extending credit or providing other credit-related assistance under the program;</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> To the extent necessary for purposes of fraud prevention or detection;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> In the case of credit for the purpose of financing medical products or services, to determine and verify the medical purpose of a loan and the use of proceeds;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Consistent with safe and sound practices, if the consumer or the consumer's legal representative specifically requests that the creditor use medical information in determining the consumer's eligibility, or continued eligibility, for credit, to accommodate the consumer's particular circumstances, and such request is documented by the creditor;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Consistent with safe and sound practices, to determine whether the provisions of a forbearance practice or program that is triggered by a medical condition or event apply to a consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> To determine the consumer's eligibility for, the triggering of, or the reactivation of a debt cancellation contract or debt suspension agreement if a medical condition or event is a triggering event for the provision of benefits under the contract or agreement; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/1/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<content> To determine the consumer's eligibility for, the triggering of, or the reactivation of a credit insurance product if a medical condition or event is a triggering event for the provision of benefits under the product.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Example of determining eligibility for a special credit program or credit assistance program.</heading>
<content> A not-for-profit organization establishes a credit assistance program pursuant to a written plan that is designed to assist disabled veterans in purchasing homes by subsidizing the down payment for the home purchase mortgage loans of qualifying veterans. The organization works through mortgage lenders and requires mortgage lenders to obtain medical information about the disability of any consumer that seeks to qualify for the program, use that information to verify the consumer's eligibility for the program, and forward that information to the organization. A consumer who is a veteran applies to a creditor for a home purchase mortgage loan. The creditor informs the consumer about the credit assistance program for disabled veterans and the consumer seeks to qualify for the program. Assuming that the program complies with all applicable law, including applicable fair lending laws, the creditor may obtain and use medical information about the medical condition and disability, if any, of the consumer to determine whether the consumer qualifies for the credit assistance program.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Examples of verifying the medical purpose of the loan or the use of proceeds.</heading>
<paragraph identifier="/us/cfr/t12/s222.30/e/3/i" class="inline">
<num value="i"> (i)</num>
<content> If a consumer applies for $10,000 of credit for the purpose of financing vision correction surgery, the creditor may verify with the surgeon that the procedure will be performed. If the surgeon reports that surgery will not be performed on the consumer, the creditor may use that medical information to deny the consumer's application for credit, because the loan would not be used for the stated purpose.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If a consumer applies for $10,000 of credit for the purpose of financing cosmetic surgery, the creditor may confirm the cost of the procedure with the surgeon. If the surgeon reports that the cost of the procedure is $5,000, the creditor may use that medical information to offer the consumer only $5,000 of credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A creditor has an established medical loan program for financing particular elective surgical procedures. <?page num="75"?>The creditor receives a loan application from a consumer requesting $10,000 of credit under the established loan program for an elective surgical procedure. The consumer indicates on the application that the purpose of the loan is to finance an elective surgical procedure not eligible for funding under the guidelines of the established loan program. The creditor may deny the consumer's application because the purpose of the loan is not for a particular procedure funded by the established loan program.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Examples of obtaining and using medical information at the request of the consumer.</heading>
<paragraph identifier="/us/cfr/t12/s222.30/e/4/i" class="inline">
<num value="i"> (i)</num>
<content> If a consumer applies for a loan and specifically requests that the creditor consider the consumer's medical disability at the relevant time as an explanation for adverse payment history information in his credit report, the creditor may consider such medical information in evaluating the consumer's willingness and ability to repay the requested loan to accommodate the consumer's particular circumstances, consistent with safe and sound practices. The creditor may also decline to consider such medical information to accommodate the consumer, but may evaluate the consumer's application in accordance with its otherwise applicable underwriting criteria. The creditor may not deny the consumer's application or otherwise treat the consumer less favorably because the consumer specifically requested a medical accommodation, if the creditor would have extended the credit or treated the consumer more favorably under the creditor's otherwise applicable underwriting criteria.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If a consumer applies for a loan by telephone and explains that his income has been and will continue to be interrupted on account of a medical condition and that he expects to repay the loan by liquidating assets, the creditor may, but is not required to, evaluate the application using the sale of assets as the primary source of repayment, consistent with safe and sound practices, provided that the creditor documents the consumer's request by recording the oral conversation or making a notation of the request in the consumer's file.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If a consumer applies for a loan and the application form provides a space where the consumer may provide any other information or special circumstances, whether medical or non-medical, that the consumer would like the creditor to consider in evaluating the consumer's application, the creditor may use medical information provided by the consumer in that space on that application to accommodate the consumer's application for credit, consistent with safe and sound practices, or may disregard that information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> If a consumer specifically requests that the creditor use medical information in determining the consumer's eligibility, or continued eligibility, for credit and provides the creditor with medical information for that purpose, and the creditor determines that it needs additional information regarding the consumer's circumstances, the creditor may request, obtain, and use additional medical information about the consumer as necessary to verify the information provided by the consumer or to determine whether to make an accommodation for the consumer. The consumer may decline to provide additional information, withdraw the request for an accommodation, and have the application considered under the creditor's otherwise applicable underwriting criteria.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/4/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> If a consumer completes and signs a credit application that is not for medical purpose credit and the application contains boilerplate language that routinely requests medical information from the consumer or that indicates that by applying for credit the consumer authorizes or consents to the creditor obtaining and using medical information in connection with a determination of the consumer's eligibility, or continued eligibility, for credit, the consumer has not specifically requested that the creditor obtain and use medical information to accommodate the consumer's particular circumstances.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.30/e/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Example of a forbearance practice or program.</heading>
<content> After an appropriate safety and soundness review, a creditor institutes a program that allows consumers who are or will be hospitalized to defer payments as needed for up to three months, without penalty, if the credit <?page num="76"?>account has been open for more than one year and has not previously been in default, and the consumer provides confirming documentation at an appropriate time. A consumer is hospitalized and does not pay her bill for a particular month. This consumer has had a credit account with the creditor for more than one year and has not previously been in default. The creditor attempts to contact the consumer and speaks with the consumer's adult child, who is not the consumer's legal representative. The adult child informs the creditor that the consumer is hospitalized and is unable to pay the bill at that time. The creditor defers payments for up to three months, without penalty, for the hospitalized consumer and sends the consumer a letter confirming this practice and the date on which the next payment will be due. The creditor has obtained and used medical information to determine whether the provisions of a medically-triggered forbearance practice or program apply to a consumer.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.31">
<num value="222.31" style="-uslm-sgm:SECTNO">§ 222.31</num>
<heading style="-uslm-sgm:SUBJECT">Limits on redisclosure of information.</heading>
<paragraph identifier="/us/cfr/t12/s222.31/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<content> This section applies to banks that are members of the Federal Reserve System (other than national banks) and their respective operating subsidiaries, branches and agencies of foreign banks (other than Federal branches, Federal Agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, organizations operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and bank holding companies and affiliates of such holding companies (other than depository institutions and consumer reporting agencies).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.31/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Limits on redisclosure.</heading>
<content> If a person described in paragraph (a) of this section receives medical information about a consumer from a consumer reporting agency or its affiliate, the person must not disclose that information to any other person, except as necessary to carry out the purpose for which the information was initially disclosed, or as otherwise permitted by statute, regulation, or order.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.32">
<num value="222.32" style="-uslm-sgm:SECTNO">§ 222.32</num>
<heading style="-uslm-sgm:SUBJECT">Sharing medical information with affiliates.</heading>
<paragraph identifier="/us/cfr/t12/s222.32/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<content> This section applies to banks that are members of the Federal Reserve System (other than national banks) and their respective operating subsidiaries, branches and agencies of foreign banks (other than Federal branches, Federal Agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, organizations operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>In general.</heading>
<chapeau> The exclusions from the term “consumer report” in section 603(d)(2) of the Act that allow the sharing of information with affiliates do not apply to a person described in paragraph (a) of this section if that person communicates to an affiliate:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.32/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Medical information;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An individualized list or description based on the payment transactions of the consumer for medical products or services; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> An aggregate list of identified consumers based on payment transactions for medical products or services.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exceptions.</heading>
<chapeau> A person described in paragraph (a) of this section may rely on the exclusions from the term “consumer report” in section 603(d)(2) of the Act to communicate the information in paragraph (b) of this section to an affiliate:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.32/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> In connection with the business of insurance or annuities (including the activities described in section 18B of the model Privacy of Consumer Financial and Health Information Regulation issued by the National Association of Insurance Commissioners, as in effect on <date date="2003-01-01">January 1, 2003</date>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> For any purpose permitted without authorization under the regulations promulgated by the Department of Health and Human Services pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> For any purpose referred to in section 1179 of HIPAA;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> For any purpose described in section 502(e) of the Gramm-Leach-Bliley Act;
<?page num="77"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> In connection with a determination of the consumer's eligibility, or continued eligibility, for credit consistent with <ref href="/us/cfr/t12/s222.30">§ 222.30</ref> of this part; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.32/c/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> As otherwise permitted by order of the Board.
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spE">
<num value="E" style="-uslm-sgm:HED">Subpart E—</num>
<heading style="-uslm-sgm:HED">Duties of Furnishers of Information</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/74/31514">74 FR 31514</ref>, <date date="2009-07-01">July 1, 2009</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.40">
<num value="222.40" style="-uslm-sgm:SECTNO">§ 222.40</num>
<heading style="-uslm-sgm:SUBJECT">Scope.</heading>
<content style="-uslm-sgm:P">Subpart E of this part applies to member banks of the Federal Reserve System (other than national banks) and their respective operating subsidiaries that are not functionally regulated within the meaning of section 5(c)(5) of the Bank Holding Company Act, as amended (<ref href="/us/usc/t12/s1844/c/5">12 U.S.C. 1844(c)(5)</ref>), branches and Agencies of foreign banks (other than Federal branches, Federal Agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).
</content>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s222.41">
<num value="222.41" style="-uslm-sgm:SECTNO">§ 222.41</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">For purposes of this subpart and appendix E of this part, the following definitions apply:</p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accuracy</inline> means that information that a furnisher provides to a consumer reporting agency about an account or other relationship with the consumer correctly:</p>
<p style="-uslm-sgm:P">(1) Reflects the terms of and liability for the account or other relationship;</p>
<p style="-uslm-sgm:P">(2) Reflects the consumer's performance and other conduct with respect to the account or other relationship; and</p>
<p style="-uslm-sgm:P">(3) Identifies the appropriate consumer.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Direct dispute</inline> means a dispute submitted directly to a furnisher (including a furnisher that is a debt collector) by a consumer concerning the accuracy of any information contained in a consumer report and pertaining to an account or other relationship that the furnisher has or had with the consumer.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Furnisher</inline> means an entity that furnishes information relating to consumers to one or more consumer reporting agencies for inclusion in a consumer report. An entity is not a furnisher when it:</p>
<p style="-uslm-sgm:P">(1) Provides information to a consumer reporting agency solely to obtain a consumer report in accordance with sections 604(a) and (f) of the Fair Credit Reporting Act;</p>
<p style="-uslm-sgm:P">(2) Is acting as a “consumer reporting agency” as defined in section 603(f) of the Fair Credit Reporting Act;</p>
<p style="-uslm-sgm:P">(3) Is a consumer to whom the furnished information pertains; or</p>
<p style="-uslm-sgm:P">(4) Is a neighbor, friend, or associate of the consumer, or another individual with whom the consumer is acquainted or who may have knowledge about the consumer, and who provides information about the consumer's character, general reputation, personal characteristics, or mode of living in response to a specific request from a consumer reporting agency.</p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identity theft</inline> has the same meaning as in <ref href="/us/cfr/t16/s603.2/a">16 CFR 603.2(a)</ref>.</p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Integrity</inline> means that information that a furnisher provides to a consumer reporting agency about an account or other relationship with the consumer:</p>
<p style="-uslm-sgm:P">(1) Is substantiated by the furnisher's records at the time it is furnished;</p>
<p style="-uslm-sgm:P">(2) Is furnished in a form and manner that is designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; and</p>
<p style="-uslm-sgm:P">(3) Includes the information in the furnisher's possession about the account or other relationship that the Board has:</p>
<p style="-uslm-sgm:P">(i) Determined that the absence of which would likely be materially misleading in evaluating a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living; and</p>
<p style="-uslm-sgm:P">(ii) Listed in section I.(b)(2)(iii) of appendix E of this part.
</p>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.42">
<num value="222.42" style="-uslm-sgm:SECTNO">§ 222.42</num>
<heading style="-uslm-sgm:SUBJECT">Reasonable policies and procedures concerning the accuracy and integrity of furnished information.</heading>
<paragraph identifier="/us/cfr/t12/s222.42/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Policies and procedures.</heading>
<content> Each furnisher must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to <?page num="78"?>consumers that it furnishes to a consumer reporting agency. The policies and procedures must be appropriate to the nature, size, complexity, and scope of each furnisher's activities.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.42/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Guidelines.</heading>
<content> Each furnisher must consider the guidelines in appendix E of this part in developing its policies and procedures required by this section, and incorporate those guidelines that are appropriate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.42/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Reviewing and updating policies and procedures.</heading>
<content> Each furnisher must review its policies and procedures required by this section periodically and update them as necessary to ensure their continued effectiveness.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.43">
<num value="222.43" style="-uslm-sgm:SECTNO">§ 222.43</num>
<heading style="-uslm-sgm:SUBJECT">Direct disputes.</heading>
<paragraph identifier="/us/cfr/t12/s222.43/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule.</heading>
<chapeau> Except as otherwise provided in this section, a furnisher must conduct a reasonable investigation of a direct dispute if it relates to:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.43/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The consumer's liability for a credit account or other debt with the furnisher, such as direct disputes relating to whether there is or has been identity theft or fraud against the consumer, whether there is individual or joint liability on an account, or whether the consumer is an authorized user of a credit account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The terms of a credit account or other debt with the furnisher, such as direct disputes relating to the type of account, principal balance, scheduled payment amount on an account, or the amount of the credit limit on an open-end account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The consumer's performance or other conduct concerning an account or other relationship with the furnisher, such as direct disputes relating to the current payment status, high balance, date a payment was made, the amount of a payment made, or the date an account was opened or closed; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Any other information contained in a consumer report regarding an account or other relationship with the furnisher that bears on the consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exceptions.</heading>
<chapeau> The requirements of paragraph (a) of this section do not apply to a furnisher if:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.43/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> The direct dispute relates to:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.43/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The consumer's identifying information (other than a direct dispute relating to a consumer's liability for a credit account or other debt with the furnisher, as provided in paragraph (a)(1) of this section) such as name(s), date of birth, Social Security number, telephone number(s), or address(es);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The identity of past or present employers;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Inquiries or requests for a consumer report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Information derived from public records, such as judgments, bankruptcies, liens, and other legal matters (unless provided by a furnisher with an account or other relationship with the consumer);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/b/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Information related to fraud alerts or active duty alerts; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/b/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Information provided to a consumer reporting agency by another furnisher; or</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The furnisher has a reasonable belief that the direct dispute is submitted by, is prepared on behalf of the consumer by, or is submitted on a form supplied to the consumer by, a credit repair organization, as defined in <ref href="/us/usc/t15/s1679a/3">15 U.S.C. 1679a(3)</ref>, or an entity that would be a credit repair organization, but for <ref href="/us/usc/t15/s1679a/3/B/i">15 U.S.C. 1679a(3)(B)(i)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Direct dispute address.</heading>
<chapeau> A furnisher is required to investigate a direct dispute only if a consumer submits a dispute notice to the furnisher at:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.43/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The address of a furnisher provided by a furnisher and set forth on a consumer report relating to the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An address clearly and conspicuously specified by the furnisher for submitting direct disputes that is provided to the consumer in writing or electronically (if the consumer has agreed to the electronic delivery of information from the furnisher); or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Any business address of the furnisher if the furnisher has not so specified and provided an address for submitting direct disputes under paragraphs (c)(1) or (2) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Direct dispute notice contents.</heading>
<chapeau> A dispute notice must include:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.43/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Sufficient information to identify the account or other relationship that <?page num="79"?>is in dispute, such as an account number and the name, address, and telephone number of the consumer, if applicable;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The specific information that the consumer is disputing and an explanation of the basis for the dispute; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> All supporting documentation or other information reasonably required by the furnisher to substantiate the basis of the dispute. This documentation may include, for example: a copy of the relevant portion of the consumer report that contains the allegedly inaccurate information; a police report; a fraud or identity theft affidavit; a court order; or account statements.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Duty of furnisher after receiving a direct dispute notice.</heading>
<chapeau> After receiving a dispute notice from a consumer pursuant to paragraphs (c) and (d) of this section, the furnisher must:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.43/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Conduct a reasonable investigation with respect to the disputed information;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Review all relevant information provided by the consumer with the dispute notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Complete its investigation of the dispute and report the results of the investigation to the consumer before the expiration of the period under section 611(a)(1) of the Fair Credit Reporting Act (<ref href="/us/usc/t15/s1681i/a/1">15 U.S.C. 1681i(a)(1)</ref>) within which a consumer reporting agency would be required to complete its action if the consumer had elected to dispute the information under that section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/e/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> If the investigation finds that the information reported was inaccurate, promptly notify each consumer reporting agency to which the furnisher provided inaccurate information of that determination and provide to the consumer reporting agency any correction to that information that is necessary to make the information provided by the furnisher accurate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Frivolous or irrelevant disputes.</heading>
<paragraph identifier="/us/cfr/t12/s222.43/f/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A furnisher is not required to investigate a direct dispute if the furnisher has reasonably determined that the dispute is frivolous or irrelevant. A dispute qualifies as frivolous or irrelevant if:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.43/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The consumer did not provide sufficient information to investigate the disputed information as required by paragraph (d) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The direct dispute is substantially the same as a dispute previously submitted by or on behalf of the consumer, either directly to the furnisher or through a consumer reporting agency, with respect to which the furnisher has already satisfied the applicable requirements of the Act or this section; provided, however, that a direct dispute is not substantially the same as a dispute previously submitted if the dispute includes information listed in paragraph (d) of this section that had not previously been provided to the furnisher; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/f/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The furnisher is not required to investigate the direct dispute because one or more of the exceptions listed in paragraph (b) of this section applies.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notice of determination.</heading>
<content> Upon making a determination that a dispute is frivolous or irrelevant, the furnisher must notify the consumer of the determination not later than five business days after making the determination, by mail or, if authorized by the consumer for that purpose, by any other means available to the furnisher.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.43/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Contents of notice of determination that a dispute is frivolous or irrelevant.</heading>
<content> A notice of determination that a dispute is frivolous or irrelevant must include the reasons for such determination and identify any information required to investigate the disputed information, which notice may consist of a standardized form describing the general nature of such information.
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" role="reserved" identifier="/us/cfr/t12/p222/spF">
<num value="F" style="-uslm-sgm:RESERVED">Subpart F </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spH">
<num value="H" style="-uslm-sgm:HED">Subpart H—</num>
<heading style="-uslm-sgm:HED">Duties of Users Regarding Risk-Based Pricing</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/75/2752">75 FR 2752</ref>, <date date="2010-01-15">January 15, 2010</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.70">
<num value="222.70" style="-uslm-sgm:SECTNO">§ 222.70</num>
<heading style="-uslm-sgm:SUBJECT">Scope.</heading>
<paragraph identifier="/us/cfr/t12/s222.70/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Coverage—</heading>
<paragraph identifier="/us/cfr/t12/s222.70/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> This subpart applies to any person that both—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.70/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to a consumer that is primarily for personal, family, or household purposes; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.70/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Based in whole or in part on the consumer report, grants, extends, or <?page num="80"?>otherwise provides credit to the consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that person.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.70/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Business credit excluded.</heading>
<content> This subpart does not apply to an application for, or a grant, extension, or other provision of, credit to a consumer or to any other applicant primarily for a business purpose.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.70/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Relation to Federal Trade Commission rules.</heading>
<content> These rules are substantively identical to the Federal Trade Commission's (Commission's) risk-based pricing rules in <ref href="/us/cfr/t16/p640">16 CFR 640</ref>. Both rules apply to the covered person described in paragraph (a) of this section. Compliance with either the Board's rules or the Commission's rules satisfies the requirements of the statute (<ref href="/us/usc/t15/s1681m/h">15 U.S.C. 1681m(h)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.70/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Enforcement.</heading>
<content> The provisions of this subpart will be enforced in accordance with the enforcement authority set forth in sections 621(a) and (b) of the FCRA.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s222.71">
<num value="222.71" style="-uslm-sgm:SECTNO">§ 222.71</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">For purposes of this subpart, the following definitions apply:</p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adverse action</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/k/1/A">15 U.S.C. 1681a(k)(1)(A)</ref>.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual percentage rate</inline> has the same meaning as in <ref href="/us/cfr/t12/s226.14/b">12 CFR 226.14(b)</ref> with respect to an open-end credit plan and as in <ref href="/us/cfr/t12/s226.22">12 CFR 226.22</ref> with respect to closed-end credit.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Closed-end credit</inline> has the same meaning as in <ref href="/us/cfr/t12/s226.2/a/10">12 CFR 226.2(a)(10)</ref>.</p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/c">15 U.S.C. 1681a(c)</ref>.</p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consummation</inline> has the same meaning as in <ref href="/us/cfr/t12/s226.2/a/13">12 CFR 226.2(a)(13)</ref>.</p>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer report</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/d">15 U.S.C. 1681a(d)</ref>.</p>
<p style="-uslm-sgm:P">(g) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer reporting agency</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/f">15 U.S.C. 1681a(f)</ref>.</p>
<p style="-uslm-sgm:P">(h) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/r/5">15 U.S.C. 1681a(r)(5)</ref>.</p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/r/5">15 U.S.C. 1681a(r)(5)</ref>.</p>
<p style="-uslm-sgm:P">(j) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/r/2">15 U.S.C. 1681a(r)(2)</ref>.</p>
<p style="-uslm-sgm:P">(k) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card issuer</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/r/1/A">15 U.S.C. 1681a(r)(1)(A)</ref>.</p>
<p style="-uslm-sgm:P">(l) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit score</inline> has the same meaning as in <ref href="/us/usc/t15/s1681g/f/2/A">15 U.S.C. 1681g(f)(2)(A)</ref>.</p>
<p style="-uslm-sgm:P">(m) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Firm offer of credit</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/l">15 U.S.C. 1681a(l)</ref>.</p>
<p style="-uslm-sgm:P">(n) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Material terms</inline> means—</p>
<p style="-uslm-sgm:P">(1) (i) Except as otherwise provided in paragraphs (n)(1)(ii) and (n)(3) of this section, in the case of credit extended under an open-end credit plan, the annual percentage rate required to be disclosed under <ref href="/us/cfr/t12/s226.6/a/1/ii">12 CFR 226.6(a)(1)(ii)</ref> or <ref href="/us/cfr/t12/s226.6/b/2/i">12 CFR 226.6(b)(2)(i)</ref>, excluding any temporary initial rate that is lower than the rate that will apply after the temporary rate expires, any penalty rate that will apply upon the occurrence of one or more specific events, such as a late payment or an extension of credit that exceeds the credit limit, and any fixed annual percentage rate option for a home equity line of credit;</p>
<p style="-uslm-sgm:P">(ii) In the case of a credit card (other than a credit card that is used to access a home equity line of credit or a charge card), the annual percentage rate required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/i">12 CFR 226.6(b)(2)(i)</ref> that applies to purchases (“purchase annual percentage rate”) and no other annual percentage rate, or in the case of a credit card that has no purchase annual percentage rate, the annual percentage rate that varies based on information in a consumer report and that has the most significant financial impact on consumers;</p>
<p style="-uslm-sgm:P">(2) In the case of closed-end credit, the annual percentage rate required to be disclosed under <ref href="/us/cfr/t12/s226.17/c">12 CFR 226.17(c)</ref> and 226.18(e); and</p>
<p style="-uslm-sgm:P">(3) In the case of credit for which there is no annual percentage rate, the financial term that varies based on information in a consumer report and that has the most significant financial impact on consumers, such as a deposit required in connection with credit extended by a telephone company or utility or an annual membership fee for a charge card.</p>
<p style="-uslm-sgm:P">(o) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Materially less favorable</inline> means, when applied to material terms, that the terms granted, extended, or otherwise provided to a consumer differ from the terms granted, extended, or otherwise provided to another consumer from or through the same person such that the cost of credit to the first consumer would be significantly greater than the cost of credit granted, extended, or otherwise provided to the <?page num="81"?>other consumer. For purposes of this definition, factors relevant to determining the significance of a difference in cost include the type of credit product, the term of the credit extension, if any, and the extent of the difference between the material terms granted, extended, or otherwise provided to the two consumers.</p>
<p style="-uslm-sgm:P">(p) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end credit plan</inline> has the same meaning as in <ref href="/us/usc/t15/s1602/i">15 U.S.C. 1602(i)</ref>, as interpreted by the Board of Governors of the Federal Reserve System in Regulation Z (<ref href="/us/cfr/t12/p226">12 CFR part 226</ref>) and the Official Staff Commentary to Regulation Z (Supplement I to <ref href="/us/cfr/t12/p226">12 CFR Part 226</ref>).</p>
<p style="-uslm-sgm:P">(q) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/b">15 U.S.C. 1681a(b)</ref>.
</p>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.72">
<num value="222.72" style="-uslm-sgm:SECTNO">§ 222.72</num>
<heading style="-uslm-sgm:SUBJECT">General requirements for risk-based pricing notices.</heading>
<paragraph identifier="/us/cfr/t12/s222.72/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<chapeau> Except as otherwise provided in this subpart, a person must provide to a consumer a notice (“risk-based pricing notice”) in the form and manner required by this subpart if the person both—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.72/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to that consumer that is primarily for personal, family, or household purposes; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Based in whole or in part on the consumer report, grants, extends, or otherwise provides credit to that consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that person.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Determining which consumers must receive a notice.</heading>
<chapeau> A person may determine whether paragraph (a) of this section applies by directly comparing the material terms offered to each consumer and the material terms offered to other consumers for a specific type of credit product. For purposes of this section, a “specific type of credit product” means one or more credit products with similar features that are designed for similar purposes. Examples of a specific type of credit product include student loans, unsecured credit cards, secured credit cards, new automobile loans, used automobile loans, fixed-rate mortgage loans, and variable-rate mortgage loans. As an alternative to making this direct comparison, a person may make the determination by using one of the following methods:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.72/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Credit score proxy method—</heading>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> A person that sets the material terms of credit granted, extended, or otherwise provided to a consumer, based in whole or in part on a credit score, may comply with the requirements of paragraph (a) of this section by—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Determining the credit score (hereafter referred to as the “cutoff score”) that represents the point at which approximately 40 percent of the consumers to whom it grants, extends, or provides credit have higher credit scores and approximately 60 percent of the consumers to whom it grants, extends, or provides credit have lower credit scores; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Providing a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit whose credit score is lower than the cutoff score.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Alternative to the 40/60 cutoff score determination.</heading>
<content> In the case of credit that has been granted, extended, or provided on the most favorable material terms to more than 40 percent of consumers, a person may, at its option, set its cutoff score at a point at which the approximate percentage of consumers who historically have been granted, extended, or provided credit on material terms other than the most favorable terms would receive risk-based pricing notices under this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Determining the cutoff score—</heading>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/iii/A" class="inline">
<num value="A">(A) </num>
<heading>Sampling approach.</heading>
<content> A person that currently uses risk-based pricing with respect to the credit products it offers must calculate the cutoff score by considering the credit scores of all or a representative sample of the consumers to whom it has granted, extended, or provided credit for a specific type of credit product.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Secondary source approach in limited circumstances.</heading>
<content> A person that is a new entrant into the credit business, introduces new credit products, or starts to use risk-based pricing with respect to the credit products it currently offers may initially determine the cutoff score based on information <?page num="82"?>derived from appropriate market research or relevant third-party sources for a specific type of credit product, such as research or data from companies that develop credit scores. A person that acquires a credit portfolio as a result of a merger or acquisition may determine the cutoff score based on information from the party which it acquired, with which it merged, or from which it acquired the portfolio.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/iii/C" style="-uslm-sgm:P">
<num value="C">(C) </num>
<heading>Recalculation of cutoff scores.</heading>
<content> A person using the credit score proxy method must recalculate its cutoff score(s) no less than every two years in the manner described in paragraph (b)(1)(iii)(A) of this section. A person using the credit score proxy method using market research, third-party data, or information from a party which it acquired, with which it merged, or from which it acquired the portfolio as permitted by paragraph (b)(1)(iii)(B) of this section generally must calculate a cutoff score(s) based on the scores of its own consumers in the manner described in paragraph (b)(1)(iii)(A) of this section within one year after it begins using a cutoff score derived from market research, third-party data, or information from a party which it acquired, with which it merged, or from which it acquired the portfolio. If such a person does not grant, extend, or provide credit to new consumers during that one-year period such that it lacks sufficient data with which to recalculate a cutoff score based on the credit scores of its own consumers, the person may continue to use a cutoff score derived from market research, third-party data, or information from a party which it acquired, with which it merged, or from which it acquired the portfolio as provided in paragraph (b)(1)(iii)(B) until it obtains sufficient data on which to base the recalculation. However, the person must recalculate its cutoff score(s) in the manner described in paragraph (b)(1)(iii)(A) of this section within two years, if it has granted, extended, or provided credit to some new consumers during that two-year period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/iii/D" style="-uslm-sgm:P">
<num value="D">(D) </num>
<heading>Use of two or more credit scores.</heading>
<content> A person that generally uses two or more credit scores in setting the material terms of credit granted, extended, or provided to a consumer must determine the cutoff score using the same method the person uses to evaluate multiple scores when making credit decisions. These evaluation methods may include, but are not limited to, selecting the low, median, high, most recent, or average credit score of each consumer to whom it grants, extends, or provides credit. If a person that uses two or more credit scores does not consistently use the same method for evaluating multiple credit scores (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> if the person sometimes chooses the median score and other times calculates the average score), the person must determine the cutoff score using a reasonable means. In such cases, use of any one of the methods that the person regularly uses or the average credit score of each consumer to whom it grants, extends, or provides credit is deemed to be a reasonable means of calculating the cutoff score.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Credit score not available.</heading>
<content> For purposes of this section, a person using the credit score proxy method who grants, extends, or provides credit to a consumer for whom a credit score is not available must assume that the consumer receives credit on material terms that are materially less favorable than the most favorable credit terms offered to a substantial proportion of consumers from or through that person and must provide a risk-based pricing notice to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Examples.</heading>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/v/A" class="inline">
<num value="A"> (A)</num>
<content> A credit card issuer engages in risk-based pricing and the annual percentage rates it offers to consumers are based in whole or in part on a credit score. The credit card issuer takes a representative sample of the credit scores of consumers to whom it issued credit cards within the preceding three months. The credit card issuer determines that approximately 40 percent of the sampled consumers have a credit score at or above 720 (on a scale of 350 to 850) and approximately 60 percent of the sampled consumers have a credit score below 720. Thus, the card issuer selects 720 as its cutoff score. A consumer applies to the credit card issuer for a credit card. The card issuer obtains a credit score for the consumer. The consumer's credit score is 700. Since the consumer's 700 credit score falls below the 720 cutoff score, the credit card issuer must provide a <?page num="83"?>risk-based pricing notice to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/v/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A credit card issuer engages in risk-based pricing, and the annual percentage rates it offers to consumers are based in whole or in part on a credit score. The credit card issuer takes a representative sample of the consumers to whom it issued credit cards over the preceding six months. The credit card issuer determines that approximately 80 percent of the sampled consumers received credit at its lowest annual percentage rate, and 20 percent received credit at a higher annual percentage rate. Approximately 80 percent of the sampled consumers have a credit score at or above 750 (on a scale of 350 to 850), and 20 percent have a credit score below 750. Thus, the card issuer selects 750 as its cutoff score. A consumer applies to the credit card issuer for a credit card. The card issuer obtains a credit score for the consumer. The consumer's credit score is 740. Since the consumer's 740 credit score falls below the 750 cutoff score, the credit card issuer must provide a risk-based pricing notice to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/1/v/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> An auto lender engages in risk-based pricing, obtains credit scores from one of the nationwide consumer reporting agencies, and uses the credit score proxy method to determine which consumers must receive a risk-based pricing notice. A consumer applies to the auto lender for credit to finance the purchase of an automobile. A credit score about that consumer is not available from the consumer reporting agency from which the lender obtains credit scores. The lender nevertheless grants, extends, or provides credit to the consumer. The lender must provide a risk-based pricing notice to the consumer.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Tiered pricing method—</heading>
<paragraph identifier="/us/cfr/t12/s222.72/b/2/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> A person that sets the material terms of credit granted, extended, or provided to a consumer by placing the consumer within one of a discrete number of pricing tiers for a specific type of credit product, based in whole or in part on a consumer report, may comply with the requirements of paragraph (a) of this section by providing a risk-based pricing notice to each consumer who is not placed within the top pricing tier or tiers, as described below.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Four or fewer pricing tiers.</heading>
<content> If a person using the tiered pricing method has four or fewer pricing tiers, the person complies with the requirements of paragraph (a) of this section by providing a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit who does not qualify for the top tier (that is, the lowest-priced tier). For example, a person that uses a tiered pricing structure with annual percentage rates of 8, 10, 12, and 14 percent would provide the risk-based pricing notice to each consumer to whom it grants, extends, or provides credit at annual percentage rates of 10, 12, and 14 percent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Five or more pricing tiers.</heading>
<content> If a person using the tiered pricing method has five or more pricing tiers, the person complies with the requirements of paragraph (a) of this section by providing a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit who does not qualify for the top two tiers (that is, the two lowest-priced tiers) and any other tier that, together with the top tiers, comprise no less than the top 30 percent but no more than the top 40 percent of the total number of tiers. Each consumer placed within the remaining tiers must receive a risk-based pricing notice. For example, if a person has nine pricing tiers, the top three tiers (that is, the three lowest-priced tiers) comprise no less than the top 30 percent but no more than the top 40 percent of the tiers. Therefore, a person using this method would provide a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit who is placed within the bottom six tiers.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Application to credit card issuers—</heading>
<paragraph identifier="/us/cfr/t12/s222.72/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A credit card issuer subject to the requirements of paragraph (a) of this section may use one of the methods set forth in paragraph (b) of this section to identify consumers to whom it must provide a risk-based pricing notice. Alternatively, a credit card issuer may satisfy its obligations under paragraph (a) of this section by providing a risk-based pricing notice to a consumer when—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.72/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A consumer applies for a credit card either in connection with an application program, such as a direct-<?page num="84"?>mail offer or a take-one application, or in response to a solicitation under <ref href="/us/cfr/t12/s226.5a">12 CFR 226.5a</ref>, and more than a single possible purchase annual percentage rate may apply under the program or solicitation; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Based in whole or in part on a consumer report, the credit card issuer provides a credit card to the consumer with an annual percentage rate referenced in <ref href="/us/cfr/t12/s222.71/n/1/ii">§ 222.71(n)(1)(ii)</ref> that is greater than the lowest annual percentage rate referenced in <ref href="/us/cfr/t12/s222.71/n/1/ii">§ 222.71(n)(1)(ii)</ref> available in connection with the application or solicitation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>No requirement to compare different offers.</heading>
<chapeau> A credit card issuer is not subject to the requirements of paragraph (a) of this section and is not required to provide a risk-based pricing notice to a consumer if—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.72/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The consumer applies for a credit card for which the card issuer provides a single annual percentage rate referenced in <ref href="/us/cfr/t12/s222.71/n/1/ii">§ 222.71(n)(1)(ii)</ref>, excluding a temporary initial rate that is lower than the rate that will apply after the temporary rate expires and a penalty rate that will apply upon the occurrence of one or more specific events, such as a late payment or an extension of credit that exceeds the credit limit; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The credit card issuer offers the consumer the lowest annual percentage rate referenced in <ref href="/us/cfr/t12/s222.71/n/1/ii">§ 222.71(n)(1)(ii)</ref> available under the credit card offer for which the consumer applied, even if a lower annual percentage rate referenced in <ref href="/us/cfr/t12/s222.71/n/1/ii">§ 222.71(n)(1)(ii)</ref> is available under a different credit card offer issued by the card issuer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Examples.</heading>
<paragraph identifier="/us/cfr/t12/s222.72/c/3/i" class="inline">
<num value="i"> (i)</num>
<content> A credit card issuer sends a solicitation to the consumer that discloses several possible purchase annual percentage rates that may apply, such as 10, 12, or 14 percent, or a range of purchase annual percentage rates from 10 to 14 percent. The consumer applies for a credit card in response to the solicitation. The card issuer provides a credit card to the consumer with a purchase annual percentage rate of 12 percent based in whole or in part on a consumer report. Unless an exception applies under <ref href="/us/cfr/t12/s222.74">§ 222.74</ref>, the card issuer may satisfy its obligations under paragraph (a) of this section by providing a risk-based pricing notice to the consumer because the consumer received credit at a purchase annual percentage rate greater than the lowest purchase annual percentage rate available under that solicitation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The same facts as in the example in paragraph (c)(3)(i) of this section, except that the card issuer provides a credit card to the consumer at a purchase annual percentage rate of 10 percent. The card issuer is not required to provide a risk-based pricing notice to the consumer even if, under a different credit card solicitation, that consumer or other consumers might qualify for a purchase annual percentage rate of 8 percent.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Account review—</heading>
<paragraph identifier="/us/cfr/t12/s222.72/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as otherwise provided in this subpart, a person is subject to the requirements of paragraph (a) of this section and must provide a risk-based pricing notice to a consumer in the form and manner required by this subpart if the person—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.72/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Uses a consumer report in connection with a review of credit that has been extended to the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Based in whole or in part on the consumer report, increases the annual percentage rate (the annual percentage rate referenced in <ref href="/us/cfr/t12/s222.71/n/1/ii">§ 222.71(n)(1)(ii)</ref> in the case of a credit card).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.72/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Example.</heading>
<content> A credit card issuer periodically obtains consumer reports for the purpose of reviewing the terms of credit it has extended to consumers in connection with credit cards. As a result of this review, the credit card issuer increases the purchase annual percentage rate applicable to a consumer's credit card based in whole or in part on information in a consumer report. The credit card issuer is subject to the requirements of paragraph (a) of this section and must provide a risk-based pricing notice to the consumer.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.73">
<num value="222.73" style="-uslm-sgm:SECTNO">§ 222.73</num>
<heading style="-uslm-sgm:SUBJECT">Content, form, and timing of risk-based pricing notices.</heading>
<paragraph identifier="/us/cfr/t12/s222.73/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Content of the notice—</heading>
<paragraph identifier="/us/cfr/t12/s222.73/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> The risk-based pricing notice required by <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c) must include:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A statement that a consumer report (or credit report) includes information about the consumer's credit history and the type of information included in that history;
<?page num="85"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that the terms offered, such as the annual percentage rate, have been set based on information from a consumer report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that the terms offered may be less favorable than the terms offered to consumers with better credit histories;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The identity of each consumer reporting agency that furnished a consumer report used in the credit decision;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> A statement that federal law gives the consumer the right to obtain a copy of a consumer report from the consumer reporting agency or agencies identified in the notice without charge for 60 days after receipt of the notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> A statement informing the consumer how to obtain a consumer report from the consumer reporting agency or agencies identified in the notice and providing contact information (including a toll-free telephone number, where applicable) specified by the consumer reporting agency or agencies;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> A statement directing consumers to the Web sites of the Federal Reserve Board and Federal Trade Commission to obtain more information about consumer reports; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<chapeau> If a credit score of the consumer to whom a person grants, extends, or otherwise provides credit is used in setting the material terms of credit:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ix/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A statement that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ix/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The credit score used by the person in making the credit decision;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ix/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The range of possible credit scores under the model used to generate the credit score;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ix/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> All of the key factors that adversely affected the credit score, which shall not exceed four key factors, except that if one of the key factors is the number of enquiries made with respect to the consumer report, the number of key factors shall not exceed five;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ix/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> The date on which the credit score was created; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/1/ix/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> The name of the consumer reporting agency or other person that provided the credit score.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Account review.</heading>
<chapeau> The risk-based pricing notice required by <ref href="/us/cfr/t12/s222.72/d">§ 222.72(d)</ref> must include:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A statement that a consumer report (or credit report) includes information about the consumer's credit history and the type of information included in that credit history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that the person has conducted a review of the account using information from a consumer report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that as a result of the review, the annual percentage rate on the account has been increased based on information from a consumer report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The identity of each consumer reporting agency that furnished a consumer report used in the account review;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> A statement that federal law gives the consumer the right to obtain a copy of a consumer report from the consumer reporting agency or agencies identified in the notice without charge for 60 days after receipt of the notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> A statement informing the consumer how to obtain a consumer report from the consumer reporting agency or agencies identified in the notice and providing contact information (including a toll-free telephone number, where applicable) specified by the consumer reporting agency or agencies;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> A statement directing consumers to the Web sites of the Federal Reserve Board and Federal Trade Commission to obtain more information about consumer reports; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<chapeau> If a credit score of the consumer whose extension of credit is under review is used in increasing the annual percentage rate:
<?page num="86"?></chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ix/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A statement that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ix/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The credit score used by the person in making the credit decision;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ix/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The range of possible credit scores under the model used to generate the credit score;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ix/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> All of the key factors that adversely affected the credit score, which shall not exceed four key factors, except that if one of the key factors is the number of enquires made with respect to the consumer report, the number of key factors shall not exceed five;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ix/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> The date on which the credit score was created; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/a/2/ix/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> The name of the consumer reporting agency or other person that provided the credit score.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Form of the notice—</heading>
<paragraph identifier="/us/cfr/t12/s222.73/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> The risk-based pricing notice required by <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref>, (c), or (d) must be:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Clear and conspicuous; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provided to the consumer in oral, written, or electronic form.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Model forms.</heading>
<content> Model forms of the risk-based pricing notice required by <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> and (c) are contained in Appendices H–1 and H–6 of this part. Appropriate use of Model Form H–1 or H–6 is deemed to comply with the requirements of <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> and (c). Model forms of the risk-based pricing notice required by <ref href="/us/cfr/t12/s222.72/d">§ 222.72(d)</ref> are contained in Appendices H–2 and H–7 of this part. Appropriate use of Model Form H–2 or H–7 is deemed to comply with the requirements of <ref href="/us/cfr/t12/s222.72/d">§ 222.72(d)</ref>. Use of the model forms is optional.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Timing—</heading>
<paragraph identifier="/us/cfr/t12/s222.73/c/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<chapeau> Except as provided in paragraph (c)(3) of this section, a risk-based pricing notice must be provided to the consumer—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> In the case of a grant, extension, or other provision of closed-end credit, before consummation of the transaction, but not earlier than the time the decision to approve an application for, or a grant, extension, or other provision of, credit, is communicated to the consumer by the person required to provide the notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In the case of credit granted, extended, or provided under an open-end credit plan, before the first transaction is made under the plan, but not earlier than the time the decision to approve an application for, or a grant, extension, or other provision of, credit is communicated to the consumer by the person required to provide the notice; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> In the case of a review of credit that has been extended to the consumer, at the time the decision to increase the annual percentage rate (annual percentage rate referenced in <ref href="/us/cfr/t12/s222.71/n/1/ii">§ 222.71(n)(1)(ii)</ref> in the case of a credit card) based on a consumer report is communicated to the consumer by the person required to provide the notice, or if no notice of the increase in the annual percentage rate is provided to the consumer prior to the effective date of the change in the annual percentage rate (to the extent permitted by law), no later than five days after the effective date of the change in the annual percentage rate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Application to certain automobile lending transactions.</heading>
<chapeau> When a person to whom a credit obligation is initially payable grants, extends, or provides credit to a consumer for the purpose of financing the purchase of an automobile from an auto dealer or other party that is not affiliated with the person, any requirement to provide a risk-based pricing notice pursuant to this subpart is satisfied if the person:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Provides a notice described in <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref>, <ref href="/us/cfr/t12/s222.74/e">§ 222.74(e)</ref>, or <ref href="/us/cfr/t12/s222.74/f">§ 222.74(f)</ref> to the consumer within the time periods set forth in paragraph (c)(1)(i) of this section, <ref href="/us/cfr/t12/s222.74/e/3">§ 222.74(e)(3)</ref>, or <ref href="/us/cfr/t12/s222.74/f/4">§ 222.74(f)(4)</ref>, as applicable; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Arranges to have the auto dealer or other party provide a notice described in <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref>, <ref href="/us/cfr/t12/s222.74/e">§ 222.74(e)</ref>, or <ref href="/us/cfr/t12/s222.74/f">§ 222.74(f)</ref> to the consumer on its behalf within the time periods set forth in paragraph (c)(1)(i) of this section, <ref href="/us/cfr/t12/s222.74/e/3">§ 222.74(e)(3)</ref>, or <ref href="/us/cfr/t12/s222.74/f/4">§ 222.74(f)(4)</ref>, as applicable, and maintains reasonable policies and procedures to verify that the auto dealer or other party provides such notice to the consumer within the applicable time periods. If the person arranges to have the auto dealer or other party provide a notice described in <ref href="/us/cfr/t12/s222.74/e">§ 222.74(e)</ref>, the person's obligation is <?page num="87"?>satisfied if the consumer receives a notice containing a credit score obtained by the dealer or other party, even if a different credit score is obtained and used by the person on whose behalf the notice is provided.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Timing requirements for contemporaneous purchase credit.</heading>
<chapeau> When credit under an open-end credit plan is granted, extended, or provided to a consumer in person or by telephone for the purpose of financing the contemporaneous purchase of goods or services, any risk-based pricing notice required to be provided pursuant to this subpart (or the disclosures permitted under <ref href="/us/cfr/t12/s222.74/e">§ 222.74(e)</ref> or (f)) may be provided at the earlier of:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.73/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The time of the first mailing by the person to the consumer after the decision is made to approve the grant, extension, or other provision of open-end credit, such as in a mailing containing the account agreement or a credit card; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Within 30 days after the decision to approve the grant, extension, or other provision of credit.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Multiple credit scores—</heading>
<paragraph identifier="/us/cfr/t12/s222.73/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> When a person obtains or creates two or more credit scores and uses one of those credit scores in setting the material terms of credit, for example, by using the low, middle, high, or most recent score, the notices described in paragraphs (a)(1) and (2) of this section must include that credit score and information relating to that credit score required by paragraphs (a)(1)(ix) and (a)(2)(ix). When a person obtains or creates two or more credit scores and uses multiple credit scores in setting the material terms of credit by, for example, computing the average of all the credit scores obtained or created, the notices described in paragraphs (a)(1) and (2) of this section must include one of those credit scores and information relating to credit scores required by paragraphs (a)(1)(ix) and (a)(2)(ix). The notice may, at the person's option, include more than one credit score, along with the additional information specified in paragraphs (a)(1)(ix) and (a)(2)(ix) of this section for each credit score disclosed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples.</heading>
<paragraph identifier="/us/cfr/t12/s222.73/d/2/i" class="inline">
<num value="i"> (i)</num>
<content> A person that uses consumer reports to set the material terms of credit cards granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies and uses the low score when determining the material terms it will offer to the consumer. That person must disclose the low score in the notices described in paragraphs (a)(1) and (2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.73/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A person that uses consumer reports to set the material terms of automobile loans granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies, each of which it uses in an underwriting program in order to determine the material terms it will offer to the consumer. That person may choose one of these scores to include in the notices described in paragraph (a)(1) and (2) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/2752">75 FR 2752</ref>, <date date="2010-01-15">Jan. 15, 2010</date>, as amended at <ref href="/us/fr/76/41616">76 FR 41616</ref>, <date date="2011-07-15" role="amended">July 15, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.74">
<num value="222.74" style="-uslm-sgm:SECTNO">§ 222.74</num>
<heading style="-uslm-sgm:SUBJECT">Exceptions.</heading>
<paragraph identifier="/us/cfr/t12/s222.74/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Application for specific terms—</heading>
<paragraph identifier="/us/cfr/t12/s222.74/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A person is not required to provide a risk-based pricing notice to the consumer under <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c) if the consumer applies for specific material terms and is granted those terms, unless those terms were specified by the person using a consumer report after the consumer applied for or requested credit and after the person obtained the consumer report. For purposes of this section, “specific material terms” means a single material term, or set of material terms, such as an annual percentage rate of 10 percent, and not a range of alternatives, such as an annual percentage rate that may be 8, 10, or 12 percent, or between 8 and 12 percent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Example.</heading>
<content> A consumer receives a firm offer of credit from a credit card issuer. The terms of the firm offer are based in whole or in part on information from a consumer report that the credit card issuer obtained under the FCRA's firm offer of credit provisions. The solicitation offers the consumer a credit card with a single purchase annual percentage rate of 12 percent. The consumer applies for and receives a credit card with an annual percentage rate of 12 percent. Other customers <?page num="88"?>with the same credit card have a purchase annual percentage rate of 10 percent. The exception applies because the consumer applied for specific material terms and was granted those terms. Although the credit card issuer specified the annual percentage rate in the firm offer of credit based in whole or in part on a consumer report, the credit card issuer specified that material term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">before,</inline> not <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">after,</inline> the consumer applied for or requested credit.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Adverse action notice.</heading>
<content> A person is not required to provide a risk-based pricing notice to the consumer under <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref>, (c), or (d) if the person provides an adverse action notice to the consumer under section 615(a) of the FCRA.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Prescreened solicitations—</heading>
<paragraph identifier="/us/cfr/t12/s222.74/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A person is not required to provide a risk-based pricing notice to the consumer under <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c) if the person:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Obtains a consumer report that is a prescreened list as described in section 604(c)(2) of the FCRA; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Uses the consumer report for the purpose of making a firm offer of credit to the consumer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>More favorable material terms.</heading>
<content> This exception applies to any firm offer of credit offered by a person to a consumer, even if the person makes other firm offers of credit to other consumers on more favorable material terms.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Example.</heading>
<content> A credit card issuer obtains two prescreened lists from a consumer reporting agency. One list includes consumers with high credit scores. The other list includes consumers with low credit scores. The issuer mails a firm offer of credit to the high credit score consumers with a single purchase annual percentage rate of 10 percent. The issuer also mails a firm offer of credit to the low credit score consumers with a single purchase annual percentage rate of 14 percent. The credit card issuer is not required to provide a risk-based pricing notice to the low credit score consumers who receive the 14 percent offer because use of a consumer report to make a firm offer of credit does not trigger the risk-based pricing notice requirement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Loans secured by residential real property—credit score disclosure—</heading>
<paragraph identifier="/us/cfr/t12/s222.74/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A person is not required to provide a risk-based pricing notice to a consumer under <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c) if:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The consumer requests from the person an extension of credit that is or will be secured by one to four units of residential real property; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The person provides to each consumer described in paragraph (d)(1)(i) of this section a notice that contains the following—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The information required to be disclosed to the consumer pursuant to section 609(g) of the FCRA;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score that meets the requirements of this paragraph (d)(1)(ii)(E) is deemed to comply with this requirement;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report;
<?page num="89"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/G" style="-uslm-sgm:P">
<num value="G">(G)</num>
<content> A statement that federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/H" style="-uslm-sgm:P">
<num value="H">(H)</num>
<content> Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/1/ii/I" style="-uslm-sgm:P">
<num value="I">(I)</num>
<content> A statement directing consumers to the Web sites of the Federal Reserve Board and Federal Trade Commission to obtain more information about consumer reports.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Form of the notice.</heading>
<chapeau> The notice described in paragraph (d)(1)(ii) of this section must be:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Clear and conspicuous;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provided on or with the notice required by section 609(g) of the FCRA;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Segregated from other information provided to the consumer, except for the notice required by section 609(g) of the FCRA; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Provided to the consumer in writing and in a form that the consumer may keep.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Timing.</heading>
<content> The notice described in paragraph (d)(1)(ii) of this section must be provided to the consumer at the time the disclosure required by section 609(g) of the FCRA is provided to the consumer, but in any event at or before consummation in the case of closed-end credit or before the first transaction is made under an open-end credit plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Multiple credit scores—</heading>
<paragraph identifier="/us/cfr/t12/s222.74/d/4/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> When a person obtains two or more credit scores from consumer reporting agencies and uses one of those credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by using the low, middle, high, or most recent score, the notice described in paragraph (d)(1)(ii) of this section must include that credit score and the other information required by that paragraph. When a person obtains two or more credit scores from consumer reporting agencies and uses multiple credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by computing the average of all the credit scores obtained, the notice described in paragraph (d)(1)(ii) of this section must include one of those credit scores and the other information required by that paragraph. The notice may, at the person's option, include more than one credit score, along with the additional information specified in paragraph (d)(1)(ii) of this section for each credit score disclosed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Examples.</heading>
<paragraph identifier="/us/cfr/t12/s222.74/d/4/ii/A" class="inline">
<num value="A"> (A)</num>
<content> A person that uses consumer reports to set the material terms of mortgage credit granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies and uses the low score when determining the material terms it will offer to the consumer. That person must disclose the low score in the notice described in paragraph (d)(1)(ii) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/4/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A person that uses consumer reports to set the material terms of mortgage credit granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies, each of which it uses in an underwriting program in order to determine the material terms it will offer to the consumer. That person may choose one of these scores to include in the notice described in paragraph (d)(1)(ii) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Model form.</heading>
<content> A model form of the notice described in paragraph (d)(1)(ii) of this section consolidated with the notice required by section 609(g) of the FCRA is contained in Appendix H–3 of this part. Appropriate use of Model Form H–3 is deemed to comply with the requirements of <ref href="/us/cfr/t12/s222.74/d">§ 222.74(d)</ref>. Use of the model form is optional.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Other extensions of credit—credit score disclosure—</heading>
<paragraph identifier="/us/cfr/t12/s222.74/e/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A person is not required to provide a risk-based pricing notice to a consumer under <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c) if:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The consumer requests from the person an extension of credit other than credit that is or will be secured by one to four units of residential real property; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The person provides to each consumer described in paragraph (e)(1)(i) of this section a notice that contains the following—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A statement that a consumer report (or credit report) is a record of the <?page num="90"?>consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the consumer reporting agency for a purpose related to the extension of credit;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> The range of possible credit scores under the model used to generate the credit score;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar, or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score that meets the requirements of this paragraph (e)(1)(ii)(F) is deemed to comply with this requirement;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/G" style="-uslm-sgm:P">
<num value="G">(G)</num>
<content> The date on which the credit score was created;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/H" style="-uslm-sgm:P">
<num value="H">(H)</num>
<content> The name of the consumer reporting agency or other person that provided the credit score;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/I" style="-uslm-sgm:P">
<num value="I">(I)</num>
<content> A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/J" style="-uslm-sgm:P">
<num value="J">(J)</num>
<content> A statement that federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/K" style="-uslm-sgm:P">
<num value="K">(K)</num>
<content> Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/1/ii/L" style="-uslm-sgm:P">
<num value="L">(L)</num>
<content> A statement directing consumers to the web sites of the Federal Reserve Board and Federal Trade Commission to obtain more information about consumer reports.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Form of the notice.</heading>
<chapeau> The notice described in paragraph (e)(1)(ii) of this section must be:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Clear and conspicuous;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Segregated from other information provided to the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Provided to the consumer in writing and in a form that the consumer may keep.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Timing.</heading>
<content> The notice described in paragraph (e)(1)(ii) of this section must be provided to the consumer as soon as reasonably practicable after the credit score has been obtained, but in any event at or before consummation in the case of closed-end credit or before the first transaction is made under an open-end credit plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Multiple credit scores—</heading>
<paragraph identifier="/us/cfr/t12/s222.74/e/4/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> When a person obtains two or more credit scores from consumer reporting agencies and uses one of those credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by using the low, middle, high, or most recent score, the notice described in paragraph (e)(1)(ii) of this section must include that credit score and the other information required by that paragraph. When a person obtains two or more credit scores from consumer reporting agencies and uses multiple credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by computing the average of all the credit scores obtained, the notice described in paragraph (e)(1)(ii) of this section must include one of those credit scores and the other information required by that paragraph. The notice may, at the person's option, include more than one credit score, <?page num="91"?>along with the additional information specified in paragraph (e)(1)(ii) of this section for each credit score disclosed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Examples.</heading>
<content> The manner in which multiple credit scores are to be disclosed under this section are substantially identical to the manner set forth in the examples contained in paragraph (d)(4)(ii) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/e/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Model form.</heading>
<content> A model form of the notice described in paragraph (e)(1)(ii) of this section is contained in Appendix H–4 of this part. Appropriate use of Model Form H–4 is deemed to comply with the requirements of <ref href="/us/cfr/t12/s222.74/e">§ 222.74(e)</ref>. Use of the model form is optional.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Credit score not available—</heading>
<paragraph identifier="/us/cfr/t12/s222.74/f/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A person is not required to provide a risk-based pricing notice to a consumer under <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c) if the person:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Regularly obtains credit scores from a consumer reporting agency and provides credit score disclosures to consumers in accordance with paragraphs (d) or (e) of this section, but a credit score is not available from the consumer reporting agency from which the person regularly obtains credit scores for a consumer to whom the person grants, extends, or provides credit;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Does not obtain a credit score from another consumer reporting agency in connection with granting, extending, or providing credit to the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> Provides to the consumer a notice that contains the following—</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A statement that a consumer report (or credit report) includes information about the consumer's credit history and the type of information included in that history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time in response to changes in the consumer's credit history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A statement that credit scores are important because consumers with higher credit scores generally obtain more favorable credit terms;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> A statement that not having a credit score can affect whether the consumer can obtain credit and what the cost of that credit will be;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> A statement that a credit score about the consumer was not available from a consumer reporting agency, which must be identified by name, generally due to insufficient information regarding the consumer's credit history;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the consumer report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/G" style="-uslm-sgm:P">
<num value="G">(G)</num>
<content> A statement that federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free consumer report from each of the nationwide consumer reporting agencies once during any 12-month period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/H" style="-uslm-sgm:P">
<num value="H">(H)</num>
<content> The contact information for the centralized source from which consumers may obtain their free annual consumer reports; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/1/iii/I" style="-uslm-sgm:P">
<num value="I">(I)</num>
<content> A statement directing consumers to the web sites of the Federal Reserve Board and Federal Trade Commission to obtain more information about consumer reports.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Example.</heading>
<content> A person that uses consumer reports to set the material terms of non-mortgage credit granted, extended, or provided to consumers regularly requests credit scores from a particular consumer reporting agency and provides those credit scores and additional information to consumers to satisfy the requirements of paragraph (e) of this section. That consumer reporting agency provides to the person a consumer report on a particular consumer that contains one trade line, but does not provide the person with a credit score on that consumer. If the person does not obtain a credit score from another consumer reporting agency and, based in whole or in part on information in a consumer report, grants, extends, or provides credit to the consumer, the person may provide the notice described in paragraph (f)(1)(iii) of this section. If, however, the person obtains a credit score from another consumer reporting agency, the person may not rely upon the exception in paragraph (f) of this section, but may satisfy the requirements of paragraph (e) of this section.
<?page num="92"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Form of the notice.</heading>
<chapeau> The notice described in paragraph (f)(1)(iii) of this section must be:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.74/f/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Clear and conspicuous;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Segregated from other information provided to the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Provided to the consumer in writing and in a form that the consumer may keep.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Timing.</heading>
<content> The notice described in paragraph (f)(1)(iii) of this section must be provided to the consumer as soon as reasonably practicable after the person has requested the credit score, but in any event not later than consummation of a transaction in the case of closed-end credit or when the first transaction is made under an open-end credit plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.74/f/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Model form.</heading>
<content> A model form of the notice described in paragraph (f)(1)(iii) of this section is contained in Appendix H–5 of this part. Appropriate use of Model Form H–5 is deemed to comply with the requirements of <ref href="/us/cfr/t12/s222.74/f">§ 222.74(f)</ref>. Use of the model form is optional.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.75">
<num value="222.75" style="-uslm-sgm:SECTNO">§ 222.75</num>
<heading style="-uslm-sgm:SUBJECT">Rules of construction.</heading>
<chapeau style="-uslm-sgm:P">For purposes of this subpart, the following rules of construction apply:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.75/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>One notice per credit extension.</heading>
<content> A consumer is entitled to no more than one risk-based pricing notice under <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c), or one notice under <ref href="/us/cfr/t12/s222.74/d">§ 222.74(d)</ref>, (e), or (f), for each grant, extension, or other provision of credit. Notwithstanding the foregoing, even if a consumer has previously received a risk-based pricing notice in connection with a grant, extension, or other provision of credit, another risk-based pricing notice is required if the conditions set forth in <ref href="/us/cfr/t12/s222.72/d">§ 222.72(d)</ref> have been met.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Multi-party transactions—</heading>
<paragraph identifier="/us/cfr/t12/s222.75/b/1" class="inline">
<num value="1">(1) </num>
<heading>Initial creditor.</heading>
<content> The person to whom a credit obligation is initially payable must provide the risk-based pricing notice described in <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c), or satisfy the requirements for and provide the notice required under one of the exceptions in <ref href="/us/cfr/t12/s222.74/d">§ 222.74(d)</ref>, (e), or (f), even if that person immediately assigns the credit agreement to a third party and is not the source of funding for the credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Purchasers or assignees.</heading>
<content> A purchaser or assignee of a credit contract with a consumer is not subject to the requirements of this subpart and is not required to provide the risk-based pricing notice described in <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c), or satisfy the requirements for and provide the notice required under one of the exceptions in <ref href="/us/cfr/t12/s222.74/d">§ 222.74(d)</ref>, (e), or (f).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Examples.</heading>
<paragraph identifier="/us/cfr/t12/s222.75/b/3/i" class="inline">
<num value="i"> (i)</num>
<content> A consumer obtains credit to finance the purchase of an automobile. If the auto dealer is the person to whom the loan obligation is initially payable, such as where the auto dealer is the original creditor under a retail installment sales contract, the auto dealer must provide the risk-based pricing notice to the consumer (or satisfy the requirements for and provide the notice required under one of the exceptions noted above), even if the auto dealer immediately assigns the loan to a bank or finance company. The bank or finance company, which is an assignee, has no duty to provide a risk-based pricing notice to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A consumer obtains credit to finance the purchase of an automobile. If a bank or finance company is the person to whom the loan obligation is initially payable, the bank or finance company must provide the risk-based pricing notice to the consumer (or satisfy the requirements for and provide the notice required under one of the exceptions noted above) based on the terms offered by that bank or finance company only. The auto dealer has no duty to provide a risk-based pricing notice to the consumer. However, the bank or finance company may comply with this rule if the auto dealer has agreed to provide notices to consumers before consummation pursuant to an arrangement with the bank or finance company, as permitted under <ref href="/us/cfr/t12/s222.73/c">§ 222.73(c)</ref>.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Multiple consumers—</heading>
<paragraph identifier="/us/cfr/t12/s222.75/c/1" class="inline">
<num value="1">(1) </num>
<heading>Risk-based pricing notices.</heading>
<content> In a transaction involving two or more consumers who are granted, extended, or otherwise provided credit, a person must provide a notice to each consumer to satisfy the requirements of <ref href="/us/cfr/t12/s222.72/a">§ 222.72(a)</ref> or (c). Whether the consumers have the same address or not, the person must provide a separate notice to each consumer if a notice includes a credit score(s). Each separate notice that includes a credit score(s) must contain only the credit score(s) of the consumer to whom the notice is provided, and not the credit score(s) of the other consumer. If the <?page num="93"?>consumers have the same address, and the notice does not include a credit score(s), a person may satisfy the requirements by providing a single notice addressed to both consumers.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Credit score disclosure notices.</heading>
<content> In a transaction involving two or more consumers who are granted, extended, or otherwise provided credit, a person must provide a separate notice to each consumer to satisfy the exceptions in <ref href="/us/cfr/t12/s222.74/d">§ 222.74(d)</ref>, (e), or (f). Whether the consumers have the same address or not, the person must provide a separate notice to each consumer. Each separate notice must contain only the credit score(s) of the consumer to whom the notice is provided, and not the credit score(s) of the other consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Examples.</heading>
<paragraph identifier="/us/cfr/t12/s222.75/c/3/i" class="inline">
<num value="i"> (i)</num>
<content> Two consumers jointly apply for credit with a creditor. The creditor obtains credit scores on both consumers. Based in part on the credit scores, the creditor grants credit to the consumers on material terms that are materially less favorable than the most favorable terms available to other consumers from the creditor. The creditor provides risk-based pricing notices to satisfy its obligations under this subpart. The creditor must provide a separate risk-based pricing notice to each consumer whether the consumers have the same address or not. Each risk-based pricing notice must contain only the credit score(s) of the consumer to whom the notice is provided.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.75/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Two consumers jointly apply for credit with a creditor. The two consumers reside at the same address. The creditor obtains credit scores on each of the two consumer applicants. The creditor grants credit to the consumers. The creditor provides credit score disclosure notices to satisfy its obligations under this subpart. Even though the two consumers reside at the same address, the creditor must provide a separate credit score disclosure notice to each of the consumers. Each notice must contain only the credit score of the consumer to whom the notice is provided.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/2752">75 FR 2752</ref>, <date date="2010-01-15">Jan. 15, 2010</date>, as amended at <ref href="/us/fr/76/41617">76 FR 41617</ref>, <date date="2011-07-15" role="amended">July 15, 2011</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spI">
<num value="I" style="-uslm-sgm:HED">Subpart I—</num>
<heading style="-uslm-sgm:HED">Duties of Users of Consumer Reports Regarding Identity Theft </heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/69/77618">69 FR 77618</ref>, <date date="2004-12-28">Dec. 28, 2004</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s222.80-222.81">
<num value="222.80-222.81" style="-uslm-sgm:SECTNO">§§ 222.80–222.81</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.82">
<num value="222.82" style="-uslm-sgm:SECTNO">§ 222.82</num>
<heading style="-uslm-sgm:SUBJECT">Duties of users regarding address discrepancies.</heading>
<paragraph identifier="/us/cfr/t12/s222.82/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<content> This section applies to a user of consumer reports (user) that receives a notice of address discrepancy from a consumer reporting agency described in <ref href="/us/usc/t15/s1681a/p">15 U.S.C. 1681a(p)</ref>, and that is a member bank of the Federal Reserve System (other than a national bank) and its respective operating subsidiaries, a branch or agency of a foreign bank (other than a Federal branch, Federal agency, or insured State branch of a foreign bank), commercial lending company owned or controlled by a foreign bank, and an organization operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s222.82/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definition.</heading>
<content> For purposes of this section, a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">notice of address discrepancy</inline> means a notice sent to a user by a consumer reporting agency described in <ref href="/us/usc/t15/s1681a/p">15 U.S.C. 1681a(p)</ref> pursuant to <ref href="/us/usc/t15/s1681c/h/1">15 U.S.C. 1681c(h)(1)</ref>, that informs the user of a substantial difference between the address for the consumer that the user provided to request the consumer report and the address(es) in the agency's file for the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Reasonable belief—</heading>
<paragraph identifier="/us/cfr/t12/s222.82/c/1" class="inline">
<num value="1">(1) </num>
<heading>Requirement to form a reasonable belief.</heading>
<content> A user must develop and implement reasonable policies and procedures designed to enable the user to form a reasonable belief that a consumer report relates to the consumer about whom it has requested the report, when the user receives a notice of address discrepancy.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples of reasonable policies and procedures.</heading>
<paragraph identifier="/us/cfr/t12/s222.82/c/2/i" class="inline">
<num value="i"> (i)</num>
<chapeau> Comparing the information in the consumer report provided by the consumer reporting agency with information the user:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.82/c/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Obtains and uses to verify the consumer's identity in accordance with the requirements of the Customer Identification Program (CIP) rules implementing <ref href="/us/usc/t31/s5318/l">31 U.S.C. 5318(l)</ref> (<ref href="/us/cfr/t31/s103.121">31 CFR 103.121</ref>);
<?page num="94"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/c/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Maintains in its own records, such as applications, change of address notifications, other customer account records, or retained CIP documentation; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/c/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Obtains from third-party sources; or</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Verifying the information in the consumer report provided by the consumer reporting agency with the consumer.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Consumer's address—</heading>
<paragraph identifier="/us/cfr/t12/s222.82/d/1" class="inline">
<num value="1">(1) </num>
<heading>Requirement to furnish consumer's address to a consumer reporting agency.</heading>
<chapeau> A user must develop and implement reasonable policies and procedures for furnishing an address for the consumer that the user has reasonably confirmed is accurate to the consumer reporting agency described in <ref href="/us/usc/t15/s1681a/p">15 U.S.C. 1681a(p)</ref> from whom it received the notice of address discrepancy when the user:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.82/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Can form a reasonable belief that the consumer report relates to the consumer about whom the user requested the report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Establishes a continuing relationship with the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Regularly and in the ordinary course of business furnishes information to the consumer reporting agency from which the notice of address discrepancy relating to the consumer was obtained.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples of confirmation methods.</heading>
<chapeau> The user may reasonably confirm an address is accurate by:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.82/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Verifying the address with the consumer about whom it has requested the report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Reviewing its own records to verify the address of the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Verifying the address through third-party sources; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Using other reasonable means.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.82/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Timing.</heading>
<content> The policies and procedures developed in accordance with paragraph (d)(1) of this section must provide that the user will furnish the consumer's address that the user has reasonably confirmed is accurate to the consumer reporting agency described in <ref href="/us/usc/t15/s1681a/p">15 U.S.C. 1681a(p)</ref> as part of the information it regularly furnishes for the reporting period in which it establishes a relationship with the consumer.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. V, <ref href="/us/fr/72/63756">72 FR 63756</ref>, <date date="2007-11-09">Nov. 9, 2007</date>, as amended at <ref href="/us/fr/74/22642">74 FR 22642</ref>, <date date="2009-05-14" role="amended">May 14, 2009</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.83">
<num value="222.83" style="-uslm-sgm:SECTNO">§ 222.83</num>
<heading style="-uslm-sgm:SUBJECT">Disposal of consumer information.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s222.83/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definitions as used in this section.</heading>
<content> (1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">You</inline> means member banks of the Federal Reserve System (other than national banks) and their respective operating subsidiaries, branches and agencies of foreign banks (other than Federal branches, Federal agencies and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.83/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>In general.</heading>
<content> You must properly dispose of any consumer information that you maintain or otherwise possess in accordance with the Interagency Guidelines Establishing Information Security Standards, as required under sections 208.3(d) (Regulation H), 211.5(l) and 211.24(i) (Regulation K) of this chapter, to the extent that you are covered by the scope of the Guidelines.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.83/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Rule of construction.</heading>
<chapeau> Nothing in this section shall be construed to:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.83/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Require you to maintain or destroy any record pertaining to a consumer that is not imposed under any other law; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.83/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Alter or affect any requirement imposed under any other provision of law to maintain or destroy such a record.
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spJ">
<num value="J" style="-uslm-sgm:HED">Subpart J—</num>
<heading style="-uslm-sgm:HED">Identity Theft Red Flags</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. V, <ref href="/us/fr/72/63758">72 FR 63758</ref>, <date date="2007-11-09">Nov. 9, 2007</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.90">
<num value="222.90" style="-uslm-sgm:SECTNO">§ 222.90</num>
<heading style="-uslm-sgm:SUBJECT">Duties regarding the detection, prevention, and mitigation of identity theft.</heading>
<paragraph identifier="/us/cfr/t12/s222.90/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<content> This section applies to financial institutions and creditors that are member banks of the Federal Reserve System (other than national banks) and their respective operating subsidiaries that are not functionally regulated within the meaning of section 5(c)(5) of the Bank Holding Company Act, as amended (<ref href="/us/usc/t12/s1844/c/5">12 U.S.C. 1844(c)(5)</ref>), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or <?page num="95"?>controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> and 611 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s222.90/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this section and appendix J, the following definitions apply:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account</inline> means a continuing relationship established by a person with a financial institution or creditor to obtain a product or service for personal, family, household or business purposes. Account includes:</p>
<p style="-uslm-sgm:P">(i) An extension of credit, such as the purchase of property or services involving a deferred payment; and</p>
<p style="-uslm-sgm:P">(ii) A deposit account.</p>
<p style="-uslm-sgm:P">(2) The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">board of directors</inline> includes:</p>
<p style="-uslm-sgm:P">(i) In the case of a branch or agency of a foreign bank, the managing official in charge of the branch or agency; and</p>
<p style="-uslm-sgm:P">(ii) In the case of any other creditor that does not have a board of directors, a designated employee at the level of senior management.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Covered account</inline> means:</p>
<p style="-uslm-sgm:P">(i) An account that a financial institution or creditor offers or maintains, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions, such as a credit card account, mortgage loan, automobile loan, margin account, cell phone account, utility account, checking account, or savings account; and</p>
<p style="-uslm-sgm:P">(ii) Any other account that the financial institution or creditor offers or maintains for which there is a reasonably foreseeable risk to customers or to the safety and soundness of the financial institution or creditor from identity theft, including financial, operational, compliance, reputation, or litigation risks.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/r/5">15 U.S.C. 1681a(r)(5)</ref>.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor</inline> has the same meaning as in <ref href="/us/usc/t15/s1681m/e/4">15 U.S.C. 1681m(e)(4)</ref>.</p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Customer</inline> means a person that has a covered account with a financial institution or creditor.</p>
<p style="-uslm-sgm:P">(7) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financial institution</inline> has the same meaning as in <ref href="/us/usc/t15/s1681a/t">15 U.S.C. 1681a(t)</ref>.</p>
<p style="-uslm-sgm:P">(8) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identity theft</inline> has the same meaning as in <ref href="/us/cfr/t16/s603.2/a">16 CFR 603.2(a)</ref>.</p>
<p style="-uslm-sgm:P">(9) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Red Flag</inline> means a pattern, practice, or specific activity that indicates the possible existence of identity theft.</p>
<p style="-uslm-sgm:P">(10) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Service provider</inline> means a person that provides a service directly to the financial institution or creditor.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Periodic Identification of Covered Accounts.</heading>
<chapeau> Each financial institution or creditor must periodically determine whether it offers or maintains covered accounts. As a part of this determination, a financial institution or creditor must conduct a risk assessment to determine whether it offers or maintains covered accounts described in paragraph (b)(3)(ii) of this section, taking into consideration:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.90/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The methods it provides to open its accounts;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The methods it provides to access its accounts; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Its previous experiences with identity theft.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Establishment of an Identity Theft Prevention Program—</heading>
<paragraph identifier="/us/cfr/t12/s222.90/d/1" class="inline">
<num value="1">(1) </num>
<heading>Program requirement.</heading>
<content> Each financial institution or creditor that offers or maintains one or more covered accounts must develop and implement a written Identity Theft Prevention Program (Program) that is designed to detect, prevent, and mitigate identity theft in connection with the opening of a covered account or any existing covered account. The Program must be appropriate to the size and complexity of the financial institution or creditor and the nature and scope of its activities.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Elements of the Program.</heading>
<chapeau> The Program must include reasonable policies and procedures to:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.90/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Identify relevant Red Flags for the covered accounts that the financial institution or creditor offers or maintains, and incorporate those Red Flags into its Program;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Detect Red Flags that have been incorporated into the Program of the financial institution or creditor;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Respond appropriately to any Red Flags that are detected pursuant to paragraph (d)(2)(ii) of this section to prevent and mitigate identity theft; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/d/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Ensure the Program (including the Red Flags determined to be relevant) is updated periodically, to reflect changes in risks to customers and <?page num="96"?>to the safety and soundness of the financial institution or creditor from identity theft.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Administration of the Program.</heading>
<chapeau> Each financial institution or creditor that is required to implement a Program must provide for the continued administration of the Program and must:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.90/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Obtain approval of the initial written Program from either its board of directors or an appropriate committee of the board of directors;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Involve the board of directors, an appropriate committee thereof, or a designated employee at the level of senior management in the oversight, development, implementation and administration of the Program;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Train staff, as necessary, to effectively implement the Program; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/e/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Exercise appropriate and effective oversight of service provider arrangements.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.90/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Guidelines.</heading>
<content> Each financial institution or creditor that is required to implement a Program must consider the guidelines in appendix J of this part and include in its Program those guidelines that are appropriate.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. V, <ref href="/us/fr/72/63758">72 FR 63758</ref>, <date date="2007-11-09">Nov. 9, 2007</date>, as amended at <ref href="/us/fr/74/22642">74 FR 22642</ref>, <date date="2009-05-14" role="amended">May 14, 2009</date>; <ref href="/us/fr/79/30711">79 FR 30711</ref>, <date date="2014-05-29" role="amended">May 29, 2014</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s222.91">
<num value="222.91" style="-uslm-sgm:SECTNO">§ 222.91</num>
<heading style="-uslm-sgm:SUBJECT">Duties of card issuers regarding changes of address.</heading>
<paragraph identifier="/us/cfr/t12/s222.91/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<content> This section applies to a person described in <ref href="/us/cfr/t12/s222.90/a">§ 222.90(a)</ref> that issues a debit or credit card (card issuer).</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s222.91/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this section:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cardholder</inline> means a consumer who has been issued a credit or debit card.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous</inline> means reasonably understandable and designed to call attention to the nature and significance of the information presented.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.91/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Address validation requirements.</heading>
<chapeau> A card issuer must establish and implement reasonable policies and procedures to assess the validity of a change of address if it receives notification of a change of address for a consumer's debit or credit card account and, within a short period of time afterwards (during at least the first 30 days after it receives such notification), the card issuer receives a request for an additional or replacement card for the same account. Under these circumstances, the card issuer may not issue an additional or replacement card, until, in accordance with its reasonable policies and procedures and for the purpose of assessing the validity of the change of address, the card issuer:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.91/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<paragraph identifier="/us/cfr/t12/s222.91/c/1/i" class="inline">
<num value="i">(i)</num>
<chapeau> Notifies the cardholder of the request:</chapeau>
<paragraph identifier="/us/cfr/t12/s222.91/c/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> At the cardholder's former address; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.91/c/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> By any other means of communication that the card issuer and the cardholder have previously agreed to use; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.91/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provides to the cardholder a reasonable means of promptly reporting incorrect address changes; or</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.91/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Otherwise assesses the validity of the change of address in accordance with the policies and procedures the card issuer has established pursuant to <ref href="/us/cfr/t12/s222.90">§ 222.90</ref> of this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.91/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Alternative timing of address validation.</heading>
<content> A card issuer may satisfy the requirements of paragraph (c) of this section if it validates an address pursuant to the methods in paragraph (c)(1) or (c)(2) of this section when it receives an address change notification, before it receives a request for an additional or replacement card.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s222.91/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Form of notice.</heading>
<content> Any written or electronic notice that the card issuer provides under this paragraph must be clear and conspicuous and provided separately from its regular correspondence with the cardholder.
</content>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p222/spNaN">
<heading style="-uslm-sgm:RESERVED"> 
</heading>
</subpart>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendix A to Part 222 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 222, App. B</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix B to Part 222—</num>
<heading style="-uslm-sgm:HED">Model Notices of Furnishing Negative Information</heading>
<p style="-uslm-sgm:P">a. Although use of the model notices is not required, a financial institution that is subject to section 623(a)(7) of the FCRA shall be deemed to be in compliance with the notice requirement in section 623(a)(7) of the FCRA if the institution properly uses the model notices in this appendix (as applicable).</p>
<p style="-uslm-sgm:P">b. A financial institution may use Model Notice B–1 if the institution provides the notice prior to furnishing negative information to a nationwide consumer reporting agency.
<?page num="97"?></p>
<p style="-uslm-sgm:P">c. A financial institution may use Model Notice B–2 if the institution provides the notice after furnishing negative information to a nationwide consumer reporting agency.</p>
<p style="-uslm-sgm:P">d. Financial institutions may make certain changes to the language or format of the model notices without losing the safe harbor from liability provided by the model notices. The changes to the model notices may not be so extensive as to affect the substance, clarity, or meaningful sequence of the language in the model notices. Financial institutions making such extensive revisions will lose the safe harbor from liability that this appendix provides. Acceptable changes include, for example,</p>
<p style="-uslm-sgm:P">1. Rearranging the order of the references to “late payment(s),” or “missed payment(s)”</p>
<p style="-uslm-sgm:P">2. Pluralizing the terms “credit bureau,” “credit report,” and “account”</p>
<p style="-uslm-sgm:P">3. Specifying the particular type of account on which information may be furnished, such as “credit card account”</p>
<p style="-uslm-sgm:P">4. Rearranging in Model Notice B–1 the phrases “information about your account” and “to credit bureaus” such that it would read “We may report to credit bureaus information about your account.”</p>
<heading style="-uslm-sgm:HD2">Model Notice B–1</heading>
<p style="-uslm-sgm:P">We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.</p>
<heading style="-uslm-sgm:HD2">Model Notice B–2</heading>
<p style="-uslm-sgm:P">We have told a credit bureau about a late payment, missed payment or other default on your account. This information may be reflected in your credit report.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/69/33285">69 FR 33285</ref>, <date date="2004-06-15">June 15, 2004</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 222, App. C</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix C to Part 222—</num>
<heading style="-uslm-sgm:HED">Model Forms for Opt-Out Notices</heading>
<p style="-uslm-sgm:P">a. Although use of the model forms is not required, use of the model forms in this appendix (as applicable) complies with the requirement in section 624 of the Act for clear, conspicuous, and concise notices.</p>
<p style="-uslm-sgm:P">b. Certain changes may be made to the language or format of the model forms without losing the protection from liability afforded by use of the model forms. These changes may not be so extensive as to affect the substance, clarity, or meaningful sequence of the language in the model forms. Persons making such extensive revisions will lose the safe harbor that this appendix provides. Acceptable changes include, for example:</p>
<p style="-uslm-sgm:P">1. Rearranging the order of the references to “your income,” “your account history,” and “your credit score.”</p>
<p style="-uslm-sgm:P">2. Substituting other types of information for “income,” “account history,” or “credit score” for accuracy, such as “payment history,” “credit history,” “payoff status,” or “claims history.”</p>
<p style="-uslm-sgm:P">3. Substituting a clearer and more accurate description of the affiliates providing or covered by the notice for phrases such as “the [ABC] group of companies,” including without limitation a statement that the entity providing the notice recently purchased the consumer's account.</p>
<p style="-uslm-sgm:P">4. Substituting other types of affiliates covered by the notice for “credit card,” “insurance,” or “securities” affiliates.</p>
<p style="-uslm-sgm:P">5. Omitting items that are not accurate or applicable. For example, if a person does not limit the duration of the opt-out period, the notice may omit information about the renewal notice.</p>
<p style="-uslm-sgm:P">6. Adding a statement informing consumers how much time they have to opt out before shared eligibility information may be used to make solicitations to them.</p>
<p style="-uslm-sgm:P">7. Adding a statement that the consumer may exercise the right to opt out at any time.</p>
<p style="-uslm-sgm:P">8. Adding the following statement, if accurate: “If you previously opted out, you do not need to do so again.”</p>
<p style="-uslm-sgm:P">9. Providing a place on the form for the consumer to fill in identifying information, such as his or her name and address.</p>
<p style="-uslm-sgm:P">10. Adding disclosures regarding the treatment of opt-outs by joint consumers to comply with <ref href="/us/cfr/t12/s222.23/a/2">§ 222.23(a)(2)</ref> of this part.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">C–1 Model Form for Initial Opt-out Notice (Single-Affiliate Notice)</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">C–2 Model Form for Initial Opt-out Notice (Joint Notice)</p>
<p style="-uslm-sgm:FP-1">C–3 Model Form for Renewal Notice (Single-Affiliate Notice)</p>
<p style="-uslm-sgm:FP-1">C–4 Model Form for Renewal Notice (Joint Notice)</p>
<p style="-uslm-sgm:FP-1">C–5 Model Form for Voluntary “No Marketing” Notice</p>
<p style="-uslm-sgm:FP-1">C–6 Model Form for Voluntary “No Marketing” Notice</p>
<heading style="-uslm-sgm:HD2">C–1—Model Form for Initial Opt-out Notice (Single-Affiliate Notice)—[Your Choice To Limit Marketing]/[Marketing Opt-out]</heading>
<p style="-uslm-sgm:P">• [Name of Affiliate] is providing this notice.</p>
<p style="-uslm-sgm:P">• [Optional: Federal law gives you the right to limit some but not all marketing from our affiliates. Federal law also requires us to give you this notice to tell you about your choice to limit marketing from our affiliates.]</p>
<p style="-uslm-sgm:P">• You may limit our affiliates in the [ABC] group of companies, such as our [credit card, insurance, and securities] affiliates, from marketing their products or services to you based on your personal information that we <?page num="98"?>collect and share with them. This information includes your [income], your [account history with us], and your [credit score].</p>
<p style="-uslm-sgm:P">• Your choice to limit marketing offers from our affiliates will apply [until you tell us to change your choice]/[for x years from when you tell us your choice]/[for at least 5 years from when you tell us your choice]. [Include if the opt-out period expires.] Once that period expires, you will receive a renewal notice that will allow you to continue to limit marketing offers from our affiliates for [another x years]/[at least another 5 years].</p>
<p style="-uslm-sgm:P">• [Include, if applicable, in a subsequent notice, including an annual notice, for consumers who may have previously opted out.] If you have already made a choice to limit marketing offers from our affiliates, you do not need to act again until you receive the renewal notice.</p>
<p style="-uslm-sgm:P">To limit marketing offers, contact us [include all that apply]:</p>
<p style="-uslm-sgm:P">• By telephone: 1–877–###–####</p>
<p style="-uslm-sgm:P">• On the Web: <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.—.com</inline>
</p>
<p style="-uslm-sgm:P">• By mail: Check the box and complete the form below, and send the form to:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">[Company name]</p>
<p style="-uslm-sgm:FP-1">[Company address]</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">_Do not allow your affiliates to use my personal information to market to me.</p>
<heading style="-uslm-sgm:HD2">C–2—Model Form for Initial Opt-out Notice (Joint Notice)—[Your Choice To Limit Marketing]/[Marketing Opt-out]</heading>
<p style="-uslm-sgm:P">• The [ABC group of companies] is providing this notice.</p>
<p style="-uslm-sgm:P">• [Optional: Federal law gives you the right to limit some but not all marketing from the [ABC] companies. Federal law also requires us to give you this notice to tell you about your choice to limit marketing from the [ABC] companies.]</p>
<p style="-uslm-sgm:P">• You may limit the [ABC] companies, such as the [ABC credit card, insurance, and securities] affiliates, from marketing their products or services to you based on your personal information that they receive from other [ABC] companies. This information includes your [income], your [account history], and your [credit score].</p>
<p style="-uslm-sgm:P">• Your choice to limit marketing offers from the [ABC] companies will apply [until you tell us to change your choice]/[for x years from when you tell us your choice]/[for at least 5 years from when you tell us your choice]. [Include if the opt-out period expires.] Once that period expires, you will receive a renewal notice that will allow you to continue to limit marketing offers from the [ABC] companies for [another x years]/[at least another 5 years].</p>
<p style="-uslm-sgm:P">• [Include, if applicable, in a subsequent notice, including an annual notice, for consumers who may have previously opted out.] If you have already made a choice to limit marketing offers from the [ABC] companies, you do not need to act again until you receive the renewal notice.</p>
<p style="-uslm-sgm:P">To limit marketing offers, contact us [include all that apply]:</p>
<p style="-uslm-sgm:P">• By telephone: 1–877–###–####</p>
<p style="-uslm-sgm:P">• On the Web: <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.—.com</inline>
</p>
<p style="-uslm-sgm:P">• By mail: Check the box and complete the form below, and send the form to:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">[Company name]</p>
<p style="-uslm-sgm:FP-1">[Company address]</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">_Do not allow any company [in the ABC group of companies] to use my personal information to market to me.</p>
<heading style="-uslm-sgm:HD2">C–3—Model Form for Renewal Notice (Single-Affiliate Notice)—[Renewing Your Choice To Limit Marketing]/[Renewing Your Marketing Opt-Out]</heading>
<p style="-uslm-sgm:P">• [Name of Affiliate] is providing this notice.</p>
<p style="-uslm-sgm:P">• [Optional: Federal law gives you the right to limit some but not all marketing from our affiliates. Federal law also requires us to give you this notice to tell you about your choice to limit marketing from our affiliates.]</p>
<p style="-uslm-sgm:P">• You previously chose to limit our affiliates in the [ABC] group of companies, such as our [credit card, insurance, and securities] affiliates, from marketing their products or services to you based on your personal information that we share with them. This information includes your [income], your [account history with us], and your [credit score].</p>
<p style="-uslm-sgm:P">• Your choice has expired or is about to expire.</p>
<p style="-uslm-sgm:P">To renew your choice to limit marketing for [x] more years, contact us [include all that apply]:</p>
<p style="-uslm-sgm:P">• By telephone: 1–877–###–####</p>
<p style="-uslm-sgm:P">• On the Web: <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.—.com</inline>
</p>
<p style="-uslm-sgm:P">• By mail: Check the box and complete the form below, and send the form to:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">[Company name]</p>
<p style="-uslm-sgm:FP-1">[Company address]</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">_Renew my choice to limit marketing for [x] more years.</p>
<heading style="-uslm-sgm:HD2">C–4—Model Form for Renewal Notice (Joint Notice)—[Renewing Your Choice To Limit Marketing]/[Renewing Your Marketing Opt-Out]</heading>
<p style="-uslm-sgm:P">• The [ABC group of companies] is providing this notice.</p>
<p style="-uslm-sgm:P">• [Optional: Federal law gives you the right to limit some but not all marketing from the [ABC] companies. Federal law also requires us to give you this notice to tell you about your choice to limit marketing from the [ABC] companies.]</p>
<p style="-uslm-sgm:P">• You previously chose to limit the [ABC] companies, such as the [ABC credit card, insurance, and securities] affiliates, from marketing their products or services to you <?page num="99"?>based on your personal information that they receive from other ABC companies. This information includes your [income], your [account history], and your [credit score].</p>
<p style="-uslm-sgm:P">• Your choice has expired or is about to expire.</p>
<p style="-uslm-sgm:P">To renew your choice to limit marketing for [x] more years, contact us [include all that apply]:</p>
<p style="-uslm-sgm:P">• By telephone: 1–877–###–####</p>
<p style="-uslm-sgm:P">• On the Web: <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.—.com</inline>
</p>
<p style="-uslm-sgm:P">• By mail: Check the box and complete the form below, and send the form to:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">[Company name]</p>
<p style="-uslm-sgm:FP-1">[Company address]</p>
<p style="-uslm-sgm:FP-1">_Renew my choice to limit marketing for [x] more years.</p>
<?GPOvSpace 02?>
<heading style="-uslm-sgm:HD1">C–5—Model Form for Voluntary “No Marketing” Notice</heading>
<heading style="-uslm-sgm:HD1">Your Choice To Stop Marketing</heading>
<p style="-uslm-sgm:P">• [Name of Affiliate] is providing this notice.</p>
<p style="-uslm-sgm:P">• You may choose to stop all marketing from us and our affiliates.</p>
<p style="-uslm-sgm:P">• [Your choice to stop marketing from us and our affiliates will apply until you tell us to change your choice.]</p>
<p style="-uslm-sgm:P">To stop all marketing, contact us [include all that apply]:</p>
<p style="-uslm-sgm:P">• By telephone: 1–877–###–####</p>
<p style="-uslm-sgm:P">• On the Web: www.—.com</p>
<p style="-uslm-sgm:P">• By mail: Check the box and complete the form below, and send the form to:</p>
<p style="-uslm-sgm:FP-1">[Company name]</p>
<p style="-uslm-sgm:FP-1">[Company address]</p>
<p style="-uslm-sgm:FP-1">_Do not market to me.</p>
<source style="-uslm-sgm:CITA">[Reg. V, <ref href="/us/fr/72/62962">72 FR 62962</ref>, <date date="2007-11-07">Nov. 7, 2007</date>, as amended at <ref href="/us/fr/74/22642">74 FR 22642</ref>, <date date="2009-05-14" role="amended">May 14, 2009</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendix D to Part 222 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 222, App. E</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix E to Part 222—</num>
<heading style="-uslm-sgm:HED"> Interagency Guidelines Concerning the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies</heading>
<p style="-uslm-sgm:P">The Board encourages voluntary furnishing of information to consumer reporting agencies. Section 222.42 of this part requires each furnisher to establish and implement reasonable written policies and procedures concerning the accuracy and integrity of the information it furnishes to consumer reporting agencies. Under <ref href="/us/cfr/t12/s222.42/b">§ 222.42(b)</ref> of this part, a furnisher must consider the guidelines set forth below in developing its policies and procedures. In establishing these policies and procedures, a furnisher may include any of its existing policies and procedures that are relevant and appropriate. Section 222.42(c) requires each furnisher to review its policies and procedures periodically and update them as necessary to ensure their continued effectiveness.</p>
<heading style="-uslm-sgm:HD1">I. Nature, Scope, and Objectives of Policies and Procedures</heading>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nature and Scope.</inline> Section 222.42(a) of this part requires that a furnisher's policies and procedures be appropriate to the nature, size, complexity, and scope of the furnisher's activities. In developing its policies and procedures, a furnisher should consider, for example:</p>
<p style="-uslm-sgm:P">(1) The types of business activities in which the furnisher engages;</p>
<p style="-uslm-sgm:P">(2) The nature and frequency of the information the furnisher provides to consumer reporting agencies; and</p>
<p style="-uslm-sgm:P">(3) The technology used by the furnisher to furnish information to consumer reporting agencies.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Objectives.</inline> A furnisher's policies and procedures should be reasonably designed to promote the following objectives:</p>
<p style="-uslm-sgm:P">(1) To furnish information about accounts or other relationships with a consumer that is accurate, such that the furnished information:</p>
<p style="-uslm-sgm:P">(i) Identifies the appropriate consumer;</p>
<p style="-uslm-sgm:P">(ii) Reflects the terms of and liability for those accounts or other relationships; and</p>
<p style="-uslm-sgm:P">(iii) Reflects the consumer's performance and other conduct with respect to the account or other relationship;</p>
<p style="-uslm-sgm:P">(2) To furnish information about accounts or other relationships with a consumer that has integrity, such that the furnished information:</p>
<p style="-uslm-sgm:P">(i) Is substantiated by the furnisher's records at the time it is furnished;</p>
<p style="-uslm-sgm:P">(ii) Is furnished in a form and manner that is designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; thus, the furnished information should:</p>
<p style="-uslm-sgm:P">(A) Include appropriate identifying information about the consumer to whom it pertains; and</p>
<p style="-uslm-sgm:P">(B) Be furnished in a standardized and clearly understandable form and manner and with a date specifying the time period to which the information pertains; and</p>
<p style="-uslm-sgm:P">(iii) Includes the credit limit, if applicable and in the furnisher's possession;</p>
<p style="-uslm-sgm:P">(3) To conduct reasonable investigations of consumer disputes and take appropriate actions based on the outcome of such investigations; and</p>
<p style="-uslm-sgm:P">(4) To update the information it furnishes as necessary to reflect the current status of the consumer's account or other relationship, including, for example:</p>
<p style="-uslm-sgm:P">(i) Any transfer of an account (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> by sale or assignment for collection) to a third party; and</p>
<p style="-uslm-sgm:P">(ii) Any cure of the consumer's failure to abide by the terms of the account or other relationship.
<?page num="100"?></p>
<heading style="-uslm-sgm:HD1">II. Establishing and Implementing Policies and Procedures</heading>
<p style="-uslm-sgm:P">In establishing and implementing its policies and procedures, a furnisher should:</p>
<p style="-uslm-sgm:P">(a) Identify practices or activities of the furnisher that can compromise the accuracy or integrity of information furnished to consumer reporting agencies, such as by:</p>
<p style="-uslm-sgm:P">(1) Reviewing its existing practices and activities, including the technological means and other methods it uses to furnish information to consumer reporting agencies and the frequency and timing of its furnishing of information;</p>
<p style="-uslm-sgm:P">(2) Reviewing its historical records relating to accuracy or integrity or to disputes; reviewing other information relating to the accuracy or integrity of information provided by the furnisher to consumer reporting agencies; and considering the types of errors, omissions, or other problems that may have affected the accuracy or integrity of information it has furnished about consumers to consumer reporting agencies;</p>
<p style="-uslm-sgm:P">(3) Considering any feedback received from consumer reporting agencies, consumers, or other appropriate parties;</p>
<p style="-uslm-sgm:P">(4) Obtaining feedback from the furnisher's staff; and</p>
<p style="-uslm-sgm:P">(5) Considering the potential impact of the furnisher's policies and procedures on consumers.</p>
<p style="-uslm-sgm:P">(b) Evaluate the effectiveness of existing policies and procedures of the furnisher regarding the accuracy and integrity of information furnished to consumer reporting agencies; consider whether new, additional, or different policies and procedures are necessary; and consider whether implementation of existing policies and procedures should be modified to enhance the accuracy and integrity of information about consumers furnished to consumer reporting agencies.</p>
<p style="-uslm-sgm:P">(c) Evaluate the effectiveness of specific methods (including technological means) the furnisher uses to provide information to consumer reporting agencies; how those methods may affect the accuracy and integrity of the information it provides to consumer reporting agencies; and whether new, additional, or different methods (including technological means) should be used to provide information to consumer reporting agencies to enhance the accuracy and integrity of that information.</p>
<heading style="-uslm-sgm:HD1">III. Specific Components of Policies and Procedures</heading>
<p style="-uslm-sgm:P">In developing its policies and procedures, a furnisher should address the following, as appropriate:</p>
<p style="-uslm-sgm:P">(a) Establishing and implementing a system for furnishing information about consumers to consumer reporting agencies that is appropriate to the nature, size, complexity, and scope of the furnisher's business operations.</p>
<p style="-uslm-sgm:P">(b) Using standard data reporting formats and standard procedures for compiling and furnishing data, where feasible, such as the electronic transmission of information about consumers to consumer reporting agencies.</p>
<p style="-uslm-sgm:P">(c) Maintaining records for a reasonable period of time, not less than any applicable recordkeeping requirement, in order to substantiate the accuracy of any information about consumers it furnishes that is subject to a direct dispute.</p>
<p style="-uslm-sgm:P">(d) Establishing and implementing appropriate internal controls regarding the accuracy and integrity of information about consumers furnished to consumer reporting agencies, such as by implementing standard procedures and verifying random samples of information provided to consumer reporting agencies.</p>
<p style="-uslm-sgm:P">(e) Training staff that participates in activities related to the furnishing of information about consumers to consumer reporting agencies to implement the policies and procedures.</p>
<p style="-uslm-sgm:P">(f) Providing for appropriate and effective oversight of relevant service providers whose activities may affect the accuracy or integrity of information about consumers furnished to consumer reporting agencies to ensure compliance with the policies and procedures.</p>
<p style="-uslm-sgm:P">(g) Furnishing information about consumers to consumer reporting agencies following mergers, portfolio acquisitions or sales, or other acquisitions or transfers of accounts or other obligations in a manner that prevents re-aging of information, duplicative reporting, or other problems that may similarly affect the accuracy or integrity of the information furnished.</p>
<p style="-uslm-sgm:P">(h) Deleting, updating, and correcting information in the furnisher's records, as appropriate, to avoid furnishing inaccurate information.</p>
<p style="-uslm-sgm:P">(i) Conducting reasonable investigations of disputes.</p>
<p style="-uslm-sgm:P">(j) Designing technological and other means of communication with consumer reporting agencies to prevent duplicative reporting of accounts, erroneous association of information with the wrong consumer(s), and other occurrences that may compromise the accuracy or integrity of information provided to consumer reporting agencies.</p>
<p style="-uslm-sgm:P">(k) Providing consumer reporting agencies with sufficient identifying information in the furnisher's possession about each consumer about whom information is furnished to enable the consumer reporting agency properly to identify the consumer.</p>
<p style="-uslm-sgm:P">(l) Conducting a periodic evaluation of its own practices, consumer reporting agency practices of which the furnisher is aware, investigations of disputed information, corrections of inaccurate information, means of <?page num="101"?>communication, and other factors that may affect the accuracy or integrity of information furnished to consumer reporting agencies.</p>
<p style="-uslm-sgm:P">(m) Complying with applicable requirements under the Fair Credit Reporting Act and its implementing regulations.</p>
<source style="-uslm-sgm:CITA">[Reg. V, <ref href="/us/fr/74/31516">74 FR 31516</ref>, <date date="2009-07-01">July 1, 2009</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendixes F–G to Part 222 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 222, App. H</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix H to Part 222—</num>
<heading style="-uslm-sgm:HED">Model Forms for Risk-Based Pricing and Credit Score Disclosure Exception Notices</heading>
<p style="-uslm-sgm:P">1. This appendix contains four model forms for risk-based pricing notices and three model forms for use in connection with the credit score disclosure exceptions. Each of the model forms is designated for use in a particular set of circumstances as indicated by the title of that model form.</p>
<p style="-uslm-sgm:P">2. Model form H–1 is for use in complying with the general risk-based pricing notice requirements in Sec. 222.72 if a credit score is not used in setting the material terms of credit. Model form H–2 is for risk-based pricing notices given in connection with account review if a credit score is not used in increasing the annual percentage rate. Model form H–3 is for use in connection with the credit score disclosure exception for loans secured by residential real property. Model form H–4 is for use in connection with the credit score disclosure exception for loans that are not secured by residential real property. Model form H–5 is for use in connection with the credit score disclosure exception when no credit score is available for a consumer. Model form H–6 is for use in complying with the general risk-based pricing notice requirements in Sec. 222.72 if a credit score is used in setting the material terms of credit. Model form H–7 is for risk-based pricing notices given in connection with account review if a credit score is used in increasing the annual percentage rate. All forms contained in this appendix are models; their use is optional.</p>
<p style="-uslm-sgm:P">3. A person may change the forms by rearranging the format or by making technical modifications to the language of the forms, in each case without modifying the substance of the disclosures. Any such rearrangement or modification of the language of the model forms may not be so extensive as to materially affect the substance, clarity, comprehensibility, or meaningful sequence of the forms. Persons making revisions with that effect will lose the benefit of the safe harbor for appropriate use of Appendix H model forms. A person is not required to conduct consumer testing when rearranging the format of the model forms.</p>
<p style="-uslm-sgm:P">a. Acceptable changes include, for example</p>
<p style="-uslm-sgm:P">i. Corrections or updates to telephone numbers, mailing addresses, or Web site addresses that may change over time.</p>
<p style="-uslm-sgm:P">ii. The addition of graphics or icons, such as the person's corporate logo.</p>
<p style="-uslm-sgm:P">iii. Alteration of the shading or color contained in the model forms.</p>
<p style="-uslm-sgm:P">iv. Use of a different form of graphical presentation to depict the distribution of credit scores.</p>
<p style="-uslm-sgm:P">v. Substitution of the words “credit” and “creditor” or “finance” and “finance company” for the terms “loan” and “lender.”</p>
<p style="-uslm-sgm:P">vi. Including pre-printed lists of the sources of consumer reports or consumer reporting agencies in a “check-the-box” format.</p>
<p style="-uslm-sgm:P">vii. Including the name of the consumer, transaction identification numbers, a date, and other information that will assist in identifying the transaction to which the form pertains.</p>
<p style="-uslm-sgm:P">viii. Including the name of an agent, such as an auto dealer or other party, when providing the “Name of the Entity Providing the Notice.”</p>
<p style="-uslm-sgm:P">b. Unacceptable changes include, for example</p>
<p style="-uslm-sgm:P">i. Providing model forms on register receipts or interspersed with other disclosures.</p>
<p style="-uslm-sgm:P">ii. Eliminating empty lines and extra spaces between sentences within the same section.</p>
<p style="-uslm-sgm:P">4. Optional language in model forms H–6 and H–7 may be used to direct the consumer to the entity (which may be a consumer reporting agency or the creditor itself, for a proprietary score that meets the definition of a credit score) that provided the credit score for any questions about the credit score, along with the entity's contact information. Creditors may use or not use the additional language without losing the safe harbor, since the language is optional.</p>
<p style="-uslm-sgm:P">H–1 Model form for risk-based pricing notice.</p>
<p style="-uslm-sgm:P">H–2 Model form for account review risk-based pricing notice.</p>
<p style="-uslm-sgm:P">H–3 Model form for credit score disclosure exception for credit secured by one to four units of residential real property.</p>
<p style="-uslm-sgm:P">H–4 Model form for credit score disclosure exception for loans not secured by residential real property.</p>
<p style="-uslm-sgm:P">H–5 Model form for credit score disclosure exception for loans where credit score is not available.</p>
<p style="-uslm-sgm:P">H–6 Model form for risk-based pricing notice with credit score information</p>
<p style="-uslm-sgm:P">H–7 Model form for account review risk-based pricing notice with credit score information</p>
<figure style="-uslm-sgm:GPH"><?page num="102"?>
<img src="ER15JA10.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:380; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="103"?>
<img src="ER15JA10.001" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:380; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="104"?>
<img src="ER15JA10.002" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:416; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="105"?>
<img src="ER15JA10.003" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:387; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="106"?>
<img src="ER15JA10.004" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:207; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="107"?>
<img src="ER15JA10.005" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:462; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="108"?>
<img src="ER15JA10.006" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:297; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="109"?>
<img src="ER15JA10.007" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:430; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="110"?>
<img src="ER15JY11.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:375; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="111"?>
<img src="ER15JY11.001" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:292; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="112"?>
<img src="ER15JY11.002" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:375; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="113"?>
<img src="ER15JY11.003" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:280; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/2759">75 FR 2759</ref>, <date date="2010-01-15">Jan. 15, 2010</date>, as amended at <ref href="/us/fr/76/41617">76 FR 41617</ref>, <date date="2011-07-15" role="amended">July 15, 2011</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendix I to Part 222 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 222, App. J</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix J to Part 222—</num>
<heading style="-uslm-sgm:HED">Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation</heading>
<p style="-uslm-sgm:P">Section 222.90 of this part requires each financial institution and creditor that offers or maintains one or more covered accounts, as defined in <ref href="/us/cfr/t12/s222.90/b/3">§ 222.90(b)(3)</ref> of this part, to develop and provide for the continued administration of a written Program to detect, prevent, and mitigate identity theft in connection with the opening of a covered account or any existing covered account. These guidelines are intended to assist financial institutions and creditors in the formulation and maintenance of a Program that satisfies the requirements of <ref href="/us/cfr/t12/s222.90">§ 222.90</ref> of this part.</p>
<heading style="-uslm-sgm:HD3">I. The Program</heading>
<p style="-uslm-sgm:P">In designing its Program, a financial institution or creditor may incorporate, as appropriate, its existing policies, procedures, and other arrangements that control reasonably foreseeable risks to customers or to the safety and soundness of the financial institution or creditor from identity theft.</p>
<heading style="-uslm-sgm:HD3">II. Identifying Relevant Red Flags</heading>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Risk Factors.</inline> A financial institution or creditor should consider the following factors in identifying relevant Red Flags for covered accounts, as appropriate:</p>
<p style="-uslm-sgm:P">(1) The types of covered accounts it offers or maintains;</p>
<p style="-uslm-sgm:P">(2) The methods it provides to open its covered accounts;</p>
<p style="-uslm-sgm:P">(3) The methods it provides to access its covered accounts; and</p>
<p style="-uslm-sgm:P">(4) Its previous experiences with identity theft.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sources of Red Flags.</inline> Financial institutions and creditors should incorporate relevant Red Flags from sources such as:</p>
<p style="-uslm-sgm:P">(1) Incidents of identity theft that the financial institution or creditor has experienced;</p>
<p style="-uslm-sgm:P">(2) Methods of identity theft that the financial institution or creditor has identified that reflect changes in identity theft risks; and
<?page num="114"?></p>
<p style="-uslm-sgm:P">(3) Applicable supervisory guidance.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Categories of Red Flags.</inline> The Program should include relevant Red Flags from the following categories, as appropriate. Examples of Red Flags from each of these categories are appended as Supplement A to this appendix J.</p>
<p style="-uslm-sgm:P">(1) Alerts, notifications, or other warnings received from consumer reporting agencies or service providers, such as fraud detection services;</p>
<p style="-uslm-sgm:P">(2) The presentation of suspicious documents;</p>
<p style="-uslm-sgm:P">(3) The presentation of suspicious personal identifying information, such as a suspicious address change;</p>
<p style="-uslm-sgm:P">(4) The unusual use of, or other suspicious activity related to, a covered account; and</p>
<p style="-uslm-sgm:P">(5) Notice from customers, victims of identity theft, law enforcement authorities, or other persons regarding possible identity theft in connection with covered accounts held by the financial institution or creditor.</p>
<heading style="-uslm-sgm:HD3">III. Detecting Red Flags</heading>
<p style="-uslm-sgm:P">The Program's policies and procedures should address the detection of Red Flags in connection with the opening of covered accounts and existing covered accounts, such as by:</p>
<p style="-uslm-sgm:P">(a) Obtaining identifying information about, and verifying the identity of, a person opening a covered account, for example, using the policies and procedures regarding identification and verification set forth in the Customer Identification Program rules implementing <ref href="/us/usc/t31/s5318/l">31 U.S.C. 5318(l)</ref> (<ref href="/us/cfr/t31/s103.121">31 CFR 103.121</ref>); and</p>
<p style="-uslm-sgm:P">(b) Authenticating customers, monitoring transactions, and verifying the validity of change of address requests, in the case of existing covered accounts.</p>
<heading style="-uslm-sgm:HD3">IV. Preventing and Mitigating Identity Theft</heading>
<p style="-uslm-sgm:P">The Program's policies and procedures should provide for appropriate responses to the Red Flags the financial institution or creditor has detected that are commensurate with the degree of risk posed. In determining an appropriate response, a financial institution or creditor should consider aggravating factors that may heighten the risk of identity theft, such as a data security incident that results in unauthorized access to a customer's account records held by the financial institution, creditor, or third party, or notice that a customer has provided information related to a covered account held by the financial institution or creditor to someone fraudulently claiming to represent the financial institution or creditor or to a fraudulent website. Appropriate responses may include the following:</p>
<p style="-uslm-sgm:P">(a) Monitoring a covered account for evidence of identity theft;</p>
<p style="-uslm-sgm:P">(b) Contacting the customer;</p>
<p style="-uslm-sgm:P">(c) Changing any passwords, security codes, or other security devices that permit access to a covered account;</p>
<p style="-uslm-sgm:P">(d) Reopening a covered account with a new account number;</p>
<p style="-uslm-sgm:P">(e) Not opening a new covered account;</p>
<p style="-uslm-sgm:P">(f) Closing an existing covered account;</p>
<p style="-uslm-sgm:P">(g) Not attempting to collect on a covered account or not selling a covered account to a debt collector;</p>
<p style="-uslm-sgm:P">(h) Notifying law enforcement; or</p>
<p style="-uslm-sgm:P">(i) Determining that no response is warranted under the particular circumstances.</p>
<heading style="-uslm-sgm:HD3">V. Updating the Program</heading>
<p style="-uslm-sgm:P">Financial institutions and creditors should update the Program (including the Red Flags determined to be relevant) periodically, to reflect changes in risks to customers or to the safety and soundness of the financial institution or creditor from identity theft, based on factors such as:</p>
<p style="-uslm-sgm:P">(a) The experiences of the financial institution or creditor with identity theft;</p>
<p style="-uslm-sgm:P">(b) Changes in methods of identity theft;</p>
<p style="-uslm-sgm:P">(c) Changes in methods to detect, prevent, and mitigate identity theft;</p>
<p style="-uslm-sgm:P">(d) Changes in the types of accounts that the financial institution or creditor offers or maintains; and</p>
<p style="-uslm-sgm:P">(e) Changes in the business arrangements of the financial institution or creditor, including mergers, acquisitions, alliances, joint ventures, and service provider arrangements.</p>
<heading style="-uslm-sgm:HD3">VI. Methods for Administering the Program</heading>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Oversight of Program.</inline> Oversight by the board of directors, an appropriate committee of the board, or a designated employee at the level of senior management should include:</p>
<p style="-uslm-sgm:P">(1) Assigning specific responsibility for the Program's implementation;</p>
<p style="-uslm-sgm:P">(2) Reviewing reports prepared by staff regarding compliance by the financial institution or creditor with <ref href="/us/cfr/t12/s222.90">§ 222.90</ref> of this part; and</p>
<p style="-uslm-sgm:P">(3) Approving material changes to the Program as necessary to address changing identity theft risks.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reports.</inline> (1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> Staff of the financial institution or creditor responsible for development, implementation, and administration of its Program should report to the board of directors, an appropriate committee of the board, or a designated employee at the level of senior management, at least annually, on compliance by the financial institution or creditor with <ref href="/us/cfr/t12/s222.90">§ 222.90</ref> of this part.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Contents of report.</inline> The report should address material matters related to the Program and evaluate issues such as: the effectiveness of the policies and procedures of the financial institution or creditor in addressing the risk of identity theft in connection with the opening of covered accounts and with respect to existing covered accounts; <?page num="115"?>service provider arrangements; significant incidents involving identity theft and management's response; and recommendations for material changes to the Program.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Oversight of service provider arrangements.</inline> Whenever a financial institution or creditor engages a service provider to perform an activity in connection with one or more covered accounts the financial institution or creditor should take steps to ensure that the activity of the service provider is conducted in accordance with reasonable policies and procedures designed to detect, prevent, and mitigate the risk of identity theft. For example, a financial institution or creditor could require the service provider by contract to have policies and procedures to detect relevant Red Flags that may arise in the performance of the service provider's activities, and either report the Red Flags to the financial institution or creditor, or to take appropriate steps to prevent or mitigate identity theft.</p>
<heading style="-uslm-sgm:HD3">VII. Other Applicable Legal Requirements</heading>
<p style="-uslm-sgm:P">Financial institutions and creditors should be mindful of other related legal requirements that may be applicable, such as:</p>
<p style="-uslm-sgm:P">(a) For financial institutions and creditors that are subject to <ref href="/us/usc/t31/s5318/g">31 U.S.C. 5318(g)</ref>, filing a Suspicious Activity Report in accordance with applicable law and regulation;</p>
<p style="-uslm-sgm:P">(b) Implementing any requirements under <ref href="/us/usc/t15/s1681c–1/h">15 U.S.C. 1681c–1(h)</ref> regarding the circumstances under which credit may be extended when the financial institution or creditor detects a fraud or active duty alert;</p>
<p style="-uslm-sgm:P">(c) Implementing any requirements for furnishers of information to consumer reporting agencies under <ref href="/us/usc/t15/s1681s–2">15 U.S.C. 1681s–2</ref>, for example, to correct or update inaccurate or incomplete information, and to not report information that the furnisher has reasonable cause to believe is inaccurate; and</p>
<p style="-uslm-sgm:P">(d) Complying with the prohibitions in <ref href="/us/usc/t15/s1681m">15 U.S.C. 1681m</ref> on the sale, transfer, and placement for collection of certain debts resulting from identity theft.</p>
<heading style="-uslm-sgm:HD2">Supplement A to Appendix J</heading>
<p style="-uslm-sgm:P">In addition to incorporating Red Flags from the sources recommended in section II.b. of the Guidelines in appendix J of this part, each financial institution or creditor may consider incorporating into its Program, whether singly or in combination, Red Flags from the following illustrative examples in connection with covered accounts:</p>
<heading style="-uslm-sgm:HD2">Alerts, Notifications or Warnings from a Consumer Reporting Agency</heading>
<p style="-uslm-sgm:P">1. A fraud or active duty alert is included with a consumer report.</p>
<p style="-uslm-sgm:P">2. A consumer reporting agency provides a notice of credit freeze in response to a request for a consumer report.</p>
<p style="-uslm-sgm:P">3. A consumer reporting agency provides a notice of address discrepancy, as defined in <ref href="/us/cfr/t12/s1022.82/b">12 CFR 1022.82(b)</ref>.</p>
<p style="-uslm-sgm:P">4. A consumer report indicates a pattern of activity that is inconsistent with the history and usual pattern of activity of an applicant or customer, such as:</p>
<p style="-uslm-sgm:P">a. A recent and significant increase in the volume of inquiries;</p>
<p style="-uslm-sgm:P">b. An unusual number of recently established credit relationships;</p>
<p style="-uslm-sgm:P">c. A material change in the use of credit, especially with respect to recently established credit relationships; or</p>
<p style="-uslm-sgm:P">d. An account that was closed for cause or identified for abuse of account privileges by a financial institution or creditor.</p>
<heading style="-uslm-sgm:HD2">Suspicious Documents</heading>
<p style="-uslm-sgm:P">5. Documents provided for identification appear to have been altered or forged.</p>
<p style="-uslm-sgm:P">6. The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification.</p>
<p style="-uslm-sgm:P">7. Other information on the identification is not consistent with information provided by the person opening a new covered account or customer presenting the identification.</p>
<p style="-uslm-sgm:P">8. Other information on the identification is not consistent with readily accessible information that is on file with the financial institution or creditor, such as a signature card or a recent check.</p>
<p style="-uslm-sgm:P">9. An application appears to have been altered or forged, or gives the appearance of having been destroyed and reassembled.</p>
<heading style="-uslm-sgm:HD2">Suspicious Personal Identifying Information</heading>
<p style="-uslm-sgm:P">10. Personal identifying information provided is inconsistent when compared against external information sources used by the financial institution or creditor. For example:</p>
<p style="-uslm-sgm:P">a. The address does not match any address in the consumer report; or</p>
<p style="-uslm-sgm:P">b. The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration's Death Master File.</p>
<p style="-uslm-sgm:P">11. Personal identifying information provided by the customer is not consistent with other personal identifying information provided by the customer. For example, there is a lack of correlation between the SSN range and date of birth.</p>
<p style="-uslm-sgm:P">12. Personal identifying information provided is associated with known fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:</p>
<p style="-uslm-sgm:P">a. The address on an application is the same as the address provided on a fraudulent application; or</p>
<p style="-uslm-sgm:P">b. The phone number on an application is the same as the number provided on a fraudulent application.
<?page num="116"?></p>
<p style="-uslm-sgm:P">13. Personal identifying information provided is of a type commonly associated with fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:</p>
<p style="-uslm-sgm:P">a. The address on an application is fictitious, a mail drop, or a prison; or</p>
<p style="-uslm-sgm:P">b. The phone number is invalid, or is associated with a pager or answering service.</p>
<p style="-uslm-sgm:P">14. The SSN provided is the same as that submitted by other persons opening an account or other customers.</p>
<p style="-uslm-sgm:P">15. The address or telephone number provided is the same as or similar to the address or telephone number submitted by an unusually large number of other persons opening accounts or by other customers.</p>
<p style="-uslm-sgm:P">16. The person opening the covered account or the customer fails to provide all required personal identifying information on an application or in response to notification that the application is incomplete.</p>
<p style="-uslm-sgm:P">17. Personal identifying information provided is not consistent with personal identifying information that is on file with the financial institution or creditor.</p>
<p style="-uslm-sgm:P">18. For financial institutions and creditors that use challenge questions, the person opening the covered account or the customer cannot provide authenticating information beyond that which generally would be available from a wallet or consumer report.</p>
<heading style="-uslm-sgm:HD2">Unusual Use of, or Suspicious Activity Related to, the Covered Account</heading>
<p style="-uslm-sgm:P">19. Shortly following the notice of a change of address for a covered account, the institution or creditor receives a request for a new, additional, or replacement card or a cell phone, or for the addition of authorized users on the account.</p>
<p style="-uslm-sgm:P">20. A new revolving credit account is used in a manner commonly associated with known patterns of fraud. For example:</p>
<p style="-uslm-sgm:P">a. The majority of available credit is used for cash advances or merchandise that is easily convertible to cash (e.g., electronics equipment or jewelry); or</p>
<p style="-uslm-sgm:P">b. The customer fails to make the first payment or makes an initial payment but no subsequent payments.</p>
<p style="-uslm-sgm:P">21. A covered account is used in a manner that is not consistent with established patterns of activity on the account. There is, for example:</p>
<p style="-uslm-sgm:P">a. Nonpayment when there is no history of late or missed payments;</p>
<p style="-uslm-sgm:P">b. A material increase in the use of available credit;</p>
<p style="-uslm-sgm:P">c. A material change in purchasing or spending patterns;</p>
<p style="-uslm-sgm:P">d. A material change in electronic fund transfer patterns in connection with a deposit account; or</p>
<p style="-uslm-sgm:P">e. A material change in telephone call patterns in connection with a cellular phone account.</p>
<p style="-uslm-sgm:P">22. A covered account that has been inactive for a reasonably lengthy period of time is used (taking into consideration the type of account, the expected pattern of usage and other relevant factors).</p>
<p style="-uslm-sgm:P">23. Mail sent to the customer is returned repeatedly as undeliverable although transactions continue to be conducted in connection with the customer's covered account.</p>
<p style="-uslm-sgm:P">24. The financial institution or creditor is notified that the customer is not receiving paper account statements.</p>
<p style="-uslm-sgm:P">25. The financial institution or creditor is notified of unauthorized charges or transactions in connection with a customer's covered account.</p>
<heading style="-uslm-sgm:HD2">Notice from Customers, Victims of Identity Theft, Law Enforcement Authorities, or Other Persons Regarding Possible Identity Theft in Connection with Covered Accounts Held by the Financial Institution or Creditor</heading>
<p style="-uslm-sgm:P">26. The financial institution or creditor is notified by a customer, a victim of identity theft, a law enforcement authority, or any other person that it has opened a fraudulent account for a person engaged in identity theft.</p>
<source style="-uslm-sgm:CITA">[Reg. V, <ref href="/us/fr/72/63758">72 FR 63758</ref>, <date date="2007-11-09">Nov. 9, 2007</date>, as amended at <ref href="/us/fr/74/22642">74 FR 22642</ref>, <date date="2009-05-14" role="amended">May 14, 2009</date>; <ref href="/us/fr/79/30711">79 FR 30711</ref>, <date date="2014-05-29" role="amended">May 29, 2014</date>]
</source>
</content>
</appendix>
</part>
<ear style="-uslm-sgm:EAR">Pt. 223</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p223">
<num value="223" style="-uslm-sgm:HED">PART 223—</num>
<heading style="-uslm-sgm:HED">TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES (REGULATION W) </heading>
<toc style="-uslm-sgm:CONTENTS">
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spA">Subpart A—</designator>
<label>Introduction and Definitions </label>
</headingItem>
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.1">223.1</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, and scope. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.2">223.2</designator>
<label style="-uslm-sgm:SUBJECT">What is an “affiliate” for purposes of sections 23A and 23B and this part? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.3">223.3</designator>
<label style="-uslm-sgm:SUBJECT">What are the meanings of the other terms used in sections 23A and 23B and this part?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spB">Subpart B—</designator>
<label>General Provisions of Section 23A </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.11">223.11</designator>
<label style="-uslm-sgm:SUBJECT">What is the maximum amount of covered transactions that a member bank may enter into with any single affiliate? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.12">223.12</designator>
<label style="-uslm-sgm:SUBJECT">What is the maximum amount of covered transactions that a member bank may enter into with all affiliates? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.13">223.13</designator>
<label style="-uslm-sgm:SUBJECT">What safety and soundness requirement applies to covered transactions? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.14">223.14</designator>
<label style="-uslm-sgm:SUBJECT">What are the collateral requirements for a credit transaction with an affiliate? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.15">223.15</designator>
<label style="-uslm-sgm:SUBJECT">May a member bank purchase a low-quality asset from an affiliate? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.16">223.16</designator>
<label style="-uslm-sgm:SUBJECT">What transactions by a member bank with any person are treated as transactions with an affiliate?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART"><?page num="117"?>
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spC">Subpart C—</designator>
<label>Valuation and Timing Principles Under Section 23A </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.21">223.21</designator>
<label style="-uslm-sgm:SUBJECT">What valuation and timing principles apply to credit transactions? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.22">223.22</designator>
<label style="-uslm-sgm:SUBJECT">What valuation and timing principles apply to asset purchases? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.23">223.23</designator>
<label style="-uslm-sgm:SUBJECT">What valuation and timing principles apply to purchases of and investments in securities issued by an affiliate? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.24">223.24</designator>
<label style="-uslm-sgm:SUBJECT">What valuation principles apply to extensions of credit secured by affiliate securities?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spD">Subpart D—</designator>
<label>Other Requirements Under Section 23A </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.31">223.31</designator>
<label style="-uslm-sgm:SUBJECT">How does section 23A apply to a member bank's acquisition of an affiliate that becomes an operating subsidiary of the member bank after the acquisition? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.32">223.32</designator>
<label style="-uslm-sgm:SUBJECT">What rules apply to financial subsidiaries of a member bank? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.33">223.33</designator>
<label style="-uslm-sgm:SUBJECT">What rules apply to derivative transactions?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spE">Subpart E—</designator>
<label>Exemptions from the Provisions of Section 23A </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.41">223.41</designator>
<label style="-uslm-sgm:SUBJECT">What covered transactions are exempt from the quantitative limits and collateral requirements? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.42">223.42</designator>
<label style="-uslm-sgm:SUBJECT">What covered transactions are exempt from the quantitative limits, collateral requirements, and low-quality asset prohibition? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.43">223.43</designator>
<label style="-uslm-sgm:SUBJECT">What are the standards under which the Board may grant additional exemptions from the requirements of section 23A?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spF">Subpart F—</designator>
<label>General Provisions of Section 23B </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.51">223.51</designator>
<label style="-uslm-sgm:SUBJECT">What is the market terms requirement of section 23B? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.52">223.52</designator>
<label style="-uslm-sgm:SUBJECT">What transactions with affiliates or others must comply with section 23B's market terms requirement? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.53">223.53</designator>
<label style="-uslm-sgm:SUBJECT">What asset purchases are prohibited by section 23B? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.54">223.54</designator>
<label style="-uslm-sgm:SUBJECT">What advertisements and statements are prohibited by section 23B? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.55">223.55</designator>
<label style="-uslm-sgm:SUBJECT">What are the standards under which the Board may grant exemptions from the requirements of section 23B? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.56">223.56</designator>
<label style="-uslm-sgm:SUBJECT">What transactions are exempt from the market-terms requirement of section 23B?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spG">Subpart G—</designator>
<label>Application of Sections 23A and 23B to U.S. Branches and Agencies of Foreign Banks </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.61">223.61</designator>
<label style="-uslm-sgm:SUBJECT">How do sections 23A and 23B apply to U.S. branches and agencies of foreign banks?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spH">Subpart H—</designator>
<label>Miscellaneous Interpretations </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.71">223.71</designator>
<label style="-uslm-sgm:SUBJECT">How do sections 23A and 23B apply to transactions in which a member bank purchases from one affiliate an asset relating to another affiliate?
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p223/spI">Subpart I—</designator>
<label>Savings Associations—Transactions with Affiliates</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s223.72">223.72</designator>
<label style="-uslm-sgm:SUBJECT">Transactions with affiliates.</label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t12/s371c/b/1/E">12 U.S.C. 371c(b)(1)(E)</ref>, (b)(2)(A), and (f), 371c–1(e), 1828(j), 1468(a), and section 312(b)(2)(A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (<ref href="/us/usc/t12/s5412">12 U.S.C. 5412</ref>).</authority>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/67/76604">67 FR 76604</ref>, <date date="2002-12-12">Dec. 12, 2002</date>, unless otherwise noted.
</source>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spA">
<num value="A" style="-uslm-sgm:HED">Subpart A—</num>
<heading style="-uslm-sgm:HED">Introduction and Definitions
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.1">
<num value="223.1" style="-uslm-sgm:SECTNO">§ 223.1</num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, and scope. </heading>
<paragraph identifier="/us/cfr/t12/s223.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority.</heading>
<content> The Board of Governors of the Federal Reserve System (Board) has issued this part (Regulation W) under the authority of sections 23A(f) and 23B(e) of the Federal Reserve Act (FRA) (<ref href="/us/usc/t12/s371c/f">12 U.S.C. 371c(f)</ref>, 371c–1(e)) section 11 of the Home Owners' Loan Act (<ref href="/us/usc/t12/s1468">12 U.S.C. 1468</ref>), and section 312(b)(2)(A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (<ref href="/us/usc/t12/s5412">12 U.S.C. 5412</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purpose.</heading>
<content> Sections 23A and 23B of the Federal Reserve Act (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref>, 371c–1) establish certain quantitative limits and other prudential requirements for loans, purchases of assets, and certain other transactions between a member bank and its affiliates. This regulation implements sections 23A and 23B by defining terms used in the statute, explaining the statute's requirements, and exempting certain transactions. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.1/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Scope.</heading>
<content> Sections 23A and 23B and this regulation apply by their terms to “member banks”—that is, any national bank, State bank, trust company, or other institution that is a member of the Federal Reserve System. In addition, the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1828/j">12 U.S.C. 1828(j)</ref>) applies sections 23A and 23B to insured State nonmember banks in the same manner and to the same extent as if they were member banks. The Home Owners' Loan Act (<ref href="/us/usc/t12/s1468/a">12 U.S.C. 1468(a)</ref>) also applies sections 23A and 23B to insured savings <?page num="118"?>associations in the same manner and to the same extent as if they were member banks (and imposes two additional restrictions). </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/67/76604">67 FR 76604</ref>, <date date="2002-12-12">Dec. 12, 2002</date>, as amended at <ref href="/us/fr/76/56531">76 FR 56531</ref>, <date date="2011-09-13" role="amended">Sept. 13, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.2">
<num value="223.2" style="-uslm-sgm:SECTNO">§ 223.2</num>
<heading style="-uslm-sgm:SUBJECT">What is an “affiliate” for purposes of sections 23A and 23B and this part? </heading>
<paragraph identifier="/us/cfr/t12/s223.2/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<chapeau> For purposes of this part and except as provided in paragraphs (b) and (c) of this section, “affiliate” with respect to a member bank means: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.2/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Parent companies.</heading>
<content> Any company that controls the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Companies under common control by a parent company.</heading>
<content> Any company, including any subsidiary of the member bank, that is controlled by a company that controls the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Companies under other common control.</heading>
<content> Any company, including any subsidiary of the member bank, that is controlled, directly or indirectly, by trust or otherwise, by or for the benefit of shareholders who beneficially or otherwise control, directly or indirectly, by trust or otherwise, the member bank or any company that controls the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Companies with interlocking directorates.</heading>
<content> Any company in which a majority of its directors, trustees, or general partners (or individuals exercising similar functions) constitute a majority of the persons holding any such office with the member bank or any company that controls the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Sponsored and advised companies.</heading>
<content> Any company, including a real estate investment trust, that is sponsored and advised on a contractual basis by the member bank or an affiliate of the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Investment companies.</heading>
<paragraph identifier="/us/cfr/t12/s223.2/a/6/i" class="inline">
<num value="i"> (i)</num>
<content> Any investment company for which the member bank or any affiliate of the member bank serves as an investment adviser, as defined in section 2(a)(20) of the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a–2/a/20">15 U.S.C. 80a–2(a)(20)</ref>); and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any other investment fund for which the member bank or any affiliate of the member bank serves as an investment advisor, if the member bank and its affiliates own or control in the aggregate more than 5 percent of any class of voting securities or of the equity capital of the fund; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Depository institution subsidiaries.</heading>
<content> A depository institution that is a subsidiary of the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Financial subsidiaries.</heading>
<content> A financial subsidiary of the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Companies held under merchant banking or insurance company investment authority—</heading>
<paragraph identifier="/us/cfr/t12/s223.2/a/9/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> Any company in which a holding company of the member bank owns or controls, directly or indirectly, or acting through one or more other persons, 15 percent or more of the equity capital pursuant to section 4(k)(4)(H) or (I) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref> or (I)). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/9/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>General exemption.</heading>
<content> A company will not be an affiliate under paragraph (a)(9)(i) of this section if the holding company presents information to the Board that demonstrates, to the Board's satisfaction, that the holding company does not control the company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/9/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Specific exemptions.</heading>
<chapeau> A company also will not be an affiliate under paragraph (a)(9)(i) of this section if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.2/a/9/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> No director, officer, or employee of the holding company serves as a director, trustee, or general partner (or individual exercising similar functions) of the company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/9/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A person that is not affiliated or associated with the holding company owns or controls a greater percentage of the equity capital of the company than is owned or controlled by the holding company, and no more than one officer or employee of the holding company serves as a director or trustee (or individual exercising similar functions) of the company; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/9/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A person that is not affiliated or associated with the holding company owns or controls more than 50 percent of the voting shares of the company, and officers and employees of the holding company do not constitute a majority of the directors or trustees (or individuals exercising similar functions) of the company. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/9/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Application of rule to private equity funds.</heading>
<content> A holding company will not be deemed to own or control the equity capital of a company for purposes of paragraph (a)(9)(i) of this section solely by virtue of an investment made by the <?page num="119"?>holding company in a private equity fund (as defined in the merchant banking subpart of the Board's Regulation Y (<ref href="/us/cfr/t12/s225.173/a">12 CFR 225.173(a)</ref>)) that owns or controls the equity capital of the company unless the holding company controls the private equity fund under <ref href="/us/cfr/t12/s225.173/d/4">12 CFR 225.173(d)(4)</ref>. </content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s223.2/a/9/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Definition.</heading>
<content> For purposes of this paragraph (a)(9), “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">holding company</inline>” with respect to a member bank means a company that controls the member bank, or a company that is controlled by shareholders that control the member bank, and all subsidiaries of the company (including any depository institution that is a subsidiary of the company). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Partnerships associated with the member bank or an affiliate.</heading>
<content> Any partnership for which the member bank or any affiliate of the member bank serves as a general partner or for which the member bank or any affiliate of the member bank causes any director, officer, or employee of the member bank or affiliate to serve as a general partner; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/11" style="-uslm-sgm:P">
<num value="11">(11) </num>
<heading>Subsidiaries of affiliates.</heading>
<content> Any subsidiary of a company described in paragraphs (a)(1) through (10) of this section; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/a/12" style="-uslm-sgm:P">
<num value="12">(12) </num>
<heading>Other companies.</heading>
<content> Any company that the Board determines by regulation or order, or that the appropriate Federal banking agency for the member bank determines by order, to have a relationship with the member bank, or any affiliate of the member bank, such that covered transactions by the member bank with that company may be affected by the relationship to the detriment of the member bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate</inline>” with respect to a member bank does <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> include:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.2/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Subsidiaries.</heading>
<chapeau> Any company that is a subsidiary of the member bank, unless the company is:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.2/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A depository institution;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A financial subsidiary;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> Directly controlled by:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.2/b/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> One or more affiliates (other than depository institution affiliates) of the member bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A shareholder that controls the member bank or a group of shareholders that together control the member bank;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> An employee stock option plan, trust, or similar organization that exists for the benefit of the shareholders, partners, members, or employees of the member bank or any of its affiliates; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Any other company determined to be an affiliate under paragraph (a)(12) of this section;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Bank premises.</heading>
<content> Any company engaged solely in holding the premises of the member bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Safe deposit.</heading>
<content> Any company engaged solely in conducting a safe deposit business;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Government securities.</heading>
<content> Any company engaged solely in holding obligations of the United States or its agencies or obligations fully guaranteed by the United States or its agencies as to principal and interest; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Companies held DPC.</heading>
<content> Any company where control results from the exercise of rights arising out of a bona fide debt previously contracted. This exclusion from the definition of “affiliate” applies only for the period of time specifically authorized under applicable State or Federal law or regulation or, in the absence of such law or regulation, for a period of two years from the date of the exercise of such rights. The Board may authorize, upon application and for good cause shown, extensions of time for not more than one year at a time, but such extensions in the aggregate will not exceed three years.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.2/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> For purposes of subpart F (implementing section 23B), “affiliate” with respect to a member bank also does <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> include any depository institution.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.3">
<num value="223.3" style="-uslm-sgm:SECTNO">§ 223.3</num>
<heading style="-uslm-sgm:SUBJECT">What are the meanings of the other terms used in sections 23A and 23B and this part?</heading>
<chapeau style="-uslm-sgm:P">For purposes of this part:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Aggregate amount of covered transactions</heading>
<content> means the amount of the covered transaction about to be engaged in added to the current amount of all outstanding covered transactions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Appropriate Federal banking agency</heading>
<content> with respect to a member bank or other depository institution has the same meaning as in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank holding company</inline>” has the same meaning as in <ref href="/us/cfr/t12/s225.2">12 CFR 225.2</ref>.
<?page num="120"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital stock and surplus</inline>” means the sum of:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A member bank's tier 1 and tier 2 capital under the risk-based capital guidelines of the appropriate Federal banking agency, based on the member bank's most recent consolidated Report of Condition and Income filed under <ref href="/us/usc/t12/s1817/a/3">12 U.S.C. 1817(a)(3)</ref>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The balance of a member bank's allowance for loan and lease losses not included in its tier 2 capital under the risk-based capital guidelines of the appropriate Federal banking agency, based on the member bank's most recent consolidated Report of Condition and Income filed under <ref href="/us/usc/t12/s1817/a/3">12 U.S.C. 1817(a)(3)</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The amount of any investment by a member bank in a financial subsidiary that counts as a covered transaction and is required to be deducted from the member bank's capital for regulatory capital purposes.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Carrying value</heading>
<content> with respect to a security means (unless otherwise provided) the value of the security on the financial statements of the member bank, determined in accordance with GAAP.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Company</heading>
<content> means a corporation, partnership, limited liability company, business trust, association, or similar organization and, unless specifically excluded, includes a member bank and a depository institution.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Control—</heading>
<paragraph identifier="/us/cfr/t12/s223.3/g/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Control</inline>” by a company or shareholder over another company means that:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/g/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The company or shareholder, directly or indirectly, or acting through one or more other persons, owns, controls, or has power to vote 25 percent or more of any class of voting securities of the other company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/g/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The company or shareholder controls in any manner the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of the other company; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/g/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The Board determines, after notice and opportunity for hearing, that the company or shareholder, directly or indirectly, exercises a controlling influence over the management or policies of the other company.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Ownership or control of shares as fiduciary.</heading>
<content> Notwithstanding any other provision of this regulation, no company will be deemed to control another company by virtue of its ownership or control of shares in a fiduciary capacity, except as provided in paragraph (a)(3) of <ref href="/us/cfr/t12/s223.2">§ 223.2</ref> or if the company owning or controlling the shares is a business trust.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/g/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Ownership or control of securities by subsidiary.</heading>
<content> A company controls securities, assets, or other ownership interests owned or controlled, directly or indirectly, by any subsidiary (including a subsidiary depository institution) of the company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/g/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Ownership or control of convertible instruments.</heading>
<content> A company or shareholder that owns or controls instruments (including options or warrants) that are convertible or exercisable, at the option of the holder or owner, into securities, controls the securities, unless the company or shareholder presents information to the Board that demonstrates, to the Board's satisfaction, that the company or shareholder should not be deemed to control the securities.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/g/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Ownership or control of nonvoting securities.</heading>
<content> A company or shareholder that owns or controls 25 percent or more of the equity capital of another company controls the other company, unless the company or shareholder presents information to the Board that demonstrates, to the Board's satisfaction, that the company or shareholder does not control the other company.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Covered transaction</heading>
<chapeau> with respect to an affiliate means:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/h/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> An extension of credit to the affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/h/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A purchase of, or an investment in, a security issued by the affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/h/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A purchase of an asset from the affiliate, including an asset subject to recourse or an agreement to repurchase, except such purchases of real and personal property as may be specifically exempted by the Board by order or regulation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/h/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The acceptance of a security issued by the affiliate as collateral for an extension of credit to any person or company; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/h/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of <?page num="121"?>credit, on behalf of the affiliate, a confirmation of a letter of credit issued by the affiliate, and a cross-affiliate netting arrangement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Credit transaction</heading>
<chapeau> with an affiliate means:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/i/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> An extension of credit to the affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/i/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of credit, on behalf of the affiliate and a confirmation of a letter of credit issued by the affiliate; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/i/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A cross-affiliate netting arrangement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Cross-affiliate netting arrangement</heading>
<chapeau> means an arrangement among a member bank, one or more affiliates of the member bank, and one or more nonaffiliates of the member bank in which:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/j/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A nonaffiliate is permitted to deduct any obligations of an affiliate of the member bank to the nonaffiliate when settling the nonaffiliate's obligations to the member bank; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/j/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The member bank is permitted or required to add any obligations of its affiliate to a nonaffiliate when determining the member bank's obligations to the nonaffiliate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/k" style="-uslm-sgm:P">
<num value="k">(k)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Depository institution</inline>” means, unless otherwise noted, an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>)), but does not include any branch of a foreign bank. For purposes of this definition, an operating subsidiary of a depository institution is treated as part of the depository institution.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/l" style="-uslm-sgm:P">
<num value="l">(l)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Derivative transaction</inline>” means any derivative contract listed in sections III.E.1.a. through d. of appendix A to <ref href="/us/cfr/t12/p225">12 CFR part 225</ref> and any similar derivative contract, including a credit derivative contract.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/m" style="-uslm-sgm:P">
<num value="m">(m)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligible affiliated mutual fund securities</inline>” has the meaning specified in paragraph (c)(2) of <ref href="/us/cfr/t12/s223.24">§ 223.24</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/n" style="-uslm-sgm:P">
<num value="n">(n)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Equity capital</inline>” means:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/n/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> With respect to a corporation, preferred stock, common stock, capital surplus, retained earnings, and accumulated other comprehensive income, less treasury stock, plus any other account that constitutes equity of the corporation; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/n/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> With respect to a partnership, limited liability company, or other company, equity accounts similar to those described in paragraph (n)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/o" style="-uslm-sgm:P">
<num value="o">(o)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Extension of credit</inline>” to an affiliate means the making or renewal of a loan, the granting of a line of credit, or the extending of credit in any manner whatsoever, including on an intraday basis, to an affiliate. An extension of credit to an affiliate includes, without limitation:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/o/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> An advance to an affiliate by means of an overdraft, cash item, or otherwise;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/o/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A sale of Federal funds to an affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/o/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A lease that is the functional equivalent of an extension of credit to an affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/o/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> An acquisition by purchase, discount, exchange, or otherwise of a note or other obligation, including commercial paper or other debt securities, of an affiliate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/o/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Any increase in the amount of, extension of the maturity of, or adjustment to the interest rate term or other material term of, an extension of credit to an affiliate; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/o/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Any other similar transaction as a result of which an affiliate becomes obligated to pay money (or its equivalent).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/p" style="-uslm-sgm:P">
<num value="p">(p)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financial subsidiary</inline>”</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/p/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraph (p)(2) of this section, the term “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">financial subsidiary</inline>” means any subsidiary of a member bank that:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/p/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Engages, directly or indirectly, in any activity that national banks are not permitted to engage in directly or that is conducted under terms and conditions that differ from those that govern the conduct of such activity by national banks; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/p/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is not a subsidiary that a national bank is specifically authorized to own or control by the express terms of a Federal statute (other than <ref href="/us/usc/t12/s24a">12 U.S.C. 24a</ref>), and not by implication or interpretation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/p/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Exceptions.</heading>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financial subsidiary</inline>” does not include:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/p/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A subsidiary of a member bank that is considered a financial subsidiary under paragraph (p)(1) of this section solely because the subsidiary <?page num="122"?>engages in the sale of insurance as agent or broker in a manner that is not permitted for national banks; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/p/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> A subsidiary of a State bank (other than a subsidiary described in section 46(a) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1831w/a">12 U.S.C. 1831w(a)</ref>)) that is considered a financial subsidiary under paragraph (p)(1) of this section solely because the subsidiary engages in one or more of the following activities:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/p/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> An activity that the State bank may engage in directly under applicable Federal and State law and that is conducted under the same terms and conditions that govern the conduct of the activity by the State bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/p/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> An activity that the subsidiary was authorized by applicable Federal and State law to engage in prior to <date date="2002-12-12">December 12, 2002</date>, and that was lawfully engaged in by the subsidiary on that date.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/p/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Subsidiaries of financial subsidiaries.</heading>
<content> If a company is a financial subsidiary under paragraphs (p)(1) and (p)(2) of this section, any subsidiary of such a company is also a financial subsidiary.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/q" style="-uslm-sgm:P">
<num value="q">(q)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign bank</inline>” and an “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">agency,</inline>” “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">branch,</inline>” or “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">commercial lending company</inline>” of a foreign bank have the same meanings as in section 1(b) of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/r" style="-uslm-sgm:P">
<num value="r">(r)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">GAAP</inline>” means U.S. generally accepted accounting principles.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/s" style="-uslm-sgm:P">
<num value="s">(s)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General purpose credit card</inline>” has the meaning specified in paragraph (c)(4)(ii) of <ref href="/us/cfr/t12/s223.16">§ 223.16</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/t" style="-uslm-sgm:P">
<num value="t">(t) </num>
<heading>In contemplation.</heading>
<content> A transaction between a member bank and a nonaffiliate is presumed to be “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in contemplation</inline>” of the nonaffiliate becoming an affiliate of the member bank if the member bank enters into the transaction with the nonaffiliate after the execution of, or commencement of negotiations designed to result in, an agreement under the terms of which the nonaffiliate would become an affiliate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/u" style="-uslm-sgm:P">
<num value="u">(u)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intraday extension of credit</inline>” has the meaning specified in paragraph (l)(2) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Low-quality asset</inline>” means:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/v/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> An asset (including a security) classified as “substandard,” “doubtful,” or “loss,” or treated as “special mention” or “other transfer risk problems,” either in the most recent report of examination or inspection of an affiliate prepared by either a Federal or State supervisory agency or in any internal classification system used by the member bank or the affiliate (including an asset that receives a rating that is substantially equivalent to “classified” or “special mention” in the internal system of the member bank or affiliate);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/v/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An asset in a nonaccrual status;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/v/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> An asset on which principal or interest payments are more than thirty days past due;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/v/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> An asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the obligor; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/v/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> An asset acquired through foreclosure, repossession, or otherwise in satisfaction of a debt previously contracted, if the asset has not yet been reviewed in an examination or inspection.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/w" style="-uslm-sgm:P">
<num value="w">(w)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Member bank</inline>” means any national bank, State bank, banking association, or trust company that is a member of the Federal Reserve System. For purposes of this definition, an operating subsidiary of a member bank is treated as part of the member bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/x" style="-uslm-sgm:P">
<num value="x">(x)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Municipal securities</inline>” has the same meaning as in section 3(a)(29) of the Securities Exchange Act of 1934 (<ref href="/us/usc/t17/s78c/a/29">17 U.S.C. 78c(a)(29)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/y" style="-uslm-sgm:P">
<num value="y">(y)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonaffiliate</inline>” with respect to a member bank means any person that is not an affiliate of the member bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/z" style="-uslm-sgm:P">
<num value="z">(z)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Obligations of, or fully guaranteed as to principal and interest by, the United States or its agencies</inline>” includes those obligations listed in <ref href="/us/cfr/t12/s201.108/b">12 CFR 201.108(b)</ref> and any additional obligations as determined by the Board. The term does not include Federal Housing Administration or Veterans Administration loans.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/aa" style="-uslm-sgm:P">
<num value="aa">(aa)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Operating subsidiary</inline>” with respect to a member bank or other depository institution means any subsidiary of the member bank or depository institution other than a subsidiary described in paragraphs (b)(1)(i) through (v) of <ref href="/us/cfr/t12/s223.2">§ 223.2</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/bb" style="-uslm-sgm:P">
<num value="bb">(bb)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person</inline>” means an individual, company, trust, joint venture, pool, <?page num="123"?>syndicate, sole proprietorship, unincorporated organization, or any other form of entity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/cc" style="-uslm-sgm:P">
<num value="cc">(cc)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal underwriter</inline>” has the meaning specified in paragraph (c)(1) of <ref href="/us/cfr/t12/s223.53">§ 223.53</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/dd" style="-uslm-sgm:P">
<num value="dd">(dd)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Purchase of an asset</inline>” by a member bank from an affiliate means the acquisition by a member bank of an asset from an affiliate in exchange for cash or any other consideration, including an assumption of liabilities. The merger of an affiliate into a member bank is a purchase of assets by the member bank from an affiliate if the member bank assumes any liabilities of the affiliate or pays any other form of consideration in the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/ee" style="-uslm-sgm:P">
<num value="ee">(ee) </num>
<heading>Riskless principal.</heading>
<content> A company is “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">acting exclusively as a riskless principal</inline>” if, after receiving an order to buy (or sell) a security from a customer, the company purchases (or sells) the security in the secondary market for its own account to offset a contemporaneous sale to (or purchase from) the customer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/ff" style="-uslm-sgm:P">
<num value="ff">(ff)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Securities</inline>” means stocks, bonds, debentures, notes, or similar obligations (including commercial paper).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/gg" style="-uslm-sgm:P">
<num value="gg">(gg)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Securities affiliate</inline>” with respect to a member bank means:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.3/gg/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> An affiliate of the member bank that is registered with the Securities and Exchange Commission as a broker or dealer; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/gg/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any other securities broker or dealer affiliate of a member bank that is approved by the Board.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/hh" style="-uslm-sgm:P">
<num value="hh">(hh)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State bank</inline>” has the same meaning as in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsidiary</inline>” with respect to a specified company means a company that is controlled by the specified company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/jj" style="-uslm-sgm:P">
<num value="jj">(jj)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Voting securities</inline>” has the same meaning as in <ref href="/us/cfr/t12/s225.2">12 CFR 225.2</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/kk" style="-uslm-sgm:P">
<num value="kk">(kk)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Well capitalized</inline>” has the same meaning as in <ref href="/us/cfr/t12/s225.2">12 CFR 225.2</ref> and, in the case of any holding company that is not a bank holding company, “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">well capitalized</inline>” means that the holding company has and maintains at least the capital levels required for a bank holding company to be well capitalized under <ref href="/us/cfr/t12/s225.2">12 CFR 225.2</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.3/ll" style="-uslm-sgm:P">
<num value="ll">(ll)</num>
<content> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Well managed</inline>” has the same meaning as in <ref href="/us/cfr/t12/s225.2">12 CFR 225.2</ref>.
</content>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spB">
<num value="B" style="-uslm-sgm:HED">Subpart B—</num>
<heading style="-uslm-sgm:HED">General Provisions of Section 23A
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.11">
<num value="223.11" style="-uslm-sgm:SECTNO">§ 223.11</num>
<heading style="-uslm-sgm:SUBJECT">What is the maximum amount of covered transactions that a member bank may enter into with any single affiliate?</heading>
<content style="-uslm-sgm:P">A member bank may not engage in a covered transaction with an affiliate (other than a financial subsidiary of the member bank) if the aggregate amount of the member bank's covered transactions with such affiliate would exceed 10 percent of the capital stock and surplus of the member bank.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.12">
<num value="223.12" style="-uslm-sgm:SECTNO">§ 223.12</num>
<heading style="-uslm-sgm:SUBJECT">What is the maximum amount of covered transactions that a member bank may enter into with all affiliates?</heading>
<content style="-uslm-sgm:P">A member bank may not engage in a covered transaction with any affiliate if the aggregate amount of the member bank's covered transactions with all affiliates would exceed 20 percent of the capital stock and surplus of the member bank.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.13">
<num value="223.13" style="-uslm-sgm:SECTNO">§ 223.13</num>
<heading style="-uslm-sgm:SUBJECT">What safety and soundness requirement applies to covered transactions?</heading>
<content style="-uslm-sgm:P">A member bank may not engage in any covered transaction, including any transaction exempt under this regulation, unless the transaction is on terms and conditions that are consistent with safe and sound banking practices.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.14">
<num value="223.14" style="-uslm-sgm:SECTNO">§ 223.14</num>
<heading style="-uslm-sgm:SUBJECT">What are the collateral requirements for a credit transaction with an affiliate?</heading>
<paragraph identifier="/us/cfr/t12/s223.14/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Collateral required for extensions of credit and certain other covered transactions.</heading>
<content> A member bank must ensure that each of its credit transactions with an affiliate is secured by the amount of collateral required by paragraph (b) of this section at the time of the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Amount of collateral required—</heading>
<paragraph identifier="/us/cfr/t12/s223.14/b/1" class="inline">
<num value="1">(1) </num>
<heading>The rule.</heading>
<chapeau> A credit transaction described in paragraph (a) of this section must be secured by collateral having a market value equal to at least:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> 100 percent of the amount of the transaction, if the collateral is:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Obligations of the United States or its agencies;
<?page num="124"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Obligations fully guaranteed by the United States or its agencies as to principal and interest;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Notes, drafts, bills of exchange, or bankers' acceptances that are eligible for rediscount or purchase by a Federal Reserve Bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> A segregated, earmarked deposit account with the member bank that is for the sole purpose of securing credit transactions between the member bank and its affiliates and is identified as such;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> 110 percent of the amount of the transaction, if the collateral is obligations of any State or political subdivision of any State;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> 120 percent of the amount of the transaction, if the collateral is other debt instruments, including loans and other receivables; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> 130 percent of the amount of the transaction, if the collateral is stock, leases, or other real or personal property.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Example.</heading>
<content> A member bank makes a $1,000 loan to an affiliate. The affiliate posts as collateral for the loan $500 in U.S. Treasury securities, $480 in corporate debt securities, and $130 in real estate. The loan satisfies the collateral requirements of this section because $500 of the loan is 100 percent secured by obligations of the United States, $400 of the loan is 120 percent secured by debt instruments, and $100 of the loan is 130 percent secured by real estate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Ineligible collateral.</heading>
<chapeau> The following items are not eligible collateral for purposes of this section: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.14/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Low-quality assets; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Securities issued by any affiliate; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Equity securities issued by the member bank, and debt securities issued by the member bank that represent regulatory capital of the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Intangible assets (including servicing assets), unless specifically approved by the Board; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Guarantees, letters of credit, and other similar instruments. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Perfection and priority requirements for collateral—</heading>
<paragraph identifier="/us/cfr/t12/s223.14/d/1" class="inline">
<num value="1">(1) </num>
<heading>Perfection.</heading>
<content> A member bank must maintain a security interest in collateral required by this section that is perfected and enforceable under applicable law, including in the event of default resulting from bankruptcy, insolvency, liquidation, or similar circumstances. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Priority.</heading>
<chapeau> A member bank either must obtain a first priority security interest in collateral required by this section or must deduct from the value of collateral obtained by the member bank the lesser of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.14/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of any security interest in the collateral that is senior to that of the member bank; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The amount of any credit secured by the collateral that is senior to that of the member bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Example.</heading>
<content> A member bank makes a $2,000 loan to an affiliate. The affiliate grants the member bank a second priority security interest in a piece of real estate valued at $3,000. Another institution that previously lent $1,000 to the affiliate has a first priority security interest in the entire parcel of real estate. This transaction is not in compliance with the collateral requirements of this section. Due to the existence of the prior third-party lien on the real estate, the effective value of the real estate collateral for the member bank for purposes of this section is only $2,000—$600 less than the amount of real estate collateral required by this section for the transaction ($2,000 × 130 percent = $2,600). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Replacement requirement for retired or amortized collateral.</heading>
<content> A member bank must ensure that any required collateral that subsequently is retired or amortized is replaced with additional eligible collateral as needed to keep the percentage of the collateral value relative to the amount of the outstanding credit transaction equal to the minimum percentage required at the inception of the transaction. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Inapplicability of the collateral requirements to certain transactions.</heading>
<chapeau> The collateral requirements of this section do not apply to the following transactions. </chapeau>
<paragraph identifier="/us/cfr/t12/s223.14/f/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Acceptances.</heading>
<content> An acceptance that already is fully secured either by attached documents or by other property that is involved in the transaction and has an ascertainable market value. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>The unused portion of certain extensions of credit.</heading>
<content> The unused portion of an extension of credit to an affiliate as long as the member bank does not have <?page num="125"?>any legal obligation to advance additional funds under the extension of credit until the affiliate provides the amount of collateral required by paragraph (b) of this section with respect to the entire used portion (including the amount of the requested advance) of the extension of credit. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.14/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Purchases of affiliate debt securities in the secondary market.</heading>
<content> The purchase of a debt security issued by an affiliate as long as the member bank purchases the debt security from a nonaffiliate in a bona fide secondary market transaction.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.15">
<num value="223.15" style="-uslm-sgm:SECTNO">§ 223.15</num>
<heading style="-uslm-sgm:SUBJECT">May a member bank purchase a low-quality asset from an affiliate? </heading>
<paragraph identifier="/us/cfr/t12/s223.15/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> A member bank may not purchase a low-quality asset from an affiliate unless, pursuant to an independent credit evaluation, the member bank had committed itself to purchase the asset before the time the asset was acquired by the affiliate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.15/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exemption for renewals of loan participations involving problem loans.</heading>
<chapeau> The prohibition contained in paragraph (a) of this section does not apply to the renewal of, or extension of additional credit with respect to, a member bank's participation in a loan to a nonaffiliate that was originated by an affiliate if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.15/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The loan was not a low-quality asset at the time the member bank purchased its participation; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.15/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> The renewal or extension of additional credit is approved, as necessary to protect the participating member bank's investment by enhancing the ultimate collection of the original indebtedness, by the board of directors of the participating member bank or, if the originating affiliate is a depository institution, by: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.15/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> An executive committee of the board of directors of the participating member bank; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.15/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> One or more senior management officials of the participating member bank, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.15/b/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The board of directors of the member bank approves standards for the member bank's renewals or extensions of additional credit described in this paragraph (b), based on the determination set forth in paragraph (b)(2) of this section; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.15/b/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Each renewal or extension of additional credit described in this paragraph (b) meets the standards; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.15/b/2/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The board of directors of the member bank periodically reviews renewals and extensions of additional credit described in this paragraph (b) to ensure that they meet the standards and periodically reviews the standards to ensure that they continue to meet the criterion set forth in paragraph (b)(2) of this section; </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.15/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The participating member bank's share of the renewal or extension of additional credit does not exceed its proportional share of the original transaction by more than 5 percent, unless the member bank obtains the prior written approval of its appropriate Federal banking agency; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.15/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The participating member bank provides its appropriate Federal banking agency with written notice of the renewal or extension of additional credit not later than 20 days after consummation.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.16">
<num value="223.16" style="-uslm-sgm:SECTNO">§ 223.16</num>
<heading style="-uslm-sgm:SUBJECT">What transactions by a member bank with any person are treated as transactions with an affiliate? </heading>
<paragraph identifier="/us/cfr/t12/s223.16/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> A member bank must treat any of its transactions with any person as a transaction with an affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, an affiliate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Certain agency transactions.</heading>
<paragraph identifier="/us/cfr/t12/s223.16/b/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Except to the extent described in paragraph (b)(2) of this section, an extension of credit by a member bank to a nonaffiliate is not treated as an extension of credit to an affiliate under paragraph (a) of this section if:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.16/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The proceeds of the extension of credit are used to purchase an asset through an affiliate of the member bank, and the affiliate is acting exclusively as an agent or broker in the transaction; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The asset purchased by the nonaffiliate is not issued, underwritten, or sold as principal by any affiliate of the member bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The interpretation set forth in paragraph (b)(1) of this section does not apply to the extent of any agency fee, <?page num="126"?>brokerage commission, or other compensation received by an affiliate from the proceeds of the extension of credit. The receipt of such compensation may qualify, however, for the exemption contained in paragraph (c)(2) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exemptions.</heading>
<chapeau> Notwithstanding paragraph (a) of this section, the following transactions are not subject to the quantitative limits of <ref href="/us/cfr/t12/s223.11">§§ 223.11</ref> and 223.12 or the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref>. The transactions are, however, subject to the safety and soundness requirement of <ref href="/us/cfr/t12/s223.13">§ 223.13</ref> and the market terms requirement and other provisions of subpart F (implementing section 23B). </chapeau>
<paragraph identifier="/us/cfr/t12/s223.16/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Certain riskless principal transactions.</heading>
<chapeau> An extension of credit by a member bank to a nonaffiliate, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.16/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The proceeds of the extension of credit are used to purchase a security through a securities affiliate of the member bank, and the securities affiliate is acting exclusively as a riskless principal in the transaction; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The security purchased by the nonaffiliate is not issued, underwritten, or sold as principal (other than as riskless principal) by any affiliate of the member bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Any riskless principal mark-up or other compensation received by the securities affiliate from the proceeds of the extension of credit meets the market terms standard set forth in paragraph (c)(2) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Brokerage commissions, agency fees, and riskless principal mark-ups.</heading>
<content> An affiliate's retention of a portion of the proceeds of an extension of credit described in paragraph (b) or (c)(1) of this section as a brokerage commission, agency fee, or riskless principal mark-up, if that commission, fee, or mark-up is substantially the same as, or lower than, those prevailing at the same time for comparable transactions with or involving other nonaffiliates, in accordance with the market terms requirement of <ref href="/us/cfr/t12/s223.51">§ 223.51</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Preexisting lines of credit.</heading>
<chapeau> An extension of credit by a member bank to a nonaffiliate, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.16/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The proceeds of the extension of credit are used to purchase a security from or through a securities affiliate of the member bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The extension of credit is made pursuant to, and consistent with any conditions imposed in, a preexisting line of credit that was not established in contemplation of the purchase of securities from or through an affiliate of the member bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>General purpose credit card transactions—</heading>
<paragraph identifier="/us/cfr/t12/s223.16/c/4/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> An extension of credit by a member bank to a nonaffiliate, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.16/c/4/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The proceeds of the extension of credit are used by the nonaffiliate to purchase a product or service from an affiliate of the member bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The extension of credit is made pursuant to, and consistent with any conditions imposed in, a general purpose credit card issued by the member bank to the nonaffiliate. </content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s223.16/c/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Definition.</heading>
<content>
<p> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General purpose credit card</inline>” means a credit card issued by a member bank that is widely accepted by merchants that are not affiliates of the member bank for the purchase of products or services, if: </p>
<p style="-uslm-sgm:P">(A) Less than 25 percent of the total value of products and services purchased with the card by all cardholders are purchases of products and services from one or more affiliates of the member bank; </p>
<p style="-uslm-sgm:P">(B) All affiliates of the member bank would be permissible for a financial holding company (as defined in <ref href="/us/usc/t12/s1841">12 U.S.C. 1841</ref>) under section 4 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>), and the member bank has no reason to believe that 25 percent or more of the total value of products and services purchased with the card by all cardholders are or would be purchases of products and services from one or more affiliates of the member bank; or </p>
<p style="-uslm-sgm:P">(C) The member bank presents information to the Board that demonstrates, to the Board's satisfaction, that less than 25 percent of the total value of products and services purchased with the card by all cardholders are and would be purchases of products and services from one or more affiliates of the member bank. </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Calculating compliance.</heading>
<content> To determine whether a credit card qualifies as a general purpose credit card under the standard set forth in paragraph (c)(4)(ii)(A) of this section, a member bank must compute compliance on a <?page num="127"?>monthly basis, based on cardholder purchases that were financed by the credit card during the preceding 12 calendar months. If a credit card has qualified as a general purpose credit card for 3 consecutive months but then ceases to qualify in the following month, the member bank may continue to treat the credit card as a general purpose credit card for such month and three additional months (or such longer period as may be permitted by the Board). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.16/c/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Example of calculating compliance with the 25 percent test.</heading>
<content> A member bank seeks to qualify a credit card as a general purpose credit card under paragraph (c)(4)(ii)(A) of this section. The member bank assesses its compliance under paragraph (c)(4)(iii) of this section on the 15th day of every month (for the preceding 12 calendar months). The credit card qualifies as a general purpose credit card for at least three consecutive months. On <date date="2005-06-15">June 15, 2005</date>, however, the member bank determines that, for the 12-calendar-month period from <date date="2004-06-01">June 1, 2004</date>, through <date date="2005-05-31">May 31, 2005</date>, 27 percent of the total value of products and services purchased with the card by all cardholders were purchases of products and services from an affiliate of the member bank. Unless the credit card returns to compliance with the 25 percent limit by the 12-calendar-month period ending <date date="2005-08-31">August 31, 2005</date>, the card will cease to qualify as a general purpose credit card as of <date date="2005-09-01">September 1, 2005</date>. Any outstanding extensions of credit under the credit card that were used to purchase products or services from an affiliate of the member bank would become covered transactions at such time.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spC">
<num value="C" style="-uslm-sgm:HED">Subpart C—</num>
<heading style="-uslm-sgm:HED">Valuation and Timing Principles Under Section 23A
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.21">
<num value="223.21" style="-uslm-sgm:SECTNO">§ 223.21</num>
<heading style="-uslm-sgm:SUBJECT">What valuation and timing principles apply to credit transactions? </heading>
<paragraph identifier="/us/cfr/t12/s223.21/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Valuation—</heading>
<paragraph identifier="/us/cfr/t12/s223.21/a/1" class="inline">
<num value="1">(1) </num>
<heading>Initial valuation.</heading>
<chapeau> Except as provided in paragraph (a)(2) or (3) of this section, a credit transaction with an affiliate initially must be valued at the greater of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.21/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The principal amount of the transaction; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The amount owed by the affiliate to the member bank under the transaction; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> The sum of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.21/a/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The amount provided to, or on behalf of, the affiliate in the transaction; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Any additional amount that the member bank could be required to provide to, or on behalf of, the affiliate under the terms of the transaction. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Initial valuation of certain acquisitions of a credit transaction.</heading>
<chapeau> If a member bank acquires from a nonaffiliate a credit transaction with an affiliate, the covered transaction initially must be valued at the sum of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.21/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The total amount of consideration given (including liabilities assumed) by the member bank in exchange for the credit transaction; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any additional amount that the member bank could be required to provide to, or on behalf of, the affiliate under the terms of the transaction. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Debt securities.</heading>
<content> The valuation principles of paragraphs (a)(1) and (2) of this section do not apply to a member bank's purchase of or investment in a debt security issued by an affiliate, which is governed by <ref href="/us/cfr/t12/s223.23">§ 223.23</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Examples.</heading>
<chapeau> The following are examples of how to value a member bank's credit transactions with an affiliate.</chapeau>
<paragraph identifier="/us/cfr/t12/s223.21/a/4/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Term loan.</heading>
<content> A member bank makes a loan to an affiliate that has a principal amount of $100. The affiliate pays $2 in up-front fees to the member bank, and the affiliate receives net loan proceeds of $98. The member bank must initially value the covered transaction at $100. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Revolving credit.</heading>
<content> A member bank establishes a $300 revolving credit facility for an affiliate. The affiliate has drawn down $100 under the facility. The member bank must value the covered transaction at $300 throughout the life of the facility. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Guarantee.</heading>
<content> A member bank has issued a guarantee to a nonaffiliate on behalf of an affiliate under which the member bank would be obligated to pay the nonaffiliate $500 if the affiliate defaults on an issuance of debt securities. The member bank must value the guarantee at $500 throughout the life of the guarantee.
<?page num="128"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/a/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Acquisition of a loan to an affiliate.</heading>
<content> A member bank purchases from a nonaffiliate a fixed-rate loan to an affiliate. The loan has an outstanding principal amount of $100 but, due to movements in the general level of interest rates since the time of the loan's origination, the member bank is able to purchase the loan for $90. The member bank initially must value the credit transaction at $90 (and must ensure that the credit transaction complies with the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref> at the time of its acquisition of the loan). </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Timing—</heading>
<paragraph identifier="/us/cfr/t12/s223.21/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A member bank engages in a credit transaction with an affiliate at the time during the day that: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.21/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The member bank becomes legally obligated to make an extension of credit to, issue a guarantee, acceptance, or letter of credit on behalf of, or confirm a letter of credit issued by, an affiliate; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The member bank enters into a cross-affiliate netting arrangement; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The member bank acquires an extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Credit transactions by a member bank with a nonaffiliate that becomes an affiliate of the member bank—</heading>
<paragraph identifier="/us/cfr/t12/s223.21/b/2/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> A credit transaction with a nonaffiliate becomes a covered transaction at the time that the nonaffiliate becomes an affiliate of the member bank. The member bank must treat the amount of any such credit transaction as part of the aggregate amount of the member bank's covered transactions for purposes of determining compliance with the quantitative limits of <ref href="/us/cfr/t12/s223.11">§§ 223.11</ref> and 223.12 in connection with any future covered transactions. Except as described in paragraph (b)(2)(ii) of this section, the member bank is not required to reduce the amount of its covered transactions with any affiliate because the nonaffiliate has become an affiliate. If the nonaffiliate becomes an affiliate less than one year after the member bank enters into the credit transaction with the nonaffiliate, the member bank also must ensure that the credit transaction complies with the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref> promptly after the nonaffiliate becomes an affiliate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Credit transactions by a member bank with a nonaffiliate in contemplation of the nonaffiliate becoming an affiliate of the member bank.</heading>
<chapeau> Notwithstanding the provisions of paragraph (b)(2)(i) of this section, if a member bank engages in a credit transaction with a nonaffiliate in contemplation of the nonaffiliate becoming an affiliate of the member bank, the member bank must ensure that: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.21/b/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The aggregate amount of the member bank's covered transactions (including any such credit transaction with the nonaffiliate) would not exceed the quantitative limits of <ref href="/us/cfr/t12/s223.11">§ 223.11</ref> or 223.12 at the time the nonaffiliate becomes an affiliate; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/b/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The credit transaction complies with the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref> at the time the nonaffiliate becomes an affiliate. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.21/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Example.</heading>
<content> A member bank with capital stock and surplus of $1,000 and no outstanding covered transactions makes a $120 unsecured loan to a nonaffiliate. The member bank does not make the loan in contemplation of the nonaffiliate becoming an affiliate. Nine months later, the member bank's holding company purchases all the stock of the nonaffiliate, thereby making the nonaffiliate an affiliate of the member bank. The member bank is not in violation of the quantitative limits of <ref href="/us/cfr/t12/s223.11">§ 223.11</ref> or 223.12 at the time of the stock acquisition. The member bank is, however, prohibited from engaging in any additional covered transactions with the new affiliate at least until such time as the value of the loan transaction falls below 10 percent of the member bank's capital stock and surplus. In addition, the member bank must bring the loan into compliance with the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref> promptly after the stock acquisition.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.22">
<num value="223.22" style="-uslm-sgm:SECTNO">§ 223.22</num>
<heading style="-uslm-sgm:SUBJECT">What valuation and timing principles apply to asset purchases? </heading>
<paragraph identifier="/us/cfr/t12/s223.22/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Valuation—</heading>
<paragraph identifier="/us/cfr/t12/s223.22/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Except as provided in paragraph (a)(2) of this section, a purchase of an asset by a member bank from an affiliate must be valued initially at the total amount of consideration given (including liabilities assumed) by the member bank in exchange for the asset. The value of <?page num="129"?>the covered transaction after the purchase may be reduced to reflect amortization or depreciation of the asset, to the extent that such reductions are consistent with GAAP. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Exceptions—</heading>
<paragraph identifier="/us/cfr/t12/s223.22/a/2/i" class="inline">
<num value="i">(i) </num>
<heading>Purchase of an extension of credit to an affiliate.</heading>
<content> A purchase from an affiliate of an extension of credit to an affiliate must be valued in accordance with <ref href="/us/cfr/t12/s223.21">§ 223.21</ref>, unless the note or obligation evidencing the extension of credit is a security issued by an affiliate (in which case the transaction must be valued in accordance with <ref href="/us/cfr/t12/s223.23">§ 223.23</ref>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Purchase of a security issued by an affiliate.</heading>
<content> A purchase from an affiliate of a security issued by an affiliate must be valued in accordance with <ref href="/us/cfr/t12/s223.23">§ 223.23</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Transfer of a subsidiary.</heading>
<content> A transfer to a member bank of securities issued by an affiliate that is treated as a purchase of assets from an affiliate under <ref href="/us/cfr/t12/s223.31">§ 223.31</ref> must be valued in accordance with paragraph (b) of <ref href="/us/cfr/t12/s223.31">§ 223.31</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/a/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Purchase of a line of credit.</heading>
<content> A purchase from an affiliate of a line of credit, revolving credit facility, or other similar credit arrangement for a nonaffiliate must be valued initially at the total amount of consideration given by the member bank in exchange for the asset plus any additional amount that the member bank could be required to provide to the borrower under the terms of the credit arrangement. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Timing—</heading>
<paragraph identifier="/us/cfr/t12/s223.22/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A purchase of an asset from an affiliate remains a covered transaction for a member bank for as long as the member bank holds the asset. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Asset purchases by a member bank from a nonaffiliate in contemplation of the nonaffiliate becoming an affiliate of the member bank.</heading>
<content> If a member bank purchases an asset from a nonaffiliate in contemplation of the nonaffiliate becoming an affiliate of the member bank, the asset purchase becomes a covered transaction at the time that the nonaffiliate becomes an affiliate of the member bank. In addition, the member bank must ensure that the aggregate amount of the member bank's covered transactions (including any such transaction with the nonaffiliate) would not exceed the quantitative limits of <ref href="/us/cfr/t12/s223.11">§ 223.11</ref> or 223.12 at the time the nonaffiliate becomes an affiliate. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Examples.</heading>
<chapeau> The following are examples of how to value a member bank's purchase of an asset from an affiliate.</chapeau>
<paragraph identifier="/us/cfr/t12/s223.22/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Cash purchase of assets.</heading>
<content> A member bank purchases a pool of loans from an affiliate for $10 million. The member bank initially must value the covered transaction at $10 million. Going forward, if the borrowers repay $6 million of the principal amount of the loans, the member bank may value the covered transaction at $4 million. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.22/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Purchase of assets through an assumption of liabilities.</heading>
<content> An affiliate of a member bank contributes real property with a fair market value of $200,000 to the member bank. The member bank pays the affiliate no cash for the property, but assumes a $50,000 mortgage on the property. The member bank has engaged in a covered transaction with the affiliate and initially must value the transaction at $50,000. Going forward, if the member bank retains the real property but pays off the mortgage, the member bank must continue to value the covered transaction at $50,000. If the member bank, however, sells the real property, the transaction ceases to be a covered transaction at the time of the sale (regardless of the status of the mortgage).
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.23">
<num value="223.23" style="-uslm-sgm:SECTNO">§ 223.23</num>
<heading style="-uslm-sgm:SUBJECT">What valuation and timing principles apply to purchases of and investments in securities issued by an affiliate? </heading>
<paragraph identifier="/us/cfr/t12/s223.23/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Valuation—</heading>
<paragraph identifier="/us/cfr/t12/s223.23/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraph (b) of <ref href="/us/cfr/t12/s223.32">§ 223.32</ref> with respect to financial subsidiaries, a member bank's purchase of or investment in a security issued by an affiliate must be valued at the greater of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.23/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The total amount of consideration given (including liabilities assumed) by the member bank in exchange for the security, reduced to reflect amortization of the security to the extent consistent with GAAP; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.23/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The carrying value of the security. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.23/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples.</heading>
<chapeau> The following are examples of how to value a member bank's purchase of or investment in securities issued by an affiliate (other than a financial subsidiary of the member bank). </chapeau>
<paragraph identifier="/us/cfr/t12/s223.23/a/2/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Purchase of the debt securities of an affiliate.</heading>
<content> The parent holding company <?page num="130"?>of a member bank owns 100 percent of the shares of a mortgage company. The member bank purchases debt securities issued by the mortgage company for $600. The initial carrying value of the securities is $600. The member bank initially must value the investment at $600. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.23/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Purchase of the shares of an affiliate.</heading>
<content> The parent holding company of a member bank owns 51 percent of the shares of a mortgage company. The member bank purchases an additional 30 percent of the shares of the mortgage company from a third party for $100. The initial carrying value of the shares is $100. The member bank initially must value the investment at $100. Going forward, if the member bank's carrying value of the shares declines to $40, the member bank must continue to value the investment at $100. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.23/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Contribution of the shares of an affiliate.</heading>
<content> The parent holding company of a member bank owns 100 percent of the shares of a mortgage company and contributes 30 percent of the shares to the member bank. The member bank gives no consideration in exchange for the shares. If the initial carrying value of the shares is $300, then the member bank initially must value the investment at $300. Going forward, if the member bank's carrying value of the shares increases to $500, the member bank must value the investment at $500. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.23/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Timing—</heading>
<paragraph identifier="/us/cfr/t12/s223.23/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A purchase of or investment in a security issued by an affiliate remains a covered transaction for a member bank for as long as the member bank holds the security. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.23/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>A member bank's purchase of or investment in a security issued by a nonaffiliate that becomes an affiliate of the member bank.</heading>
<content> A member bank's purchase of or investment in a security issued by a nonaffiliate that becomes an affiliate of the member bank must be treated according to the same transition rules that apply to credit transactions described in paragraph (b)(2) of <ref href="/us/cfr/t12/s223.21">§ 223.21</ref>.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.24">
<num value="223.24" style="-uslm-sgm:SECTNO">§ 223.24</num>
<heading style="-uslm-sgm:SUBJECT">What valuation principles apply to extensions of credit secured by affiliate securities? </heading>
<paragraph identifier="/us/cfr/t12/s223.24/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Valuation of extensions of credit secured exclusively by affiliate securities.</heading>
<chapeau> An extension of credit by a member bank to a nonaffiliate secured exclusively by securities issued by an affiliate of the member bank must be valued at the lesser of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.24/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The total value of the extension of credit; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.24/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The fair market value of the securities issued by an affiliate that are pledged as collateral, if the member bank verifies that such securities meet the market quotation standard contained in paragraph (e) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref> or the standards set forth in paragraphs (f)(1) and (5) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.24/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Valuation of extensions of credit secured by affiliate securities and other collateral.</heading>
<chapeau> An extension of credit by a member bank to a nonaffiliate secured in part by securities issued by an affiliate of the member bank and in part by nonaffiliate collateral must be valued at the lesser of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.24/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The total value of the extension of credit less the fair market value of the nonaffiliate collateral; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.24/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The fair market value of the securities issued by an affiliate that are pledged as collateral, if the member bank verifies that such securities meet the market quotation standard contained in paragraph (e) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref> or the standards set forth in paragraphs (f)(1) and (5) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.24/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exclusion of eligible affiliated mutual fund securities—</heading>
<paragraph identifier="/us/cfr/t12/s223.24/c/1" class="inline">
<num value="1">(1) </num>
<heading>The exclusion.</heading>
<content> Eligible affiliated mutual fund securities are not considered to be securities issued by an affiliate, and are instead considered to be nonaffiliate collateral, for purposes of paragraphs (a) and (b) of this section, unless the member bank knows or has reason to know that the proceeds of the extension of credit will be used to purchase the eligible affiliated mutual fund securities collateral or will otherwise be used for the benefit of or transferred to an affiliate of the member bank. </content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s223.24/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Definition.</heading>
<content>
<p> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligible affiliated mutual fund securities</inline>” with respect to a member bank are securities issued by an affiliate of the member bank that is <?page num="131"?>an open-end investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a–1">15 U.S.C. 80a–1</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), if: </p>
<p style="-uslm-sgm:P">(i) The securities issued by the investment company: </p>
<p style="-uslm-sgm:P">(A) Meet the market quotation standard contained in paragraph (e) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref>;</p>
<p style="-uslm-sgm:P">(B) Meet the standards set forth in paragraphs (f)(1) and (5) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref>; or </p>
<p style="-uslm-sgm:P">(C) Have closing prices that are made public through a mutual fund “supermarket” website maintained by an unaffiliated securities broker-dealer or mutual fund distributor; and </p>
<p style="-uslm-sgm:P">(ii) The member bank and its affiliates do not own or control in the aggregate more than 5 percent of any class of voting securities or of the equity capital of the investment company (excluding securities held by the member bank or an affiliate in good faith in a fiduciary capacity, unless the member bank or affiliate holds the securities for the benefit of the member bank or affiliate, or the shareholders, employees, or subsidiaries of the member bank or affiliate). </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.24/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Example.</heading>
<content> A member bank proposes to lend $100 to a nonaffiliate secured exclusively by eligible affiliated mutual fund securities. The member bank knows that the nonaffiliate intends to use all the loan proceeds to purchase the eligible affiliated mutual fund securities that would serve as collateral for the loan. Under the attribution rule in <ref href="/us/cfr/t12/s223.16">§ 223.16</ref>, the member bank must treat the loan to the nonaffiliate as a loan to an affiliate, and, because securities issued by an affiliate are ineligible collateral under <ref href="/us/cfr/t12/s223.14">§ 223.14</ref>, the loan would not be in compliance with <ref href="/us/cfr/t12/s223.14">§ 223.14</ref>.
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spD">
<num value="D" style="-uslm-sgm:HED">Subpart D—</num>
<heading style="-uslm-sgm:HED">Other Requirements Under Section 23A
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.31">
<num value="223.31" style="-uslm-sgm:SECTNO">§ 223.31</num>
<heading style="-uslm-sgm:SUBJECT">How does section 23A apply to a member bank's acquisition of an affiliate that becomes an operating subsidiary of the member bank after the acquisition? </heading>
<paragraph identifier="/us/cfr/t12/s223.31/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Certain acquisitions by a member bank of securities issued by an affiliate are treated as a purchase of assets from an affiliate.</heading>
<chapeau> A member bank's acquisition of a security issued by a company that was an affiliate of the member bank before the acquisition is treated as a purchase of assets from an affiliate, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.31/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> As a result of the transaction, the company becomes an operating subsidiary of the member bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The company has liabilities, or the member bank gives cash or any other consideration in exchange for the security. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Valuation—</heading>
<paragraph identifier="/us/cfr/t12/s223.31/b/1" class="inline">
<num value="1">(1) </num>
<heading>Initial valuation.</heading>
<chapeau> A transaction described in paragraph (a) of this section must be valued initially at the greater of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.31/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> The sum of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.31/b/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The total amount of consideration given by the member bank in exchange for the security; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/b/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The total liabilities of the company whose security has been acquired by the member bank, as of the time of the acquisition; or </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The total value of all covered transactions (as computed under this part) acquired by the member bank as a result of the security acquisition. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Ongoing valuation.</heading>
<chapeau> The value of a transaction described in paragraph (a) of this section may be reduced after the initial transfer to reflect: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.31/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Amortization or depreciation of the assets of the transferred company, to the extent that such reductions are consistent with GAAP; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Sales of the assets of the transferred company. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Valuation example.</heading>
<content> The parent holding company of a member bank contributes between 25 and 100 percent of the voting shares of a mortgage company to the member bank. The parent holding company retains no shares of the mortgage company. The member bank gives no consideration in exchange for the transferred shares. The mortgage company has total assets of $300,000 and total liabilities of $100,000. The mortgage company's assets do not include any loans to an affiliate of the member bank or any other asset that would represent a separate covered transaction for the member bank upon consummation of the share transfer. As a result of the transaction, the mortgage company becomes an operating subsidiary of the member bank. The transaction is treated as a purchase of the assets of the mortgage company by <?page num="132"?>the member bank from an affiliate under paragraph (a) of this section. The member bank initially must value the transaction at $100,000, the total amount of the liabilities of the mortgage company. Going forward, if the member bank pays off the liabilities, the member bank must continue to value the covered transaction at $100,000. If the member bank, however, sells $15,000 of the transferred assets of the mortgage company or if $15,000 of the transferred assets amortize, the member bank may value the covered transaction at $85,000. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Exemption for step transactions.</heading>
<chapeau> A transaction described in paragraph (a) of this section is exempt from the requirements of this regulation (other than the safety and soundness requirement of <ref href="/us/cfr/t12/s223.13">§ 223.13</ref> and the market terms requirement of <ref href="/us/cfr/t12/s223.51">§ 223.51</ref>) if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.31/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The member bank acquires the securities issued by the transferred company within one business day (or such longer period, up to three months, as may be permitted by the member bank's appropriate Federal banking agency) after the company becomes an affiliate of the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The member bank acquires all the securities of the transferred company that were transferred in connection with the transaction that made the company an affiliate of the member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The business and financial condition (including the asset quality and liabilities) of the transferred company does not materially change from the time the company becomes an affiliate of the member bank and the time the member bank acquires the securities issued by the company; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> At or before the time that the transferred company becomes an affiliate of the member bank, the member bank notifies its appropriate Federal banking agency and the Board of the member bank's intent to acquire the company. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.31/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Example of step transaction.</heading>
<content> A bank holding company acquires 100 percent of the shares of an unaffiliated leasing company. At that time, the subsidiary member bank of the holding company notifies its appropriate Federal banking agency and the Board of its intent to acquire the leasing company from its holding company. On the day after consummation of the acquisition, the holding company transfers all of the shares of the leasing company to the member bank. No material change in the business or financial condition of the leasing company occurs between the time of the holding company's acquisition and the member bank's acquisition. The leasing company has liabilities. The leasing company becomes an operating subsidiary of the member bank at the time of the transfer. This transfer by the holding company to the member bank, although deemed an asset purchase by the member bank from an affiliate under paragraph (a) of this section, would qualify for the exemption in paragraph (d) of this section.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.32">
<num value="223.32" style="-uslm-sgm:SECTNO">§ 223.32</num>
<heading style="-uslm-sgm:SUBJECT">What rules apply to financial subsidiaries of a member bank? </heading>
<paragraph identifier="/us/cfr/t12/s223.32/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Exemption from the 10 percent limit for covered transactions between a member bank and a single financial subsidiary.</heading>
<content> The 10 percent quantitative limit contained in <ref href="/us/cfr/t12/s223.11">§ 223.11</ref> does not apply with respect to covered transactions between a member bank and a financial subsidiary of the member bank. The 20 percent quantitative limit contained in <ref href="/us/cfr/t12/s223.12">§ 223.12</ref> does apply to such transactions. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Valuation of purchases of or investments in the securities of a financial subsidiary—</heading>
<paragraph identifier="/us/cfr/t12/s223.32/b/1" class="inline">
<num value="1">(1) </num>
<heading>General rule.</heading>
<chapeau> A member bank's purchase of or investment in a security issued by a financial subsidiary of the member bank must be valued at the greater of: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.32/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The total amount of consideration given (including liabilities assumed) by the member bank in exchange for the security, reduced to reflect amortization of the security to the extent consistent with GAAP; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The carrying value of the security (adjusted so as not to reflect the member bank's pro rata portion of any earnings retained or losses incurred by the financial subsidiary after the member bank's acquisition of the security). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Carrying value of an investment in a consolidated financial subsidiary.</heading>
<content> If a financial subsidiary is consolidated with its parent member bank under GAAP, the carrying value of the member bank's investment in securities issued <?page num="133"?>by the financial subsidiary shall be equal to the carrying value of the securities on parent-only financial statements of the member bank, determined in accordance with GAAP (adjusted so as not to reflect the member bank's pro rata portion of any earnings retained or losses incurred by the financial subsidiary after the member bank's acquisition of the securities). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Examples of the valuation of purchases of and investments in the securities of a financial subsidiary.</heading>
<chapeau> The following are examples of how a member bank must value its purchase of or investment in securities issued by a financial subsidiary of the member bank. Each example involves a securities underwriter that becomes a financial subsidiary of the member bank after the transactions described below. </chapeau>
<paragraph identifier="/us/cfr/t12/s223.32/b/3/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Initial valuation.</heading>
<paragraph identifier="/us/cfr/t12/s223.32/b/3/i/A" class="inline">
<num value="A"> (A) </num>
<heading>Direct acquisition by a member bank.</heading>
<content> A member bank pays $500 to acquire 100 percent of the shares of a securities underwriter. The initial carrying value of the shares on the member bank's parent-only GAAP financial statements is $500. The member bank initially must value the investment at $500. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/b/3/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Contribution of a financial subsidiary to a member bank.</heading>
<content> The parent holding company of a member bank acquires 100 percent of the shares of a securities underwriter in a transaction valued at $500, and immediately contributes the shares to the member bank. The member bank gives no consideration in exchange for the shares. The member bank initially must value the investment at the carrying value of the shares on the member bank's parent-only GAAP financial statements. Under GAAP, the member bank's initial carrying value of the shares would be $500. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Carrying value not adjusted for earnings and losses of the financial subsidiary.</heading>
<content> A member bank and its parent holding company engage in the transaction described in paragraph (b)(3)(i)(B) of this section, and the member bank initially values the investment at $500. In the following year, the securities underwriter earns $25 in profit, which is added to its retained earnings. The member bank's carrying value of the shares of the underwriter is not adjusted for purposes of this part, and the member bank must continue to value the investment at $500. If, however, the member bank contributes $100 of additional capital to the securities underwriter, the member bank must value the aggregate investment at $600. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Treatment of an affiliate's investments in, and extensions of credit to, a financial subsidiary of a member bank—</heading>
<paragraph identifier="/us/cfr/t12/s223.32/c/1" class="inline">
<num value="1">(1) </num>
<heading>Investments.</heading>
<content> Any purchase of, or investment in, the securities of a financial subsidiary of a member bank by an affiliate of the member bank is treated as a purchase of or investment in such securities by the member bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Extensions of credit that are treated as regulatory capital of the financial subsidiary.</heading>
<content> Any extension of credit to a financial subsidiary of a member bank by an affiliate of the member bank is treated as an extension of credit by the member bank to the financial subsidiary if the extension of credit is treated as capital of the financial subsidiary under any Federal or State law, regulation, or interpretation applicable to the subsidiary. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.32/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Other extensions of credit.</heading>
<content> Any other extension of credit to a financial subsidiary of a member bank by an affiliate of the member bank will be treated as an extension of credit by the member bank to the financial subsidiary, if the Board determines, by regulation or order, that such treatment is necessary or appropriate to prevent evasions of the Federal Reserve Act or the Gramm-Leach-Bliley Act.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.33">
<num value="223.33" style="-uslm-sgm:SECTNO">§ 223.33</num>
<heading style="-uslm-sgm:SUBJECT">What rules apply to derivative transactions? </heading>
<paragraph identifier="/us/cfr/t12/s223.33/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Market terms requirement.</heading>
<content> Derivative transactions between a member bank and its affiliates (other than depository institutions) are subject to the market terms requirement of <ref href="/us/cfr/t12/s223.51">§ 223.51</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.33/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Policies and procedures.</heading>
<chapeau> A member bank must establish and maintain policies and procedures reasonably designed to manage the credit exposure arising from its derivative transactions with affiliates in a safe and sound manner. The policies and procedures must at a minimum provide for: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.33/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Monitoring and controlling the credit exposure arising at any one time <?page num="134"?>from the member bank's derivative transactions with each affiliate and all affiliates in the aggregate (through, among other things, imposing appropriate credit limits, mark-to-market requirements, and collateral requirements); and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.33/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Ensuring that the member bank's derivative transactions with affiliates comply with the market terms requirement of <ref href="/us/cfr/t12/s223.51">§ 223.51</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.33/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Credit derivatives.</heading>
<chapeau> A credit derivative between a member bank and a nonaffiliate in which the member bank provides credit protection to the nonaffiliate with respect to an obligation of an affiliate of the member bank is a guarantee by a member bank on behalf of an affiliate for purposes of this regulation. Such derivatives would include: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.33/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> An agreement under which the member bank, in exchange for a fee, agrees to compensate the nonaffiliate for any default of the underlying obligation of the affiliate; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.33/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An agreement under which the member bank, in exchange for payments based on the total return of the underlying obligation of the affiliate, agrees to pay the nonaffiliate a spread over funding costs plus any depreciation in the value of the underlying obligation of the affiliate.
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spE">
<num value="E" style="-uslm-sgm:HED">Subpart E—</num>
<heading style="-uslm-sgm:HED">Exemptions from the Provisions of Section 23A
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.41">
<num value="223.41" style="-uslm-sgm:SECTNO">§ 223.41</num>
<heading style="-uslm-sgm:SUBJECT">What covered transactions are exempt from the quantitative limits and collateral requirements?</heading>
<chapeau style="-uslm-sgm:P">The following transactions are not subject to the quantitative limits of <ref href="/us/cfr/t12/s223.11">§§ 223.11</ref> and 223.12 or the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref>. The transactions are, however, subject to the safety and soundness requirement of <ref href="/us/cfr/t12/s223.13">§ 223.13</ref> and the prohibition on the purchase of a low-quality asset of <ref href="/us/cfr/t12/s223.15">§ 223.15</ref>. </chapeau>
<paragraph identifier="/us/cfr/t12/s223.41/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Parent institution/subsidiary institution transactions.</heading>
<content> Transactions with a depository institution if the member bank controls 80 percent or more of the voting securities of the depository institution or the depository institution controls 80 percent or more of the voting securities of the member bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Transactions between a member bank and a depository institution owned by the same holding company.</heading>
<content> Transactions with a depository institution if the same company controls 80 percent or more of the voting securities of the member bank and the depository institution. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Certain loan purchases from an affiliated depository institution.</heading>
<content> Purchasing a loan on a nonrecourse basis from an affiliated depository institution. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Internal corporate reorganization transactions.</heading>
<chapeau> Purchasing assets from an affiliate (including in connection with a transfer of securities issued by an affiliate to a member bank described in paragraph (a) of <ref href="/us/cfr/t12/s223.31">§ 223.31</ref>), if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.41/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The asset purchase is part of an internal corporate reorganization of a holding company and involves the transfer of all or substantially all of the shares or assets of an affiliate or of a division or department of an affiliate; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The member bank provides its appropriate Federal banking agency and the Board with written notice of the transaction before consummation, including a description of the primary business activities of the affiliate and an indication of the proposed date of the asset purchase; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> The member bank's top-tier holding company commits to its appropriate Federal banking agency and the Board before consummation either: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.41/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> To make quarterly cash contributions to the member bank, for a two-year period following the member bank's purchase, equal to the book value plus any write-downs taken by the member bank, of any transferred assets that have become low-quality assets during the quarter; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> To repurchase, on a quarterly basis for a two-year period following the member bank's purchase, at a price equal to the book value plus any write-downs taken by the member bank, any transferred assets that have become low-quality assets during the quarter; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The member bank's top-tier holding company complies with the commitment made under paragraph (d)(3) of this section; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> A majority of the member bank's directors reviews and approves the transaction before consummation; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> The value of the covered transaction (as computed under this part), when aggregated with the value of any <?page num="135"?>other covered transactions (as computed under this part) engaged in by the member bank under this exemption during the preceding 12 calendar months, represents less than 10 percent of the member bank's capital stock and surplus (or such higher amount, up to 25 percent of the member bank's capital stock and surplus, as may be permitted by the member bank's appropriate Federal banking agency after conducting a review of the member bank's financial condition and the quality of the assets transferred to the member bank); and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.41/d/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> The holding company and all its subsidiary member banks and other subsidiary depository institutions are well capitalized and well managed and would remain well capitalized upon consummation of the transaction.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.42">
<num value="223.42" style="-uslm-sgm:SECTNO">§ 223.42</num>
<heading style="-uslm-sgm:SUBJECT">What covered transactions are exempt from the quantitative limits, collateral requirements, and low-quality asset prohibition? </heading>
<chapeau style="-uslm-sgm:P">The following transactions are not subject to the quantitative limits of <ref href="/us/cfr/t12/s223.11">§§ 223.11</ref> and 223.12, the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref>, or the prohibition on the purchase of a low-quality asset of <ref href="/us/cfr/t12/s223.15">§ 223.15</ref>. The transactions are, however, subject to the safety and soundness requirement of <ref href="/us/cfr/t12/s223.13">§ 223.13</ref>. </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Making correspondent banking deposits.</heading>
<content> Making a deposit in an affiliated depository institution (as defined in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>)) or affiliated foreign bank that represents an ongoing, working balance maintained in the ordinary course of correspondent business. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Giving credit for uncollected items.</heading>
<content> Giving immediate credit to an affiliate for uncollected items received in the ordinary course of business. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Transactions secured by cash or U.S. government securities—</heading>
<paragraph identifier="/us/cfr/t12/s223.42/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Engaging in a credit transaction with an affiliate to the extent that the transaction is and remains secured by: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Obligations of the United States or its agencies; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Obligations fully guaranteed by the United States or its agencies as to principal and interest; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A segregated, earmarked deposit account with the member bank that is for the sole purpose of securing credit transactions between the member bank and its affiliates and is identified as such. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Example.</heading>
<content> A member bank makes a $100 non-amortizing term loan to an affiliate secured by U.S. Treasury securities with a market value of $50 and real estate with a market value of $75. The value of the covered transaction is $50. If the market value of the U.S. Treasury securities falls to $45 during the life of the loan, the value of the covered transaction would increase to $55. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Purchasing securities of a servicing affiliate.</heading>
<content> Purchasing a security issued by any company engaged solely in providing services described in section 4(c)(1) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/c/1">12 U.S.C. 1843(c)(1)</ref>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Purchasing certain liquid assets.</heading>
<content> Purchasing an asset having a readily identifiable and publicly available market quotation and purchased at or below the asset's current market quotation. An asset has a readily identifiable and publicly available market quotation if the asset's price is quoted routinely in a widely disseminated publication that is readily available to the general public. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Purchasing certain marketable securities.</heading>
<chapeau> Purchasing a security from a securities affiliate, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The security has a “ready market,” as defined in <ref href="/us/cfr/t17/s240.15c3">17 CFR 240.15c3</ref>–1(c)(11)(i); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The security is eligible for a State member bank to purchase directly, subject to the same terms and conditions that govern the investment activities of a State member bank, and the member bank records the transaction as a purchase of a security for purposes of its Call Report, consistent with the requirements for a State member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The security is not a low-quality asset; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/f/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The member bank does not purchase the security during an underwriting, or within 30 days of an underwriting, if an affiliate is an underwriter of the security, unless the security is purchased as part of an issue of obligations of, or obligations fully guaranteed as to principal and interest by, the United States or its agencies;
<?page num="136"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/f/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<chapeau> The security's price is quoted routinely on an unaffiliated electronic service that provides indicative data from real-time financial networks, provided that: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/f/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The price paid by the member bank is at or below the current market quotation for the security; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/f/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The size of the transaction executed by the member bank does not cast material doubt on the appropriateness of relying on the current market quotation for the security; and </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/f/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> The member bank maintains, for a period of two years, records and supporting information that are sufficient to enable the appropriate Federal banking agency to ensure the member bank's compliance with the terms of this exemption. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Purchasing municipal securities.</heading>
<chapeau> Purchasing a municipal security from a securities affiliate if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The security is rated by a nationally recognized statistical rating organization or is part of an issue of securities that does not exceed $25 million;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The security is eligible for purchase by a State member bank, subject to the same terms and conditions that govern the investment activities of a State member bank, and the member bank records the transaction as a purchase of a security for purposes of its Call Report, consistent with the requirements for a State member bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/i" class="inline">
<num value="i">(i)</num>
<chapeau> The security's price is quoted routinely on an unaffiliated electronic service that provides indicative data from real-time financial networks, provided that: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The price paid by the member bank is at or below the current market quotation for the security; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The size of the transaction executed by the member bank does not cast material doubt on the appropriateness of relying on the current market quotation for the security; or </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The price paid for the security can be verified by reference to two or more actual, current price quotes from unaffiliated broker-dealers on the exact security to be purchased or a security comparable to the security to be purchased, where: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The price quotes obtained from the unaffiliated broker-dealers are based on a transaction similar in size to the transaction that is actually executed; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The price paid is no higher than the average of the price quotes; or </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> The price paid for the security can be verified by reference to the written summary provided by the syndicate manager to syndicate members that discloses the aggregate par values and prices of all bonds sold from the syndicate account, if the member bank: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Purchases the municipal security during the underwriting period at a price that is at or below that indicated in the summary; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/g/3/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Obtains a copy of the summary from its securities affiliate and retains the summary for three years. </content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Purchasing an extension of credit subject to a repurchase agreement.</heading>
<content> Purchasing from an affiliate an extension of credit that was originated by the member bank and sold to the affiliate subject to a repurchase agreement or with recourse. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Asset purchases by a newly formed member bank.</heading>
<content> The purchase of an asset from an affiliate by a newly formed member bank, if the appropriate Federal banking agency for the member bank has approved the asset purchase in writing in connection with its review of the formation of the member bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Transactions approved under the Bank Merger Act.</heading>
<content> Any merger or consolidation between a member bank and an affiliated depository institution or U.S. branch or agency of a foreign bank, or any acquisition of assets or assumption of deposit liabilities by a member bank from an affiliated depository institution or U.S. branch or agency of a foreign bank, if the transaction has been approved by the responsible Federal banking agency pursuant to the Bank Merger Act (<ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/k" style="-uslm-sgm:P">
<num value="k">(k) </num>
<heading>Purchasing an extension of credit from an affiliate.</heading>
<chapeau> Purchasing from an affiliate, on a nonrecourse basis, an extension of credit, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/k/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The extension of credit was originated by the affiliate; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/k/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The member bank makes an independent evaluation of the creditworthiness of the borrower before the affiliate makes or commits to make the extension of credit;
<?page num="137"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/k/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The member bank commits to purchase the extension of credit before the affiliate makes or commits to make the extension of credit; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/k/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The member bank does not make a blanket advance commitment to purchase extensions of credit from the affiliate; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/k/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The dollar amount of the extension of credit, when aggregated with the dollar amount of all other extensions of credit purchased from the affiliate during the preceding 12 calendar months by the member bank and its depository institution affiliates, does not represent more than 50 percent (or such lower percent as is imposed by the member bank's appropriate Federal banking agency) of the dollar amount of extensions of credit originated by the affiliate during the preceding 12 calendar months. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/l" style="-uslm-sgm:P">
<num value="l">(l) </num>
<heading>Intraday extensions of credit—</heading>
<paragraph identifier="/us/cfr/t12/s223.42/l/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> An intraday extension of credit to an affiliate, if the member bank: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/l/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> Has established and maintains policies and procedures reasonably designed to manage the credit exposure arising from the member bank's intraday extensions of credit to affiliates in a safe and sound manner, including policies and procedures for: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/l/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Monitoring and controlling the credit exposure arising at any one time from the member bank's intraday extensions of credit to each affiliate and all affiliates in the aggregate; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/l/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Ensuring that any intraday extension of credit by the member bank to an affiliate complies with the market terms requirement of <ref href="/us/cfr/t12/s223.51">§ 223.51</ref>; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/l/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Has no reason to believe that the affiliate will have difficulty repaying the extension of credit in accordance with its terms; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/l/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Ceases to treat any such extension of credit (regardless of jurisdiction) as an intraday extension of credit at the end of the member bank's business day in the United States. </content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s223.42/l/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Definition. Intraday extension of credit</heading>
<content> by a member bank to an affiliate means an extension of credit by a member bank to an affiliate that the member bank expects to be repaid, sold, or terminated, or to qualify for a complete exemption under this regulation, by the end of its business day in the United States. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/m" style="-uslm-sgm:P">
<num value="m">(m) </num>
<heading>Riskless principal transactions.</heading>
<chapeau> Purchasing a security from a securities affiliate of the member bank if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/m/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The member bank or the securities affiliate is acting exclusively as a riskless principal in the transaction; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/m/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The security purchased is not issued, underwritten, or sold as principal (other than as riskless principal) by any affiliate of the member bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n" style="-uslm-sgm:P">
<num value="n">(n) </num>
<heading>Securities financing transactions.</heading>
<paragraph identifier="/us/cfr/t12/s223.42/n/1" class="inline">
<num value="1"> (1)</num>
<chapeau> From <date date="2008-09-15">September 15, 2008</date>, until <date date="2009-10-30">October 30, 2009</date> (unless further extended by the Board), securities financing transactions with an affiliate, if:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/n/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The security or other asset financed by the member bank in the transaction is of a type that the affiliate financed in the U.S. tri-party repurchase agreement market at any time during the week of September 8–12, 2008;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The transaction is marked to market daily and subject to daily margin-maintenance requirements, and the member bank is at least as over-collateralized in the transaction as the affiliate's clearing bank was over-collateralized in comparable transactions with the affiliate in the U.S. tri-party repurchase agreement market on <date date="2008-09-12">September 12, 2008</date>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The aggregate risk profile of the securities financing transactions under this exemption is no greater than the aggregate risk profile of the securities financing transactions of the affiliate in the U.S. tri-party repurchase agreement market on <date date="2008-09-12">September 12, 2008</date>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The member bank's top-tier holding company guarantees the obligations of the affiliate under the securities financing transactions (or provides other security to the bank that is acceptable to the Board); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The member bank has not been specifically informed by the Board, after consultation with the member bank's appropriate Federal banking agency, that the member bank may not use this exemption.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> For purposes of this exemption:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/n/2/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Securities financing transaction</heading>
<chapeau> means:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/n/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A purchase by a member bank from an affiliate of a security or other asset, subject to an agreement by the <?page num="138"?>affiliate to repurchase the asset from the member bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A borrowing of a security by a member bank from an affiliate on a collateralized basis; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A secured extension of credit by a member bank to an affiliate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/n/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>U.S. tri-party repurchase agreement market</heading>
<content> means the U.S. market for securities financing transactions in which the counterparties use custodial arrangements provided by JPMorgan Chase Bank or Bank of New York or another financial institution approved by the Board.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/o" style="-uslm-sgm:P">
<num value="o">(o) </num>
<heading>Purchases of certain asset-backed commercial paper.</heading>
<chapeau> Purchases of asset-backed commercial paper from an affiliated SEC-registered open-end investment company that holds itself out as a money market mutual fund under SEC Rule 2a–7 (<ref href="/us/cfr/t17/s270.2a">17 CFR 270.2a</ref>–7), if the member bank:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.42/o/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Purchases the asset-backed commercial paper on or after <date date="2008-09-19">September 19, 2008</date>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/o/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Pledges the asset-backed commercial paper to a Federal Reserve Bank to secure financing from the asset-backed commercial paper lending facility (AMLF) established by the Board on <date date="2008-09-19">September 19, 2008</date>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.42/o/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Has not been specifically informed by the Board, after consultation with the member bank's appropriate Federal banking agency, that the member bank may not use this exemption.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/67/76604">67 FR 76604</ref>, <date date="2002-12-12">Dec. 12, 2002</date>, as amended at <ref href="/us/fr/73/54308">73 FR 54308</ref>, <date date="2008-09-19" role="amended">Sept. 19, 2008</date>; <ref href="/us/fr/73/55709">73 FR 55709</ref>, <date date="2008-09-26" role="amended">Sept. 26, 2008</date>; <ref href="/us/fr/74/6226">74 FR 6226</ref>, 6227, <date date="2009-02-06" role="amended">Feb. 6, 2009</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.43">
<num value="223.43" style="-uslm-sgm:SECTNO">§ 223.43</num>
<heading style="-uslm-sgm:SUBJECT">What are the standards under which the Board may grant additional exemptions from the requirements of section 23A? </heading>
<paragraph identifier="/us/cfr/t12/s223.43/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>The standards.</heading>
<content> The Board may, at its discretion, by regulation or order, exempt transactions or relationships from the requirements of section 23A and subparts B, C, and D of this part if it finds such exemptions to be in the public interest and consistent with the purposes of section 23A. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.43/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Procedure.</heading>
<chapeau> A member bank may request an exemption from the requirements of section 23A and subparts B, C, and D of this part by submitting a written request to the General Counsel of the Board. Such a request must: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.43/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Describe in detail the transaction or relationship for which the member bank seeks exemption; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.43/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Explain why the Board should exempt the transaction or relationship; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.43/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Explain how the exemption would be in the public interest and consistent with the purposes of section 23A.
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spF">
<num value="F" style="-uslm-sgm:HED">Subpart F—</num>
<heading style="-uslm-sgm:HED">General Provisions of Section 23B
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.51">
<num value="223.51" style="-uslm-sgm:SECTNO">§ 223.51</num>
<heading style="-uslm-sgm:SUBJECT">What is the market terms requirement of section 23B? </heading>
<chapeau style="-uslm-sgm:P">A member bank may not engage in a transaction described in <ref href="/us/cfr/t12/s223.52">§ 223.52</ref> unless the transaction is: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.51/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> On terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the member bank, as those prevailing at the time for comparable transactions with or involving nonaffiliates; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.51/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> In the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliates.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.52">
<num value="223.52" style="-uslm-sgm:SECTNO">§ 223.52</num>
<heading style="-uslm-sgm:SUBJECT">What transactions with affiliates or others must comply with section 23B's market terms requirement? </heading>
<paragraph identifier="/us/cfr/t12/s223.52/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<chapeau> The market terms requirement of <ref href="/us/cfr/t12/s223.51">§ 223.51</ref> applies to the following transactions: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.52/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Any covered transaction with an affiliate, unless the transaction is exempt under paragraphs (a) through (c) of <ref href="/us/cfr/t12/s223.41">§ 223.41</ref> or paragraphs (a) through (e) or (h) through (j) of <ref href="/us/cfr/t12/s223.42">§ 223.42</ref>; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.52/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The sale of a security or other asset to an affiliate, including an asset subject to an agreement to repurchase; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.52/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The payment of money or the furnishing of a service to an affiliate under contract, lease, or otherwise; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.52/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Any transaction in which an affiliate acts as an agent or broker or receives a fee for its services to the member bank or to any other person; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.52/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<chapeau> Any transaction or series of transactions with a nonaffiliate, if an affiliate: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.52/a/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Has a financial interest in the nonaffiliate; or
<?page num="139"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.52/a/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is a participant in the transaction or series of transactions. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.52/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> For the purpose of this section, any transaction by a member bank with any person will be deemed to be a transaction with an affiliate of the member bank if any of the proceeds of the transaction are used for the benefit of, or transferred to, the affiliate.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.53">
<num value="223.53" style="-uslm-sgm:SECTNO">§ 223.53</num>
<heading style="-uslm-sgm:SUBJECT">What asset purchases are prohibited by section 23B? </heading>
<paragraph identifier="/us/cfr/t12/s223.53/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Fiduciary purchases of assets from an affiliate.</heading>
<chapeau> A member bank may not purchase as fiduciary any security or other asset from any affiliate unless the purchase is permitted: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.53/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Under the instrument creating the fiduciary relationship; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> By court order; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> By law of the jurisdiction governing the fiduciary relationship. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purchase of a security underwritten by an affiliate.</heading>
<paragraph identifier="/us/cfr/t12/s223.53/b/1" class="inline">
<num value="1"> (1)</num>
<content> A member bank, whether acting as principal or fiduciary, may not knowingly purchase or otherwise acquire, during the existence of any underwriting or selling syndicate, any security if a principal underwriter of that security is an affiliate of the member bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Paragraph (b)(1) of this section does not apply if the purchase or acquisition of the security has been approved, before the security is initially offered for sale to the public, by a majority of the directors of the member bank based on a determination that the purchase is a sound investment for the member bank, or for the person on whose behalf the member bank is acting as fiduciary, as the case may be, irrespective of the fact that an affiliate of the member bank is a principal underwriter of the security. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> The approval requirement of paragraph (b)(2) of this section may be met if: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.53/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A majority of the directors of the member bank approves standards for the member bank's acquisitions of securities described in paragraph (b)(1) of this section, based on the determination set forth in paragraph (b)(2) of this section; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Each acquisition described in paragraph (b)(1) of this section meets the standards; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A majority of the directors of the member bank periodically reviews acquisitions described in paragraph (b)(1) of this section to ensure that they meet the standards and periodically reviews the standards to ensure that they continue to meet the criterion set forth in paragraph (b)(2) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> A U.S. branch, agency, or commercial lending company of a foreign bank may comply with paragraphs (b)(2) and (b)(3) of this section by obtaining the approvals and reviews required by paragraphs (b)(2) and (b)(3) from either: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.53/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A majority of the directors of the foreign bank; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.53/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A majority of the senior executive officers of the foreign bank. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s223.53/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Special definitions.</heading>
<content>
<p> For purposes of this section: </p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">“Principal underwriter”</inline> means any underwriter who, in connection with a primary distribution of securities: </p>
<p style="-uslm-sgm:P">(i) Is in privity of contract with the issuer or an affiliated person of the issuer; </p>
<p style="-uslm-sgm:P">(ii) Acting alone or in concert with one or more other persons, initiates or directs the formation of an underwriting syndicate; or </p>
<p style="-uslm-sgm:P">(iii) Is allowed a rate of gross commission, spread, or other profit greater than the rate allowed another underwriter participating in the distribution. </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">“Security”</inline> has the same meaning as in section 3(a)(10) of the Securities Exchange Act of 1934 (<ref href="/us/usc/t15/s78c/a/10">15 U.S.C. 78c(a)(10)</ref>).
</p>
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.54">
<num value="223.54" style="-uslm-sgm:SECTNO">§ 223.54</num>
<heading style="-uslm-sgm:SUBJECT">What advertisements and statements are prohibited by section 23B? </heading>
<paragraph identifier="/us/cfr/t12/s223.54/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> A member bank and its affiliates may not publish any advertisement or enter into any agreement stating or suggesting that the member bank will in any way be responsible for the obligations of its affiliates. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.54/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Guarantees, acceptances, letters of credit, and cross-affiliate netting arrangements subject to section 23A.</heading>
<chapeau> Paragraph (a) of this section does not prohibit a member bank from: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.54/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Issuing a guarantee, acceptance, or letter of credit on behalf of an affiliate, confirming a letter of credit <?page num="140"?>issued by an affiliate, or entering into a cross-affiliate netting arrangement, to the extent such transaction satisfies the quantitative limits of <ref href="/us/cfr/t12/s223.11">§§ 223.11</ref> and 223.12 and the collateral requirements of <ref href="/us/cfr/t12/s223.14">§ 223.14</ref>, and is otherwise permitted under this regulation; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.54/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Making reference to such a guarantee, acceptance, letter of credit, or cross-affiliate netting arrangement if otherwise required by law.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.55">
<num value="223.55" style="-uslm-sgm:SECTNO">§ 223.55</num>
<heading style="-uslm-sgm:SUBJECT">What are the standards under which the Board may grant exemptions from the requirements of section 23B? </heading>
<content style="-uslm-sgm:P">The Board may prescribe regulations to exempt transactions or relationships from the requirements of section 23B and subpart F of this part if it finds such exemptions to be in the public interest and consistent with the purposes of section 23B.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.56">
<num value="223.56" style="-uslm-sgm:SECTNO">§ 223.56</num>
<heading style="-uslm-sgm:SUBJECT">What transactions are exempt from the market-terms requirement of section 23B?</heading>
<chapeau style="-uslm-sgm:P">The following transactions are exempt from the market-terms requirement of <ref href="/us/cfr/t12/s223.51">§ 223.51</ref>.</chapeau>
<paragraph identifier="/us/cfr/t12/s223.56/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Purchases of certain asset-backed commercial paper.</heading>
<chapeau> Purchases of asset-backed commercial paper from an affiliated SEC-registered open-end investment company that holds itself out as a money market mutual fund under SEC Rule 2a–7 (<ref href="/us/cfr/t17/s270.2a">17 CFR 270.2a</ref>–7), if the member bank:</chapeau>
<paragraph identifier="/us/cfr/t12/s223.56/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Purchases the asset-backed commercial paper on or after <date date="2008-09-19">September 19, 2008</date>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.56/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Pledges the asset-backed commercial paper to a Federal Reserve Bank to secure financing from the asset-backed commercial paper lending facility (AMLF) established by the Board on <date date="2008-09-19">September 19, 2008</date>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.56/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Has not been specifically informed by the Board, after consultation with the member bank's appropriate Federal banking agency, that the member bank may not use this exemption.</content>
</paragraph>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s223.56/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> [Reserved]</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. W, <ref href="/us/fr/74/6228">74 FR 6228</ref>, <date date="2009-02-06">Feb. 6, 2009</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spG">
<num value="G" style="-uslm-sgm:HED">Subpart G—</num>
<heading style="-uslm-sgm:HED">Application of Sections 23A and 23B to U.S. Branches and Agencies of Foreign Banks
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.61">
<num value="223.61" style="-uslm-sgm:SECTNO">§ 223.61</num>
<heading style="-uslm-sgm:SUBJECT">How do sections 23A and 23B apply to U.S. branches and agencies of foreign banks? </heading>
<paragraph identifier="/us/cfr/t12/s223.61/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Applicability of sections 23A and 23B to foreign banks engaged in underwriting insurance, underwriting or dealing in securities, merchant banking, or insurance company investment in the United States.</heading>
<content> Except as provided in this subpart, sections 23A and 23B of the Federal Reserve Act and the provisions of this regulation apply to each U.S. branch, agency, or commercial lending company of a foreign bank in the same manner and to the same extent as if the branch, agency, or commercial lending company were a member bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Affiliate defined.</heading>
<chapeau> For purposes of this subpart, any company that would be an affiliate of a U.S. branch, agency, or commercial lending company of a foreign bank if such branch, agency, or commercial lending company were a member bank is an affiliate of the branch, agency, or commercial lending company if the company also is: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.61/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Directly engaged in the United States in any of the following activities: </chapeau>
<paragraph identifier="/us/cfr/t12/s223.61/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Insurance underwriting pursuant to section 4(k)(4)(B) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/B">12 U.S.C. 1843(k)(4)(B)</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Securities underwriting, dealing, or market making pursuant to section 4(k)(4)(E) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/E">12 U.S.C. 1843(k)(4)(E)</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Merchant banking activities pursuant to section 4(k)(4)(H) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>) (but only to the extent that the proceeds of the transaction are used for the purpose of funding the affiliate's merchant banking activities); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Insurance company investment activities pursuant to section 4(k)(4)(I) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/I">12 U.S.C. 1843(k)(4)(I)</ref>); or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/b/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Any other activity designated by the Board;
<?page num="141"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A portfolio company (as defined in the merchant banking subpart of Regulation Y (<ref href="/us/cfr/t12/s225.177/c">12 CFR 225.177(c)</ref>)) controlled by the foreign bank or an affiliate of the foreign bank or a company that would be an affiliate of the branch, agency, or commercial lending company of the foreign bank under paragraph (a)(9) of <ref href="/us/cfr/t12/s223.2">§ 223.2</ref> if such branch, agency, or commercial lending company were a member bank; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A subsidiary of an affiliate described in paragraph (b)(1) or (2) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.61/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Capital stock and surplus.</heading>
<content> For purposes of this subpart, the “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">capital stock and surplus</inline>” of a U.S. branch, agency, or commercial lending company of a foreign bank will be determined by reference to the capital of the foreign bank as calculated under its home country capital standards.
</content>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spH">
<num value="H" style="-uslm-sgm:HED">Subpart H—</num>
<heading style="-uslm-sgm:HED">Miscellaneous Interpretations
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.71">
<num value="223.71" style="-uslm-sgm:SECTNO">§ 223.71</num>
<heading style="-uslm-sgm:SUBJECT">How do sections 23A and 23B apply to transactions in which a member bank purchases from one affiliate an asset relating to another affiliate? </heading>
<paragraph identifier="/us/cfr/t12/s223.71/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> In some situations in which a member bank purchases an asset from an affiliate, the asset purchase qualifies for an exemption under this regulation, but the member bank's resulting ownership of the purchased asset also represents a covered transaction (which may or may not qualify for an exemption under this part). In these situations, the transaction engaged in by the member bank would qualify as two different types of covered transaction. Although an asset purchase exemption may suffice to exempt the member bank's asset purchase from the first affiliate, the asset purchase exemption does not exempt the member bank's resulting covered transaction with the second affiliate. The exemptions subject to this interpretation include <ref href="/us/cfr/t12/s223.31/e">§§ 223.31(e)</ref>, 223.41(a) through (d), and 223.42(e), (f), (i), (j), (k), and (m). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.71/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Examples—</heading>
<paragraph identifier="/us/cfr/t12/s223.71/b/1" class="inline">
<num value="1">(1) </num>
<heading>The (d)(6) exemption.</heading>
<content> A member bank purchases from Affiliate A securities issued by Affiliate B in a purchase that qualifies for the (d)(6) exemption in section 23A. The member bank's asset purchase from Affiliate A would be an exempt covered transaction under <ref href="/us/cfr/t12/s223.42/e">§ 223.42(e)</ref>; but the member bank also would have acquired an investment in securities issued by Affiliate B, which would be a covered transaction between the member bank and Affiliate B under <ref href="/us/cfr/t12/s223.3/h/2">§ 223.3(h)(2)</ref> that does not qualify for the (d)(6) exemption. The (d)(6) exemption, by its terms, only exempts asset purchases by a member bank from an affiliate; hence, the (d)(6) exemption cannot exempt a member bank's investment in securities issued by an affiliate (even if the securities would qualify for the (d)(6) exemption). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.71/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> T<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">he sister-bank exemption.</inline> A member bank purchases from Sister-Bank Affiliate A a loan to Affiliate B in a purchase that qualifies for the sister-bank exemption in section 23A. The member bank's asset purchase from Sister-Bank Affiliate A would be an exempt covered transaction under <ref href="/us/cfr/t12/s223.41/b">§ 223.41(b)</ref>; but the member bank also would have acquired an extension of credit to Affiliate B, which would be a covered transaction between the member bank and Affiliate B under <ref href="/us/cfr/t12/s223.3/h/1">§ 223.3(h)(1)</ref> that does not qualify for the sister-bank exemption. The sister-bank exemption, by its terms, only exempts transactions by a member bank with a sister-bank affiliate; hence, the sister-bank exemption cannot exempt a member bank's extension of credit to an affiliate that is not a sister bank (even if the extension of credit was purchased from a sister bank).
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p223/spI">
<num value="I" style="-uslm-sgm:HED">Subpart I—</num>
<heading style="-uslm-sgm:HED">Savings Associations—Transactions with Affiliates
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s223.72">
<num value="223.72" style="-uslm-sgm:SECTNO">§ 223.72</num>
<heading style="-uslm-sgm:SUBJECT">Transactions with affiliates.</heading>
<paragraph identifier="/us/cfr/t12/s223.72/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<paragraph identifier="/us/cfr/t12/s223.72/a/1" class="inline">
<num value="1"> (1)</num>
<content> This subpart implements section 11(a) of the Home Owners' Loan Act (<ref href="/us/usc/t12/s1468/a">12 U.S.C. 1468(a)</ref>). Section 11(a) applies sections 23A and 23B of the FRA (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref> and 371c1) to every savings association in the same manner and to the same extent as if the association were a member bank; prohibits certain types of transactions with affiliates; and authorizes the Board to impose additional restrictions on a savings association's transactions with affiliates.
<?page num="142"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.72/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> For the purposes of this subpart, “savings association” is defined at section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>), and also includes any savings bank or any cooperative bank that is a savings association under <ref href="/us/usc/t12/s1467a/l">12 U.S.C. 1467a(l)</ref>. A non-affiliate subsidiary of a savings association is treated as part of the savings association. For purposes of this subpart, a “non-affiliate subsidiary” is a subsidiary of a savings association other than a subsidiary described at <ref href="/us/cfr/t12/s223.2/b/1/i">12 CFR 223.2(b)(1)(i)</ref>, and (b)(1)(iii) through (v).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.72/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Sections 23A and 23B of the FRA.</heading>
<content>
<p> A savings association must comply with sections 23A and 23B of the Federal Reserve Act and this part as if it were a member bank, except as described in the following chart.</p>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L2,s85,r140">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Provision of Regulation W</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Application</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(1) <ref href="/us/cfr/t12/s223.2/a/8">12 CFR 223.2(a)(8)</ref>—“Affiliate” includes a financial subsidiary</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Does not apply. Savings association subsidiaries do not meet the statutory definition of financial subsidiary.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(2) <ref href="/us/cfr/t12/s223.2/a/12">12 CFR 223.2(a)(12)</ref>—Determination that “affiliate” includes other types of companies</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to include the following statement: “Affiliate also includes any company that the Board determines, by order or regulation, to present a risk to the safety and soundness of the savings association.”</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(3) <ref href="/us/cfr/t12/s223.2/b/1/ii">12 CFR 223.2(b)(1)(ii)</ref>—“Affiliate” includes a subsidiary that is a financial subsidiary</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Does not apply. Savings association subsidiaries do not meet the statutory definition of financial subsidiary.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01; -uslm-sgm-O:xl">(4) <ref href="/us/cfr/t12/s223.3/d">12 CFR 223.3(d)</ref>—Definition of “capital stock and surplus.”</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">“Capital stock and surplus” for a savings association has the same meaning as under the regulatory capital requirements applicable to that savings association.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(5) <ref href="/us/cfr/t12/s223.3/h/1">12 CFR 223.3(h)(1)</ref>—Section 23A covered transactions include an extension of credit to the affiliate</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to incorporate paragraph (c)(1) of this section, which prohibits loans or extensions of credit to an affiliate, unless the affiliate is engaged only in the activities described at <ref href="/us/usc/t12/s1467a/c/2/F/i">12 U.S.C. 1467a(c)(2)(F)(i)</ref>, as defined in Regulation LL at <ref href="/us/cfr/t12/s238.54">12 CFR 238.54</ref>.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(6) <ref href="/us/cfr/t12/s223.3/h/2">12 CFR 223.3(h)(2)</ref>—Section 23A covered transactions include a purchase of or investment in securities issued by an affiliate</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to incorporate paragraph (c)(2) of this section, which prohibits purchases and investments in securities issued by an affiliate, other than with respect to shares of a subsidiary.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01; -uslm-sgm-O:xl">(7) <ref href="/us/cfr/t12/s223.3/k">12 CFR 223.3(k)</ref>—Definition of “depository institution.”</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to include the following statement: “For the purposes of this definition, a non-affiliate subsidiary of a savings association is treated as part of the depository institution.”</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01; -uslm-sgm-O:xl">(8) <ref href="/us/cfr/t12/s223.3/p">12 CFR 223.3(p)</ref>—Definition of “financial subsidiary.”</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Does not apply. Savings association subsidiaries do not meet the statutory definition of financial subsidiary.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01; -uslm-sgm-O:xl">(9) <ref href="/us/cfr/t12/s223.3/w">12 CFR 223.3(w)</ref>—Definition of “member bank.”</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to include the following statement: “Member bank also includes a savings association. For purposes of this definition, a non-affiliate subsidiary of a savings association is treated as part of the savings association.”</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01; -uslm-sgm-O:xl">(10) <ref href="/us/cfr/t12/s223.3/aa">12 CFR 223.3(aa)</ref>—Definition of “operating subsidiary.”</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Does not apply.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(11) <ref href="/us/cfr/t12/s223.31">12 CFR 223.31</ref>—Application of section 23A to an acquisition of an affiliate that becomes an operating subsidiary</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to refer to “a non-affiliate subsidiary” instead of “operating subsidiary.”</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(12) <ref href="/us/cfr/t12/s223.32">12 CFR 223.32</ref>—Rules that apply to financial subsidiaries of a bank</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Does not apply. Savings association subsidiaries do not meet the statutory definition of financial subsidiary.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(13) <ref href="/us/cfr/t12/s223.42/f/2">12 CFR 223.42(f)(2)</ref>—Exemption for purchasing certain marketable securities</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to refer to “Thrift Financial Report” instead of “Call Report.” References to “state member bank” are unchanged.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(14) <ref href="/us/cfr/t12/s223.42/g/2">12 CFR 223.42(g)(2)</ref>—Exemption for purchasing municipal securities</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Read to refer to “Thrift Financial Report” instead of “Call Report.” References to “state member bank” are unchanged.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">(15) <ref href="/us/cfr/t12/s223.61">12 CFR 223.61</ref>—Application of sections 23A and 23B to U.S. branches and agencies of foreign banks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Does not apply to savings associations or their subsidiaries.</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.72/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Additional prohibitions and restrictions.</heading>
<chapeau> A savings association must comply with the additional prohibitions and restrictions in this paragraph (c). Except as described in paragraph (b) of this section, the definitions in this part apply to these additional prohibitions and restrictions.</chapeau>
<paragraph identifier="/us/cfr/t12/s223.72/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Loans and extensions of credit.</heading>
<paragraph identifier="/us/cfr/t12/s223.72/c/1/i" class="inline">
<num value="i"> (i)</num>
<content> A savings association may not make a loan or other extension of credit to an affiliate, unless the affiliate is solely engaged in the activities described at <ref href="/us/usc/t12/s1467a/c/2/F/i">12 U.S.C. 1467a(c)(2)(F)(i)</ref>, as defined in <ref href="/us/cfr/t12/s238.54">§ 238.54</ref> of Regulation LL (<ref href="/us/cfr/t12/s238.54">12 CFR 238.54</ref>). A loan or extension of credit to a third party is not prohibited merely because proceeds of the transaction are used for the benefit of, or are transferred to, an affiliate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.72/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the Board determines that a particular transaction is, in substance, a loan or extension of credit to an affiliate that is engaged in activities other than those described at <ref href="/us/usc/t12/s1467a/c/2/F/i">12 U.S.C. 1467a(c)(2)(F)(i)</ref>, as defined in <ref href="/us/cfr/t12/s238.54">§ 238.54</ref> of Regulation LL (<ref href="/us/cfr/t12/s238.54">12 CFR 238.54</ref>), or the Board has other supervisory concerns <?page num="143"?>concerning the transaction, the Board may inform the savings association that the transaction is prohibited under this paragraph (c)(1), and require the savings association to divest the loan, unwind the transaction, or take other appropriate action.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s223.72/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Purchases or investments in securities.</heading>
<content> A savings association may not purchase or invest in securities issued by any affiliate other than with respect to shares of a subsidiary. For the purposes of this paragraph (c)(2), subsidiary includes a bank and a savings association.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/76/56531">76 FR 56531</ref>, <date date="2011-09-13">Sept. 13, 2011</date>]
</source>
</section>
</subpart>
</part>
<ear style="-uslm-sgm:EAR">Pt. 224</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p224">
<num value="224" style="-uslm-sgm:HED">PART 224—</num>
<heading style="-uslm-sgm:HED">BORROWERS OF SECURITIES CREDIT (REGULATION X)</heading>
<toc style="-uslm-sgm:CONTENTS">
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s224.1">224.1</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s224.2">224.2</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s224.3">224.3</designator>
<label style="-uslm-sgm:SUBJECT">Margin regulations to be applied by nonexempted borrowers.</label>
</referenceItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t15/s78g">15 U.S.C. 78g</ref>.</authority>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. X, <ref href="/us/fr/48/56572">48 FR 56572</ref>, <date date="1983-12-22">Dec. 22, 1983</date>, unless otherwise noted.</source>
<editorialNote style="-uslm-sgm:EDNOTE">
<heading style="-uslm-sgm:HED">Editorial Note:</heading>
<p style="-uslm-sgm:P">For <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> citations affecting part 224, see the List of CFR Sections Affected, which appears in the Finding Aids section of the printed volume and at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.govinfo.gov.</inline>
</p>
</editorialNote>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s224.1">
<num value="224.1" style="-uslm-sgm:SECTNO">§ 224.1</num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</heading>
<paragraph identifier="/us/cfr/t12/s224.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority and purpose.</heading>
<content> Regulation X (this part) is issued by the Board of Governors of the Federal Reserve System (the Board) under the Securities Exchange Act of 1934, as amended (the Act) (<ref href="/us/usc/t15/s78a">15 U.S.C. 78a</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). This part implements section 7(f) of the Act (<ref href="/us/usc/t15/s78g/f">15 U.S.C. 78g(f)</ref>), the purpose of which is to require that credit obtained within or outside the United States complies with the limitations of the Board's Margin Regulations T and U (<ref href="/us/cfr/t12/p220">12 CFR parts 220</ref> and 221, respectively).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s224.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Scope and exemptions.</heading>
<chapeau> The Act and this part apply the Board's margin regulations to United States persons and foreign persons controlled by or acting on behalf of or in conjunction with United States persons (hereinafter borrowers), who obtain credit outside the United States to purchase or carry United States securities, or within the United States to purchase or carry any securities (both types of credit are hereinafter referred to as purpose credit). The following borrowers are exempt from the Act and this part:</chapeau>
<paragraph identifier="/us/cfr/t12/s224.1/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Any borrower who obtains purpose credit within the United States, unless the borrower willfully causes the credit to be extended in contravention of Regulations T or U.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s224.1/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any borrower whose permanent residence is outside the United States and who does not obtain or have outstanding, during any calendar year, a total of more than $100,000 in purpose credit obtained outside the United States; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s224.1/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Any borrower who is exempt by Order upon terms and conditions set by the Board.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. X, <ref href="/us/fr/48/56572">48 FR 56572</ref>, <date date="1983-12-22">Dec. 22, 1983</date>, as amended by Reg. X, <ref href="/us/fr/63/2839">63 FR 2839</ref>, <date date="1998-01-16" role="amended">Jan. 16, 1998</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s224.2">
<num value="224.2" style="-uslm-sgm:SECTNO">§ 224.2</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">The terms used in this part have the meanings given to them in sections 3(a) and 7(f) of the Act, and in Regulations T and U. Section 7(f) of the Act contains the following definitions:</p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">United States person</inline> includes a person which is organized or exists under the laws of any State or, in the case of a natural person, a citizen or resident of the United States; a domestic estate; or a trust in which one or more of the foregoing persons has a cumulative direct or indirect beneficial interest in excess of 50 per centum of the valve of the trust.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">United States security</inline> means a security (other than an exempted security) issued by a person incorporated under the laws of any State, or whose principal place of business is within a State.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign person controlled by a United States person</inline> includes any noncorporate entity in which United States persons directly or indirectly have more than a 50 per centum beneficial interest, and any corporation in which one or more United States persons, directly or indirectly, own stock possessing more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or <?page num="144"?>more than 50 per centum of the total value of shares of all classes of stock.</p>
<source style="-uslm-sgm:CITA">[Reg. X, <ref href="/us/fr/48/56572">48 FR 56572</ref>, <date date="1983-12-22">Dec. 22, 1983</date>, as amended by Reg. X, <ref href="/us/fr/63/2839">63 FR 2839</ref>, <date date="1998-01-16" role="amended">Jan. 16, 1998</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s224.3">
<num value="224.3" style="-uslm-sgm:SECTNO">§ 224.3</num>
<heading style="-uslm-sgm:SUBJECT">Margin regulations to be applied by nonexempted borrowers.</heading>
<paragraph identifier="/us/cfr/t12/s224.3/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Credit transactions outside the United States.</heading>
<chapeau> No borrower shall obtain purpose credit from outside the United States unless it conforms to the following margin regulations:</chapeau>
<paragraph identifier="/us/cfr/t12/s224.3/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Regulation T (<ref href="/us/cfr/t12/p220">12 CFR part 220</ref>) if the credit is obtained from a foreign branch of a broker-dealer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s224.3/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Regulation U (<ref href="/us/cfr/t12/p221">12 CFR part 221</ref>), as it applies to banks, if the credit is obtained from a foreign branch of a bank, except for the requirement of a purpose statement (<ref href="/us/cfr/t12/s221.3/c/1/i">12 CFR 221.3(c)(1)(i)</ref> and (c)(2)(i)); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s224.3/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Regulation U (<ref href="/us/cfr/t12/p221">12 CFR part 221</ref>), as it applies to nonbank lenders, if the credit is obtained from any other lender outside the United States, except for the requirement of a purpose statement (<ref href="/us/cfr/t12/s221.3/c/1/ii">12 CFR 221.3(c)(1)(ii)</ref> and (c)(2)(ii)).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s224.3/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Credit transactions within the United States.</heading>
<content> Any borrower who willfully causes credit to be extended in contravention of Regulations T and U (<ref href="/us/cfr/t12/p220">12 CFR parts 220</ref> and 221), and who, therefore, is not exempted by <ref href="/us/cfr/t12/s224.1/b/1">§ 224.1(b)(1)</ref>, must conform the credit to the margin regulation that applies to the lender.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. X, <ref href="/us/fr/63/2839">63 FR 2839</ref>, <date date="1998-01-16">Jan. 16, 1998</date>]
</source>
</section>
</part>
<ear style="-uslm-sgm:EAR">Pt. 225</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p225">
<num value="225" style="-uslm-sgm:HED">PART 225—</num>
<heading style="-uslm-sgm:HED">BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y)</heading>
<toc style="-uslm-sgm:CONTENTS">
<groupItem style="-uslm-sgm:SUBJGRP">
<headingItem style="-uslm-sgm:HED">
<label>Regulations
</label>
</headingItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spA">Subpart A—</designator>
<label>General Provisions</label>
</headingItem>
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.1">225.1</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.2">225.2</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.3">225.3</designator>
<label style="-uslm-sgm:SUBJECT">Administration.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.4">225.4</designator>
<label style="-uslm-sgm:SUBJECT">Corporate practices.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.5">225.5</designator>
<label style="-uslm-sgm:SUBJECT">Registration, reports, and inspections.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.6">225.6</designator>
<label style="-uslm-sgm:SUBJECT">Penalties for violations.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.7">225.7</designator>
<label style="-uslm-sgm:SUBJECT">Exceptions to tying restrictions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.8">225.8</designator>
<label style="-uslm-sgm:SUBJECT">Capital planning.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spB">Subpart B—</designator>
<label>Acquisition of Bank Securities or Assets </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.11">225.11</designator>
<label style="-uslm-sgm:SUBJECT">Transactions requiring Board approval.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.12">225.12</designator>
<label style="-uslm-sgm:SUBJECT">Transactions not requiring Board approval.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.13">225.13</designator>
<label style="-uslm-sgm:SUBJECT">Factors considered in acting on bank acquisition proposals.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.14">225.14</designator>
<label style="-uslm-sgm:SUBJECT">Expedited action for certain bank acquisitions by well-run bank holding companies.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.15">225.15</designator>
<label style="-uslm-sgm:SUBJECT">Procedures for other bank acquisition proposals.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.16">225.16</designator>
<label style="-uslm-sgm:SUBJECT">Public notice, comments, hearings, and other provisions governing applications and notices.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.17">225.17</designator>
<label style="-uslm-sgm:SUBJECT">Notice procedure for one-bank holding company formations.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spC">Subpart C—</designator>
<label>Nonbanking Activities and Acquisitions by Bank Holding Companies </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.21">225.21</designator>
<label style="-uslm-sgm:SUBJECT">Prohibited nonbanking activities and acquisitions; exempt bank holding companies.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.22">225.22</designator>
<label style="-uslm-sgm:SUBJECT">Exempt nonbanking activities and acquisitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.23">225.23</designator>
<label style="-uslm-sgm:SUBJECT">Expedited action for certain nonbanking proposals by well-run bank holding companies.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.24">225.24</designator>
<label style="-uslm-sgm:SUBJECT">Procedures for other nonbanking proposals.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.25">225.25</designator>
<label style="-uslm-sgm:SUBJECT">Hearings, alteration of activities, and other matters.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.26">225.26</designator>
<label style="-uslm-sgm:SUBJECT">Factors considered in acting on nonbanking proposals.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.27">225.27</designator>
<label style="-uslm-sgm:SUBJECT">Procedures for determining scope of nonbanking activities.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.28">225.28</designator>
<label style="-uslm-sgm:SUBJECT">List of permissible nonbanking activities.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spD">Subpart D—</designator>
<label>Control and Divestiture Proceedings</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.31">225.31</designator>
<label style="-uslm-sgm:SUBJECT">Control proceedings.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spE">Subpart E—</designator>
<label>Change in Bank Control</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.41">225.41</designator>
<label style="-uslm-sgm:SUBJECT">Transactions requiring prior notice.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.42">225.42</designator>
<label style="-uslm-sgm:SUBJECT">Transactions not requiring prior notice.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.43">225.43</designator>
<label style="-uslm-sgm:SUBJECT">Procedures for filing, processing, publishing, and acting on notices.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.44">225.44</designator>
<label style="-uslm-sgm:SUBJECT">Reporting of stock loans.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spF">Subpart F—</designator>
<label>Limitations on Nonbank Banks</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.52">225.52</designator>
<label style="-uslm-sgm:SUBJECT">Limitation on overdrafts.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spG">Subpart G—</designator>
<label>Appraisal Standards for Federally Related Transactions</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.61">225.61</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, and scope. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.62">225.62</designator>
<label style="-uslm-sgm:SUBJECT">Definitions. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.63">225.63</designator>
<label style="-uslm-sgm:SUBJECT">Appraisals required; transactions requiring a State certified or licensed appraiser.
<?page num="145"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.64">225.64</designator>
<label style="-uslm-sgm:SUBJECT">Minimum appraisal standards.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.65">225.65</designator>
<label style="-uslm-sgm:SUBJECT">Appraiser independence. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.66">225.66</designator>
<label style="-uslm-sgm:SUBJECT">Professional association membership; competency. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.67">225.67</designator>
<label style="-uslm-sgm:SUBJECT">Enforcement.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spH">Subpart H—</designator>
<label>Notice of Addition or Change of Directors and Senior Executive Officers </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.71">225.71</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.72">225.72</designator>
<label style="-uslm-sgm:SUBJECT">Director and officer appointments; prior notice requirement.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.73">225.73</designator>
<label style="-uslm-sgm:SUBJECT">Procedures for filing, processing, and acting on notices; standards for disapproval; waiver of notice.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spI">Subpart I—</designator>
<label>Financial Holding Companies</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.81">225.81</designator>
<label style="-uslm-sgm:SUBJECT">What is a financial holding company? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.82">225.82</designator>
<label style="-uslm-sgm:SUBJECT">How does a bank holding company elect to become a financial holding company?</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.83">225.83</designator>
<label style="-uslm-sgm:SUBJECT">What are the consequences of failing to continue to meet applicable capital and management requirements? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.84">225.84</designator>
<label style="-uslm-sgm:SUBJECT">What are the consequences of failing to maintain a satisfactory or better rating under the Community Reinvestment Act at all insured depository institution subsidiaries? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.85">225.85</designator>
<label style="-uslm-sgm:SUBJECT">Is notice to or approval from the Board required prior to engaging in a financial activity? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.86">225.86</designator>
<label style="-uslm-sgm:SUBJECT">What activities are permissible for any financial holding company? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.87">225.87</designator>
<label style="-uslm-sgm:SUBJECT">Is notice to the Board required after engaging in a financial activity? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.88">225.88</designator>
<label style="-uslm-sgm:SUBJECT">How to request the Board to determine that an activity is financial in nature or incidental to a financial activity? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.89">225.89</designator>
<label style="-uslm-sgm:SUBJECT">How to request approval to engage in an activity that is complementary to a financial activity? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.90">225.90</designator>
<label style="-uslm-sgm:SUBJECT">What are the requirements for a foreign bank to be treated as a financial holding company? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.91">225.91</designator>
<label style="-uslm-sgm:SUBJECT">How may a foreign bank elect to be treated as a financial holding company? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.92">225.92</designator>
<label style="-uslm-sgm:SUBJECT">How does an election by a foreign bank become effective? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.93">225.93</designator>
<label style="-uslm-sgm:SUBJECT">What are the consequences of a foreign bank failing to continue to meet applicable capital and management requirements? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.94">225.94</designator>
<label style="-uslm-sgm:SUBJECT">What are the consequences of an insured branch or depository institution failing to maintain a satisfactory or better rating under the Community Reinvestment Act?
</label>
</referenceItem>
<groupItem style="-uslm-sgm:SUBJGRP">
<headingItem style="-uslm-sgm:HED">
<label>Interpretations </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.101">225.101</designator>
<label style="-uslm-sgm:SUBJECT">Bank holding company's subsidiary banks owning shares of nonbanking companies. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.102">225.102</designator>
<label style="-uslm-sgm:SUBJECT">Bank holding company indirectly owning nonbanking company through subsidiaries. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.103">225.103</designator>
<label style="-uslm-sgm:SUBJECT">Bank holding company acquiring stock by dividends, stock splits or exercise of rights. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.104">225.104</designator>
<label style="-uslm-sgm:SUBJECT">“Services” under section 4(c)(1) of Bank Holding Company Act. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.107">225.107</designator>
<label style="-uslm-sgm:SUBJECT">Acquisition of stock in small business investment company. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.109">225.109</designator>
<label style="-uslm-sgm:SUBJECT">“Services” under section 4(c)(1) of Bank Holding Company Act. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.111">225.111</designator>
<label style="-uslm-sgm:SUBJECT">Limit on investment by bank holding company system in stock of small business investment companies. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.112">225.112</designator>
<label style="-uslm-sgm:SUBJECT">Indirect control of small business concern through convertible debentures held by small business investment company. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.113">225.113</designator>
<label style="-uslm-sgm:SUBJECT">Services under section 4(a) of Bank Holding Company Act. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.115">225.115</designator>
<label style="-uslm-sgm:SUBJECT">Applicability of Bank Service Corporation Act in certain bank holding company situations. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.118">225.118</designator>
<label style="-uslm-sgm:SUBJECT">Computer services for customers of subsidiary banks. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.121">225.121</designator>
<label style="-uslm-sgm:SUBJECT">Acquisition of Edge corporation affiliate by State member banks of registered bank holding company. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.122">225.122</designator>
<label style="-uslm-sgm:SUBJECT">Bank holding company ownership of mortgage companies. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.123">225.123</designator>
<label style="-uslm-sgm:SUBJECT">Activities closely related to banking. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.124">225.124</designator>
<label style="-uslm-sgm:SUBJECT">Foreign bank holding companies. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.125">225.125</designator>
<label style="-uslm-sgm:SUBJECT">Investment adviser activities. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.126">225.126</designator>
<label style="-uslm-sgm:SUBJECT">Activities not closely related to banking. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.127">225.127</designator>
<label style="-uslm-sgm:SUBJECT">Investment in corporations or projects designed primarily to promote community welfare. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.129">225.129</designator>
<label style="-uslm-sgm:SUBJECT">Activities closely related to banking. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.130">225.130</designator>
<label style="-uslm-sgm:SUBJECT">Issuance and sale of short-term debt obligations by bank holding companies. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.131">225.131</designator>
<label style="-uslm-sgm:SUBJECT">Activities closely related to banking. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.132">225.132</designator>
<label style="-uslm-sgm:SUBJECT">Acquisition of assets. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.133">225.133</designator>
<label style="-uslm-sgm:SUBJECT">Computation of amount invested in foreign corporations under general consent procedures. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.134">225.134</designator>
<label style="-uslm-sgm:SUBJECT">Escrow arrangements involving bank stock resulting in a violation of the Bank Holding Company Act. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.136">225.136</designator>
<label style="-uslm-sgm:SUBJECT">Utilization of foreign subsidiaries to sell long-term debt obligations in foreign markets and to transfer the proceeds to their United States parent(s) for domestic purposes. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.137">225.137</designator>
<label style="-uslm-sgm:SUBJECT">Acquisitions of shares pursuant to section 4(c)(6) of the Bank Holding Company Act. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.138">225.138</designator>
<label style="-uslm-sgm:SUBJECT">Statement of policy concerning divestitures by bank holding companies. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.139">225.139</designator>
<label style="-uslm-sgm:SUBJECT">Presumption of continued control under section (2)(g)(3) of the Bank Holding Company Act. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.140">225.140</designator>
<label style="-uslm-sgm:SUBJECT">Disposition of property acquired in satisfaction of debts previously contracted.
<?page num="146"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.141">225.141</designator>
<label style="-uslm-sgm:SUBJECT">Operations subsidiaries of a bank holding company.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.142">225.142</designator>
<label style="-uslm-sgm:SUBJECT">Statement of policy concerning bank holding companies engaging in futures, forward and options contracts on U.S. Government and agency securities and money market instruments. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.143">225.143</designator>
<label style="-uslm-sgm:SUBJECT">Policy statement on nonvoting equity investments by bank holding companies.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.145">225.145</designator>
<label style="-uslm-sgm:SUBJECT">Limitations established by the Competitive Equality Banking Act of 1987 on the activities and growth of nonbank banks.
</label>
</referenceItem>
</groupItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spJ">Subpart J—</designator>
<label>Merchant Banking Investments </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.170">225.170</designator>
<label style="-uslm-sgm:SUBJECT">What type of investments are permitted by this subpart, and under what conditions may they be made? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.171">225.171</designator>
<label style="-uslm-sgm:SUBJECT">What are the limitations on managing or operating a portfolio company held as a merchant banking investment? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.172">225.172</designator>
<label style="-uslm-sgm:SUBJECT">What are the holding periods permitted for merchant banking investments? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.173">225.173</designator>
<label style="-uslm-sgm:SUBJECT">How are investments in private equity funds treated under this subpart? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.174">225.174</designator>
<label style="-uslm-sgm:SUBJECT">What aggregate thresholds apply to merchant banking investments? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.175">225.175</designator>
<label style="-uslm-sgm:SUBJECT">What risk management, record keeping and reporting policies are required to make merchant banking investments? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.176">225.176</designator>
<label style="-uslm-sgm:SUBJECT">How do the statutory cross marketing and sections 23A and B limitations apply to merchant banking investments? </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.177">225.177</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.
</label>
</referenceItem>
<groupItem style="-uslm-sgm:SUBJGRP">
<headingItem style="-uslm-sgm:HED">
<label>Conditions to Orders
</label>
</headingItem>
</groupItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spK">Subpart K—</designator>
<label>Proprietary Trading and Relationships With Hedge Fund and Private Equity Funds</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.180">225.180</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.181">225.181</designator>
<label style="-uslm-sgm:SUBJECT">Conformance Period for Banking Entities Engaged in Proprietary Trading or Private Fund Activities.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.182">225.182</designator>
<label style="-uslm-sgm:SUBJECT">Conformance Period for Nonbank Financial Companies Supervised by the Board Engaged in Proprietary Trading or Private Fund Activities.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spL">Subpart L—</designator>
<label>Conditions to Orders</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.200">225.200</designator>
<label style="-uslm-sgm:SUBJECT">Conditions to Board's section 20 orders.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p225/spM">Subpart M—</designator>
<label>Minimum Requirements for Appraisal Management Companies</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.190">225.190</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.191">225.191</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.192">225.192</designator>
<label style="-uslm-sgm:SUBJECT">Appraiser panel—annual size calculation.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.193">225.193</designator>
<label style="-uslm-sgm:SUBJECT">Appraisal management company registration.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.194">225.194</designator>
<label style="-uslm-sgm:SUBJECT">Ownership limitations for State-registered appraisal management companies.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.195">225.195</designator>
<label style="-uslm-sgm:SUBJECT">Requirements for Federally regulated appraisal management companies.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s225.196">225.196</designator>
<label style="-uslm-sgm:SUBJECT">Information to be presented to the Appraisal Subcommittee by participating States.
</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p225/spM/appA">Appendix A to Part 225—</designator>
<label>Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p225/spM/appB">Appendix B to Part 225 </designator>
<label>[Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p225/spM/appC">Appendix C to Part 225—</designator>
<label>Small Bank Holding Company and Savings and Loan Holding Company Policy Statement </label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p225/spM/appNaN">Appendixes D–E </designator>
<label>[Reserved] </label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p225/spM/appF">Appendix F to Part 225—</designator>
<label>Interagency Guidelines Establishing Information Security Standards</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p225/spM/appG">Appendix G to Part 225 </designator>
<label>[Reserved] </label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t12/s1817/j/13">12 U.S.C. 1817(j)(13)</ref>, 1818, 1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331–3351, 3906, 3907, and 3909; <ref href="/us/usc/t15/s1681s">15 U.S.C. 1681s</ref>, 1681w, 6801 and 6805.
</authority>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/49/818">49 FR 818</ref>, <date date="1984-01-05">Jan. 5, 1984</date>, unless otherwise noted.</source>
<editorialNote style="-uslm-sgm:EDNOTE">
<heading style="-uslm-sgm:HED">Editorial Note:</heading>
<p style="-uslm-sgm:P">Nomenclature changes to part 225 appear at <ref href="/us/fr/69/77618">69 FR 77618</ref>, <date date="2004-12-28">Dec. 28, 2004</date>.</p>
</editorialNote>
<level style="-uslm-sgm:SUBJGRP">
<heading style="-uslm-sgm:HED">Regulations
</heading>
</level>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spA">
<num value="A" style="-uslm-sgm:HED">Subpart A—</num>
<heading style="-uslm-sgm:HED">General Provisions</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/62/9319">62 FR 9319</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.1">
<num value="225.1" style="-uslm-sgm:SECTNO">§ 225.1 </num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</heading>
<paragraph identifier="/us/cfr/t12/s225.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority.</heading>
<content>
<p> This part <ref id="fnd3e8951" idref="fnd3e8971" style="-uslm-sgm:SU">1</ref> (Regulation Y) is issued by the Board of Governors of the Federal Reserve System (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board</inline>) under section 5(b) of the Bank Holding Company Act of 1956, as amended (<ref href="/us/usc/t12/s1844/b">12 U.S.C. 1844(b)</ref>) (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">BHC Act</inline>); sections 8 and 13(a) of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3106">12 U.S.C. 3106</ref> and 3108); section 7(j)(13) of the Federal Deposit Insurance Act, as amended by the Change in Bank Control Act of 1978 (<ref href="/us/usc/t12/s1817/j/13">12 U.S.C. 1817(j)(13)</ref>) (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank Control Act</inline>); section 8(b) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1818/b">12 U.S.C. 1818(b)</ref>); section 914 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (<ref href="/us/usc/t12/s1831i">12 U.S.C. 1831i</ref>); section 106 of the Bank Holding Company Act Amendments of 1970 (<ref href="/us/usc/t12/s1972">12 U.S.C. 1972</ref>); and the International Lending Supervision Act of <?page num="147"?>1983 (<ref href="/us/pl/98/181/tIX">Pub. L. 98–181, title IX</ref>). The BHC Act is codified at <ref href="/us/usc/t12/s1841">12 U.S.C. 1841</ref>, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>
</p>
<footnote id="fnd3e8971" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e8951" style="-uslm-sgm:SU">1</ref> Code of Federal Regulations, title 12, chapter II, part 225.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purpose.</heading>
<chapeau> The principal purposes of this part are to:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.1/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Regulate the acquisition of control of banks by companies and individuals;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Define and regulate the nonbanking activities in which bank holding companies and foreign banking organizations with United States operations may engage; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Set forth the procedures for securing approval for these transactions and activities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Scope—</heading>
<paragraph identifier="/us/cfr/t12/s225.1/c/1" class="inline">
<num value="1">(1) </num>
<heading>Subpart A</heading>
<content> contains general provisions and definitions of terms used in this regulation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Subpart B</heading>
<content> governs acquisitions of bank or bank holding company securities and assets by bank holding companies or by any company that will become a bank holding company as a result of the acquisition.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Subpart C</heading>
<content> defines and regulates the nonbanking activities in which bank holding companies and foreign banking organizations may engage directly or through a subsidiary. The Board's Regulation K governs certain nonbanking activities conducted by foreign banking organizations and certain foreign activities conducted by bank holding companies (<ref href="/us/cfr/t12/p211">12 CFR part 211</ref>, International Banking Operations).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Subpart D</heading>
<content> specifies situations in which a company is presumed to control voting securities or to have the power to exercise a controlling influence over the management or policies of a bank or other company; sets forth the procedures for making a control determination; and provides rules governing the effectiveness of divestitures by bank holding companies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Subpart E</heading>
<content> governs changes in bank control resulting from the acquisition by individuals or companies (other than bank holding companies) of voting securities of a bank holding company or state member bank of the Federal Reserve System.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Subpart F</heading>
<content> specifies the limitations that govern companies that control so-called nonbank banks and the activities of nonbank banks.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Subpart G</heading>
<content> prescribes minimum standards that apply to the performance of real estate appraisals and identifies transactions that require state certified appraisers.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Subpart H</heading>
<content> identifies the circumstances when written notice must be provided to the Board prior to the appointment of a director or senior officer of a bank holding company and establishes procedures for obtaining the required Board approval.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/9" style="-uslm-sgm:P">
<num value="9">(9)</num>
<content> Subpart I establishes the procedure by which a bank holding company may elect to become a financial holding company, enumerates the consequences if a financial holding company ceases to meet a requirement applicable to a financial holding company, lists the activities in which a financial holding company may engage, establishes the procedure by which a person may request the Board to authorize additional activities as financial in nature or incidental thereto, and establishes the procedure by which a financial holding company may seek approval to engage in an activity that is complementary to a financial activity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Subpart J</heading>
<content> governs the conduct of merchant banking investment activities by financial holding companies as permitted under section 4(k)(4)(H) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/11" style="-uslm-sgm:P">
<num value="11">(11) </num>
<heading>Subpart K</heading>
<content> governs the period of time that firms subject to section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) have to bring their activities, investments and relationships into compliance with the requirements of such section.</content>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s225.1/c/12-13" style="-uslm-sgm:P">
<num value="12–13">(12)–(13)</num>
<content> [Reserved]</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/14" style="-uslm-sgm:P">
<num value="14">(14) </num>
<heading>Appendix D</heading>
<content> contains the Board's Capital Adequacy Guidelines for measuring tier 1 leverage for bank holding companies.</content>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s225.1/c/15" style="-uslm-sgm:P">
<num value="15">(15)</num>
<content> [Reserved]</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.1/c/16" style="-uslm-sgm:P">
<num value="16">(16) </num>
<heading>Appendix F</heading>
<content> contains the Interagency Guidelines Establishing Information Security Standards.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9319">62 FR 9319</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/65/16472">65 FR 16472</ref>, <date date="2000-03-28" role="amended">Mar. 28, 2000</date>; <ref href="/us/fr/66/414">66 FR 414</ref>, <date date="2001-01-03" role="amended">Jan. 3, 2001</date>; <ref href="/us/fr/66/8484">66 FR 8484</ref>, <date date="2001-01-31" role="amended">Jan. 31, 2001</date>; <ref href="/us/fr/66/8636">66 FR 8636</ref>, <date date="2001-02-01" role="amended">Feb. 1, 2001</date>; <ref href="/us/fr/76/8275">76 FR 8275</ref>, <date date="2011-02-14" role="amended">Feb. 14, 2011</date>; <ref href="/us/fr/79/62290">79 FR 62290</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s225.2"><?page num="148"?>
<num value="225.2" style="-uslm-sgm:SECTNO">§ 225.2 </num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">Except as modified in this regulation or unless the context otherwise requires, the terms used in this regulation have the same meaning as set forth in the relevant statutes.</p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate</inline> means any company that controls, is controlled by, or is under common control with, another company.</p>
<p style="-uslm-sgm:P">(b)(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank</inline> means:</p>
<p style="-uslm-sgm:P">(i) An insured bank as defined in section 3(h) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813/h">12 U.S.C. 1813(h)</ref>); or</p>
<p style="-uslm-sgm:P">(ii) An institution organized under the laws of the United States which both:</p>
<p style="-uslm-sgm:P">(A) Accepts demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others; and</p>
<p style="-uslm-sgm:P">(B) Is engaged in the business of making commercial loans.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank</inline> does not include those institutions qualifying under the exceptions listed in section 2(c)(2) of the BHC Act (<ref href="/us/usc/t12/s1841/c/2">12 U.S.C. 1841(c)(2)</ref>).</p>
<p style="-uslm-sgm:P">(c)(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank holding company</inline> means any company (including a bank) that has direct or indirect control of a bank, other than control that results from the ownership or control of:</p>
<p style="-uslm-sgm:P">(i) Voting securities held in good faith in a fiduciary capacity (other than as provided in paragraphs (e)(2)(ii) and (iii) of this section) without sole discretionary voting authority, or as otherwise exempted under section 2(a)(5)(A) of the BHC Act;</p>
<p style="-uslm-sgm:P">(ii) Voting securities acquired and held only for a reasonable period of time in connection with the underwriting of securities, as provided in section 2(a)(5)(B) of the BHC Act;</p>
<p style="-uslm-sgm:P">(iii) Voting rights to voting securities acquired for the sole purpose and in the course of participating in a proxy solicitation, as provided in section 2(a)(5)(C) of the BHC Act;</p>
<p style="-uslm-sgm:P">(iv) Voting securities acquired in satisfaction of debts previously contracted in good faith, as provided in section 2(a)(5)(D) of the BHC Act, if the securities are divested within two years of acquisition (or such later period as the Board may permit by order); or</p>
<p style="-uslm-sgm:P">(v) Voting securities of certain institutions owned by a thrift institution or a trust company, as provided in sections 2(a)(5)(E) and (F) of the BHC Act.</p>
<p style="-uslm-sgm:P">(2) Except for the purposes of <ref href="/us/cfr/t12/s225.4/b">§ 225.4(b)</ref> of this subpart and subpart E of this part, or as otherwise provided in this regulation, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank holding company</inline> includes a foreign banking organization. For the purposes of subpart B of this part, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank holding company</inline> includes a foreign banking organization only if it owns or controls a bank in the United States.</p>
<p style="-uslm-sgm:P">(d)(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Company</inline> includes any bank, corporation, general or limited partnership, association or similar organization, business trust, or any other trust unless by its terms it must terminate either within 25 years, or within 21 years and 10 months after the death of individuals living on the effective date of the trust.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Company</inline> does not include any organization, the majority of the voting securities of which are owned by the United States or any state.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Testamentary trusts exempt.</inline> Unless the Board finds that the trust is being operated as a business trust or company, a trust is presumed not to be a company if the trust:</p>
<p style="-uslm-sgm:P">(i) Terminates within 21 years and 10 months after the death of grantors or beneficiaries of the trust living on the effective date of the trust or within 25 years;</p>
<p style="-uslm-sgm:P">(ii) Is a testamentary or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">inter vivos</inline> trust established by an individual or individuals for the benefit of natural persons (or trusts for the benefit of natural persons) who are related by blood, marriage or adoption;</p>
<p style="-uslm-sgm:P">(iii) Contains only assets previously owned by the individual or individuals who established the trust;</p>
<p style="-uslm-sgm:P">(iv) Is not a Massachusetts business trust; and</p>
<p style="-uslm-sgm:P">(v) Does not issue shares, certificates, or any other evidence of ownership.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualified limited partnerships exempt.</inline> Company does not include a qualified limited partnership, as defined in section 2(o)(10) of the BHC Act.</p>
<p style="-uslm-sgm:P">(e)(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Control</inline> of a bank or other company means (except for the purposes of subpart E of this part):</p>
<p style="-uslm-sgm:P">(i) Ownership, control, or power to vote 25 percent or more of the outstanding shares of any class of voting <?page num="149"?>securities of the bank or other company, directly or indirectly or acting through one or more other persons;</p>
<p style="-uslm-sgm:P">(ii) Control in any manner over the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of the bank or other company;</p>
<p style="-uslm-sgm:P">(iii) The power to exercise, directly or indirectly, a controlling influence over the management or policies of the bank or other company, as determined by the Board after notice and opportunity for hearing in accordance with <ref href="/us/cfr/t12/s225.31">§ 225.31</ref> of subpart D of this part; or</p>
<p style="-uslm-sgm:P">(iv) Conditioning in any manner the transfer of 25 percent or more of the outstanding shares of any class of voting securities of a bank or other company upon the transfer of 25 percent or more of the outstanding shares of any class of voting securities of another bank or other company.</p>
<p style="-uslm-sgm:P">(2) A bank or other company is deemed to control voting securities or assets owned, controlled, or held, directly or indirectly:</p>
<p style="-uslm-sgm:P">(i) By any subsidiary of the bank or other company;</p>
<p style="-uslm-sgm:P">(ii) In a fiduciary capacity (including by pension and profit-sharing trusts) for the benefit of the shareholders, members, or employees (or individuals serving in similar capacities) of the bank or other company or any of its subsidiaries; or</p>
<p style="-uslm-sgm:P">(iii) In a fiduciary capacity for the benefit of the bank or other company or any of its subsidiaries.</p>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign banking organization</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">qualifying foreign banking organization</inline> have the same meanings as provided in <ref href="/us/cfr/t12/s211.21/n">§ 211.21(n)</ref> and <ref href="/us/cfr/t12/s211.23">§ 211.23</ref> of the Board's Regulation K (<ref href="/us/cfr/t12/s211.21/n">12 CFR 211.21(n)</ref> and 211.23).</p>
<p style="-uslm-sgm:P">(g) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insured depository institution</inline> includes an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813/h">12 U.S.C. 1813(h)</ref>) and a savings association.</p>
<p style="-uslm-sgm:P">(h) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lead insured depository institution</inline> means the largest insured depository institution controlled by the bank holding company as of the quarter ending immediately prior to the proposed filing, based on a comparison of the average total risk-weighted assets controlled during the previous 12-month period by each insured depository institution subsidiary of the holding company.</p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Management official</inline> means any officer, director (including honorary or advisory directors), partner, or trustee of a bank or other company, or any employee of the bank or other company with policy-making functions.</p>
<p style="-uslm-sgm:P">(j) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonbank bank</inline> means any institution that:</p>
<p style="-uslm-sgm:P">(1) Became a bank as a result of enactment of the Competitive Equality Amendments of 1987 (<ref href="/us/pl/100/86">Pub. L. 100–86</ref>), on the date of enactment (August 10, 1987); and</p>
<p style="-uslm-sgm:P">(2) Was not controlled by a bank holding company on the day before the enactment of the Competitive Equality Amendments of 1987 (August 9, 1987).</p>
<p style="-uslm-sgm:P">(k) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Outstanding shares</inline> means any voting securities, but does not include securities owned by the United States or by a company wholly owned by the United States.</p>
<p style="-uslm-sgm:P">(l) Person includes an individual, bank, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity.</p>
<p style="-uslm-sgm:P">(m) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Savings association</inline> means:</p>
<p style="-uslm-sgm:P">(1) Any federal savings association or federal savings bank;</p>
<p style="-uslm-sgm:P">(2) Any building and loan association, savings and loan association, homestead association, or cooperative bank if such association or cooperative bank is a member of the Savings Association Insurance Fund; and</p>
<p style="-uslm-sgm:P">(3) Any savings bank or cooperative that is deemed by the director of the Office of Thrift Supervision to be a savings association under section 10(l) of the Home Owners Loan Act.</p>
<p style="-uslm-sgm:P">(n) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Shareholder</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Controlling shareholder</inline> means a person that owns or controls, directly or indirectly, 25 percent or more of any class of voting securities of a bank or other company.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal shareholder</inline> means a person that owns or controls, directly or indirectly, 10 percent or more of any class of voting securities of a bank or other company, or any person that the Board determines has the power, directly or indirectly, to exercise a controlling influence over the management or policies of a bank or other company.
<?page num="150"?></p>
<p style="-uslm-sgm:P">(o) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsidiary</inline> means a bank or other company that is controlled by another company, and refers to a direct or indirect subsidiary of a bank holding company. An indirect subsidiary is a bank or other company that is controlled by a subsidiary of the bank holding company.</p>
<p style="-uslm-sgm:P">(p) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">United States</inline> means the United States and includes any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, and the Virgin Islands.</p>
<p style="-uslm-sgm:P">(q)(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Voting securities</inline> means shares of common or preferred stock, general or limited partnership shares or interests, or similar interests if the shares or interest, by statute, charter, or in any manner, entitle the holder:</p>
<p style="-uslm-sgm:P">(i) To vote for or to select directors, trustees, or partners (or persons exercising similar functions of the issuing company); or</p>
<p style="-uslm-sgm:P">(ii) To vote on or to direct the conduct of the operations or other significant policies of the issuing company.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonvoting shares.</inline> Preferred shares, limited partnership shares or interests, or similar interests are not <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">voting securities</inline> if:</p>
<p style="-uslm-sgm:P">(i) Any voting rights associated with the shares or interest are limited solely to the type customarily provided by statute with regard to matters that would significantly and adversely affect the rights or preference of the security or other interest, such as the issuance of additional amounts or classes of senior securities, the modification of the terms of the security or interest, the dissolution of the issuing company, or the payment of dividends by the issuing company when preferred dividends are in arrears;</p>
<p style="-uslm-sgm:P">(ii) The shares or interest represent an essentially passive investment or financing device and do not otherwise provide the holder with control over the issuing company; and</p>
<p style="-uslm-sgm:P">(iii) The shares or interest do not entitle the holder, by statute, charter, or in any manner, to select or to vote for the selection of directors, trustees, or partners (or persons exercising similar functions) of the issuing company.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Class of voting shares.</inline> Shares of stock issued by a single issuer are deemed to be the same class of voting shares, regardless of differences in dividend rights or liquidation preference, if the shares are voted together as a single class on all matters for which the shares have voting rights other than matters described in paragraph (o)(2)(i) of this section that affect solely the rights or preferences of the shares.</p>
<p style="-uslm-sgm:P">(r) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Well-capitalized</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank holding company.</inline> In the case of a bank holding company, <ref id="fnd3e9283" idref="fnd3e9292" style="-uslm-sgm:SU">2</ref>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">well-capitalized</inline> means that:</p>
<footnote id="fnd3e9292" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e9283" style="-uslm-sgm:SU">2</ref> For purposes of this subpart and subparts B and C of this part, a bank holding company that is subject to the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement in appendix C of this part will be deemed to be “well-capitalized” if the bank holding company meets the requirements for expedited/waived processing in appendix C.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(i) On a consolidated basis, the bank holding company maintains a total risk-based capital ratio of 10.0 percent or greater, as defined in <ref href="/us/cfr/t12/s217.10">12 CFR 217.10</ref>;</p>
<p style="-uslm-sgm:P">(ii) On a consolidated basis, the bank holding company maintains a tier 1 risk-based capital ratio of 6.0 percent or greater, as defined in <ref href="/us/cfr/t12/s217.10">12 CFR 217.10</ref>; and</p>
<p style="-uslm-sgm:P">(iii) The bank holding company is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insured and uninsured depository institution</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insured depository institution.</inline> In the case of an insured depository institution, “well capitalized” means that the institution has and maintains at least the capital levels required to be well capitalized under the capital adequacy regulations or guidelines applicable to the institution that have been adopted by the appropriate Federal banking agency for the institution under section 38 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1831o">12 U.S.C. 1831o</ref>).</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Uninsured depository institution.</inline> In the case of a depository institution the deposits of which are not insured by the Federal Deposit Insurance Corporation, “well capitalized” means that the institution has and maintains at least the capital levels required for an insured depository institution to be well capitalized. </p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign banks</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Standards applied.</inline> For purposes of determining <?page num="151"?>whether a foreign banking organization qualifies under paragraph (r)(1) of this section:</p>
<p style="-uslm-sgm:P">(A) A foreign banking organization whose home country supervisor, as defined in <ref href="/us/cfr/t12/s211.21">§ 211.21</ref> of the Board's Regulation K (<ref href="/us/cfr/t12/s211.21">12 CFR 211.21</ref>), has adopted capital standards consistent in all respects with the Capital Accord of the Basle Committee on Banking Supervision (Basle Accord) may calculate its capital ratios under the home country standard; and</p>
<p style="-uslm-sgm:P">(B) A foreign banking organization whose home country supervisor has not adopted capital standards consistent in all respects with the Basle Accord shall obtain a determination from the Board that its capital is equivalent to the capital that would be required of a U.S. banking organization under paragraph (r)(1) of this section.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Branches and agencies.</inline> For purposes of determining, under paragraph (r)(1) of this section, whether a branch or agency of a foreign banking organization is well-capitalized, the branch or agency shall be deemed to have the same capital ratios as the foreign banking organization.</p>
<p style="-uslm-sgm:P">(s) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Well managed</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> Except as otherwise provided in this part, a company or depository institution is well managed if:</p>
<p style="-uslm-sgm:P">(i) At its most recent inspection or examination or subsequent review by the appropriate Federal banking agency for the company or institution (or the appropriate state banking agency in an examination described in section 10(d) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1820/d">12 U.S.C. 1820(d)</ref>), the company or institution received:</p>
<p style="-uslm-sgm:P">(A) At least a satisfactory composite rating; and</p>
<p style="-uslm-sgm:P">(B) At least a satisfactory rating for management, if such rating is given. </p>
<p style="-uslm-sgm:P">(ii) In the case of a company or depository institution that has not received an inspection or examination rating, the Board has determined, after a review of the managerial and other resources of the company or depository institution and after consulting with the appropriate Federal and state banking agencies, as applicable, for the company or institution, that the company or institution is well managed.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Merged depository institutions</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Merger involving well managed institutions.</inline> A depository institution that results from the merger of two or more depository institutions that are well managed shall be considered to be well managed unless the Board determines otherwise after consulting with the appropriate Federal and state banking agencies, as applicable, for each depository institution involved in the merger. </p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Merger involving a poorly rated institution.</inline> A depository institution that results from the merger of a depository institution that is well managed with one or more depository institutions that are not well managed or have not been examined shall be considered to be well managed if the Board determines, after a review of the managerial and other resources of the resulting depository institution and after consulting with the appropriate Federal and state banking agencies for the institutions involved in the merger, as applicable, that the resulting institution is well managed.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign banking organizations.</inline> Except as otherwise provided in this part, a foreign banking organization is considered well managed if the combined operations of the foreign banking organization in the United States have received at least a satisfactory composite rating at the most recent annual assessment.</p>
<p style="-uslm-sgm:P">(t) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Depository institution.</inline> For purposes of this part, the term “depository institution” has the same meaning as in section 3(c) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813/c">12 U.S.C. 1813(c)</ref>).</p>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9319">62 FR 9319</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/65/3791">65 FR 3791</ref>, <date date="2000-01-25" role="amended">Jan. 25, 2000</date>; <ref href="/us/fr/65/15055">65 FR 15055</ref>, <date date="2000-03-21" role="amended">Mar. 21, 2000</date>; <ref href="/us/fr/66/414">66 FR 414</ref>, <date date="2001-01-03" role="amended">Jan. 3, 2001</date>; <ref href="/us/fr/71/9901">71 FR 9901</ref>, <date date="2006-02-28" role="amended">Feb. 28, 2006</date>; <ref href="/us/fr/78/62290">78 FR 62290</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/20157">80 FR 20157</ref>, <date date="2015-04-15" role="amended">Apr. 15, 2015</date>; <ref href="/us/fr/80/70673">80 FR 70673</ref>, <date date="2015-11-16" role="amended">Nov. 16, 2015</date>; <ref href="/us/fr/83/44198">83 FR 44198</ref>, <date date="2018-08-30" role="amended">Aug. 30, 2018</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.3">
<num value="225.3" style="-uslm-sgm:SECTNO">§ 225.3 </num>
<heading style="-uslm-sgm:SUBJECT">Administration.</heading>
<paragraph identifier="/us/cfr/t12/s225.3/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Delegation of authority.</heading>
<content> Designated Board members and officers and the Federal Reserve Banks are authorized by the Board to exercise various functions prescribed in this regulation and in the Board's Rules Regarding Delegation of Authority (<ref href="/us/cfr/t12/p265">12 CFR part 265</ref>) and the Board's Rules of Procedure (<ref href="/us/cfr/t12/p262">12 CFR part 262</ref>).
<?page num="152"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.3/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Appropriate Federal Reserve Bank.</heading>
<chapeau> In administering this regulation, unless a different Federal Reserve Bank is designated by the Board, the appropriate Federal Reserve Bank is as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.3/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> For a bank holding company (or a company applying to become a bank holding company): the Reserve Bank of the Federal Reserve district in which the company's banking operations are principally conducted, as measured by total domestic deposits in its subsidiary banks on the date it became (or will become) a bank holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.3/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> For a foreign banking organization that has no subsidiary bank and is not subject to paragraph (b)(1) of this section: the Reserve Bank of the Federal Reserve district in which the total assets of the organization's United States branches, agencies, and commercial lending companies are the largest as of the later of <date date="1980-01-01">January 1, 1980</date>, or the date it becomes a foreign banking organization;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.3/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> For an individual or company submitting a notice under subpart E of this part: The Reserve Bank of the Federal Reserve district in which the banking operations of the bank holding company or state member bank to be acquired are principally conducted, as measured by total domestic deposits on the date the notice is filed.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.4">
<num value="225.4" style="-uslm-sgm:SECTNO">§ 225.4 </num>
<heading style="-uslm-sgm:SUBJECT">Corporate practices.</heading>
<paragraph identifier="/us/cfr/t12/s225.4/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Bank holding company policy and operations.</heading>
<paragraph identifier="/us/cfr/t12/s225.4/a/1" class="inline">
<num value="1"> (1)</num>
<content> A bank holding company shall serve as a source of financial and managerial strength to its subsidiary banks and shall not conduct its operations in an unsafe or unsound manner.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Whenever the Board believes an activity of a bank holding company or control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary bank of the bank holding company and is inconsistent with sound banking principles or the purposes of the BHC Act or the Financial Institutions Supervisory Act of 1966, as amended (<ref href="/us/usc/t12/s1818/b">12 U.S.C. 1818(b)</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), the Board may require the bank holding company to terminate the activity or to terminate control of the subsidiary, as provided in section 5(e) of the BHC Act.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purchase or redemption by bank holding company of its own securities—</heading>
<paragraph identifier="/us/cfr/t12/s225.4/b/1" class="inline">
<num value="1">(1) </num>
<heading>Filing notice.</heading>
<content> Except as provided in paragraph (b)(6) of this section, a bank holding company shall give the Board prior written notice before purchasing or redeeming its equity securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding 12 months, is equal to 10 percent or more of the company's consolidated net worth. For the purposes of this section, “net consideration” is the gross consideration paid by the company for all of its equity securities purchased or redeemed during the period minus the gross consideration received for all of its equity securities sold during the period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Contents of notice.</heading>
<chapeau> Any notice under this section shall be filed with the appropriate Reserve Bank and shall contain the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.4/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The purpose of the transaction, a description of the securities to be purchased or redeemed, the total number of each class outstanding, the gross consideration to be paid, and the terms and sources of funding for the transaction;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A description of all equity securities redeemed within the preceding 12 months, the net consideration paid, and the terms of any debt incurred in connection with those transactions; and
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<paragraph identifier="/us/cfr/t12/s225.4/b/2/iii/A" class="inline">
<num value="A">(A)</num>
<content> If the bank holding company has consolidated assets of $3 billion or more, consolidated <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> risk-based capital and leverage ratio calculations for the bank holding company as of the most recent quarter, and, if the redemption is to be debt funded, a parent-only <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> balance sheet as of the most recent quarter; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/2/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the bank holding company has consolidated assets of less than $3 billion, a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> parent-only balance sheet as of the most recent quarter, and, if the redemption is to be debt funded, one-year income statement and cash flow projections.
</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Acting on notice.</heading>
<content> Within 15 calendar days of receipt of a notice under <?page num="153"?>this section, the appropriate Reserve Bank shall either approve the transaction proposed in the notice or refer the notice to the Board for decision. If the notice is referred to the Board for decision, the Board shall act on the notice within 30 calendar days after the Reserve Bank receives the notice.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Factors considered in acting on notice.</heading>
<paragraph identifier="/us/cfr/t12/s225.4/b/4/i" class="inline">
<num value="i"> (i)</num>
<content> The Board may disapprove a proposed purchase or redemption if it finds that the proposal would constitute an unsafe or unsound practice, or would violate any law, regulation, Board order, directive, or any condition imposed by, or written agreement with, the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In determining whether a proposal constitutes an unsafe or unsound practice, the Board shall consider whether the bank holding company's financial condition, after giving effect to the proposed purchase or redemption, meets the financial standards applied by the Board under section 3 of the BHC Act, including <ref href="/us/cfr/t12/p217">12 CFR part 217</ref>, and the Board's Policy Statement for Small Bank Holding Companies (appendix C of this part).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Disapproval and hearing.</heading>
<paragraph identifier="/us/cfr/t12/s225.4/b/5/i" class="inline">
<num value="i"> (i)</num>
<content> The Board shall notify the bank holding company in writing of the reasons for a decision to disapprove any proposed purchase or redemption. Within 10 calendar days of receipt of a notice of disapproval by the Board, the bank holding company may submit a written request for a hearing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The Board shall order a hearing within 10 calendar days of receipt of the request if it finds that material facts are in dispute, or if it otherwise appears appropriate. Any hearing conducted under this paragraph shall be held in accordance with the Board's Rules of Practice for Formal Hearings (<ref href="/us/cfr/t12/p263">12 CFR part 263</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> At the conclusion of the hearing, the Board shall by order approve or disapprove the proposed purchase or redemption on the basis of the record of the hearing.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Exception for well-capitalized bank holding companies.</heading>
<chapeau> A bank holding company is not required to obtain prior Board approval for the redemption or purchase of its equity securities under this section provided:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.4/b/6/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Both before and immediately after the redemption, the bank holding company is well-capitalized;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The bank holding company is well-managed; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The bank holding company is not the subject of any unresolved supervisory issues.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/b/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Exception for certain bank holding companies.</heading>
<content> This section 225.4(b) shall not apply to any bank holding company that is subject to <ref href="/us/cfr/t12/s225.8">§ 225.8</ref> of Regulation Y (<ref href="/us/cfr/t12/s225.8">12 CFR 225.8</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Deposit insurance.</heading>
<content> Every bank that is a bank holding company or a subsidiary of a bank holding company shall obtain Federal Deposit Insurance and shall remain an <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">insured bank</inline> as defined in section 3(h) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813/h">12 U.S.C. 1813(h)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Acting as transfer agent or clearing agent.</heading>
<content> A bank holding company or any nonbanking subsidiary that is a “bank,” as defined in section 3(a)(6) of the Securities Exchange Act of 1934 (<ref href="/us/usc/t15/s78c/a/6">15 U.S.C. 78c(a)(6)</ref>), and that is a transfer agent of securities, a clearing agency, or a participant in a clearing agency (as those terms are defined in section 3(a) of the Securities Exchange Act (<ref href="/us/usc/t15/s78c/a">15 U.S.C. 78c(a)</ref>), shall be subject to <ref href="/us/cfr/t12/s208.31">§§ 208.31</ref>–208.33 of the Board's Regulation H (<ref href="/us/cfr/t12/s208.31">12 CFR 208.31</ref>–208.33) as if it were a state member bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Reporting requirement for credit secured by certain bank holding company stock.</heading>
<content> Each executive officer or director of a bank holding company the shares of which are not publicly traded shall report annually to the board of directors of the bank holding company the outstanding amount of any credit that was extended to the executive officer or director and that is secured by shares of the bank holding company. For purposes of this paragraph, the terms “executive officer” and “director” shall have the meaning given in <ref href="/us/cfr/t12/s215.2">§ 215.2</ref> of Regulation O (<ref href="/us/cfr/t12/s215.2">12 CFR 215.2</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Suspicious activity report.</heading>
<content> A bank holding company or any nonbank subsidiary thereof, or a foreign bank that is subject to the BHC Act or any nonbank subsidiary of such foreign bank operating in the United States, shall file a suspicious activity report in accordance with the provisions of <ref href="/us/cfr/t12/s208.62">§ 208.62</ref> of the Board's Regulation H (<ref href="/us/cfr/t12/s208.62">12 CFR 208.62</ref>).
<?page num="154"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Requirements for financial holding companies engaged in securities underwriting, dealing, or market-making activities.</heading>
<paragraph identifier="/us/cfr/t12/s225.4/g/1" class="inline">
<num value="1"> (1)</num>
<content> Any intra-day extension of credit by a bank or thrift, or U.S. branch or agency of a foreign bank to an affiliated company engaged in underwriting, dealing in, or making a market in securities pursuant to section 4(k)(4)(E) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/E">12 U.S.C. 1843(k)(4)(E)</ref>) must be on market terms consistent with section 23B of the Federal Reserve Act. (<ref href="/us/usc/t12/s371c–1">12 U.S.C. 371c–1</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> A foreign bank that is or is treated as a financial holding company under this part shall ensure that: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.4/g/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any extension of credit by any U.S. branch or agency of such foreign bank to an affiliated company engaged in underwriting, dealing in, or making a market in securities pursuant to section 4(k)(4)(E) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/E">12 U.S.C. 1843(k)(4)(E)</ref>), conforms to sections 23A and 23B of the Federal Reserve Act (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref> and 371c–1) as if the branch or agency were a member bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/g/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any purchase by any U.S. branch or agency of such foreign bank, as principal or fiduciary, of securities for which a securities affiliate described in paragraph (g)(2)(i) of this section is a principal underwriter conforms to sections 23A and 23B of the Federal Reserve Act (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref> and 371c–1) as if the branch or agency were a member bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/g/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Its U.S. branches and agencies not advertise or suggest that they are responsible for the obligations of a securities affiliate described in paragraph (g)(2)(i) of this section, consistent with section 23B(c) of the Federal Reserve Act (<ref href="/us/usc/t12/s371c–1/c">12 U.S.C. 371c–1(c)</ref>) as if the branches or agencies were member banks.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.4/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Protection of customer information and consumer information.</heading>
<content> A bank holding company shall comply with the Interagency Guidelines Establishing Information Security Standards, as set forth in appendix F of this part, prescribed pursuant to sections 501 and 505 of the Gramm-Leach-Bliley Act (<ref href="/us/usc/t15/s6801">15 U.S.C. 6801</ref> and 6805). A bank holding company shall properly dispose of consumer information in accordance with the rules set forth at <ref href="/us/cfr/t16/p682">16 CFR part 682</ref>.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9319">62 FR 9319</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/63/58621">63 FR 58621</ref>, <date date="1998-11-02" role="amended">Nov. 2, 1998</date>; <ref href="/us/fr/65/14442">65 FR 14442</ref>, <date date="2000-03-17" role="amended">Mar. 17, 2000</date>; <ref href="/us/fr/66/8636">66 FR 8636</ref>, <date date="2001-02-01" role="amended">Feb. 1, 2001</date>; <ref href="/us/fr/69/77618">69 FR 77618</ref>, <date date="2004-12-28" role="amended">Dec. 28, 2004</date>; <ref href="/us/fr/71/9901">71 FR 9901</ref>, <date date="2006-02-28" role="amended">Feb. 28, 2006</date>; <ref href="/us/fr/76/74644">76 FR 74644</ref>, <date date="2011-12-01" role="amended">Dec. 1, 2011</date>; <ref href="/us/fr/78/62290">78 FR 62290</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/20157">80 FR 20157</ref>, <date date="2015-04-15" role="amended">Apr. 15, 2015</date>; <ref href="/us/fr/80/70673">80 FR 70673</ref>, <date date="2015-11-16" role="amended">Nov. 16, 2015</date>; <ref href="/us/fr/83/44198">83 FR 44198</ref>, <date date="2018-08-30" role="amended">Aug. 30, 2018</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.5">
<num value="225.5" style="-uslm-sgm:SECTNO">§ 225.5 </num>
<heading style="-uslm-sgm:SUBJECT">Registration, reports, and inspections.</heading>
<paragraph identifier="/us/cfr/t12/s225.5/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Registration of bank holding companies.</heading>
<content> Each company shall register within 180 days after becoming a bank holding company by furnishing information in the manner and form prescribed by the Board. A company that receives the Board's prior approval under subpart B of this part to become a bank holding company may complete this registration requirement through submission of its first annual report to the Board as required by paragraph (b) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.5/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Reports of bank holding companies.</heading>
<content> Each bank holding company shall furnish, in the manner and form prescribed by the Board, an annual report of the company's operations for the fiscal year in which it becomes a bank holding company, and for each fiscal year during which it remains a bank holding company. Additional information and reports shall be furnished as the Board may require.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.5/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Examinations and inspections.</heading>
<content> The Board may examine or inspect any bank holding company and each of its subsidiaries and prepare a report of their operations and activities. With respect to a foreign banking organization, the Board may also examine any branch or agency of a foreign bank in any state of the United States and may examine or inspect each of the organization's subsidiaries in the United States and prepare reports of their operations and activities. The Board shall rely, as far as possible, on the reports of examination made by the primary federal or state supervisor of the subsidiary bank of the bank holding company or of the branch or agency of the foreign bank.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.6">
<num value="225.6" style="-uslm-sgm:SECTNO">§ 225.6 </num>
<heading style="-uslm-sgm:SUBJECT">Penalties for violations.</heading>
<paragraph identifier="/us/cfr/t12/s225.6/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Criminal and civil penalties.</heading>
<paragraph identifier="/us/cfr/t12/s225.6/a/1" class="inline">
<num value="1"> (1)</num>
<content> Section 8 of the BHC Act provides criminal <?page num="155"?>penalties for willful violation, and civil penalties for violation, by any company or individual, of the BHC Act or any regulation or order issued under it, or for making a false entry in any book, report, or statement of a bank holding company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.6/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Civil money penalty assessments for violations of the BHC Act shall be made in accordance with subpart C of the Board's Rules of Practice for Hearings (<ref href="/us/cfr/t12/p263">12 CFR part 263</ref>, subpart C). For any willful violation of the Bank Control Act or any regulation or order issued under it, the Board may assess a civil penalty as provided in <ref href="/us/usc/t12/s1817/j/15">12 U.S.C. 1817(j)(15)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.6/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Cease-and-desist proceedings.</heading>
<content> For any violation of the BHC Act, the Bank Control Act, this regulation, or any order or notice issued thereunder, the Board may institute a cease-and-desist proceeding in accordance with the Financial Institutions Supervisory Act of 1966, as amended (<ref href="/us/usc/t12/s1818/b">12 U.S.C. 1818(b)</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.7">
<num value="225.7" style="-uslm-sgm:SECTNO">§ 225.7 </num>
<heading style="-uslm-sgm:SUBJECT">Exceptions to tying restrictions.</heading>
<paragraph identifier="/us/cfr/t12/s225.7/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Purpose.</heading>
<content> This section establishes exceptions to the anti-tying restrictions of section 106 of the Bank Holding Company Act Amendments of 1970 (<ref href="/us/usc/t12/s1971">12 U.S.C. 1971</ref>, 1972(1)). These exceptions are in addition to those in section 106. The section also restricts tying of electronic benefit transfer services by bank holding companies and their nonbank subsidiaries.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exceptions to statute.</heading>
<chapeau> Subject to the limitations of paragraph (c) of this section, a bank may:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.7/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Extension to affiliates of statutory exceptions preserving traditional banking relationships.</heading>
<chapeau> Extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement that a customer:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.7/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Obtain a loan, discount, deposit, or trust service from an affiliate of the bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provide to an affiliate of the bank some additional credit, property, or service that the bank could require to be provided to itself pursuant to section 106(b)(1)(C) of the Bank Holding Company Act Amendments of 1970 (<ref href="/us/usc/t12/s1972/1/C">12 U.S.C. 1972(1)(C)</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Safe harbor for combined-balance discounts.</heading>
<chapeau> Vary the consideration for any product or package of products based on a customer's maintaining a combined minimum balance in certain products specified by the bank (eligible products), if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.7/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The bank offers deposits, and all such deposits are eligible products; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Balances in deposits count at least as much as nondeposit products toward the minimum balance.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Safe harbor for foreign transactions.</heading>
<chapeau> Engage in any transaction with a customer if that customer is:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.7/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> A corporation, business, or other person (other than an individual) that:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.7/b/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Is incorporated, chartered, or otherwise organized outside the United States; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/b/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Has its principal place of business outside the United States; or</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> An individual who is a citizen of a foreign country and is not resident in the United States.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Limitations on exceptions.</heading>
<content> Any exception granted pursuant to this section shall terminate upon a finding by the Board that the arrangement is resulting in anti-competitive practices. The eligibility of a bank to operate under any exception granted pursuant to this section shall terminate upon a finding by the Board that its exercise of this authority is resulting in anti-competitive practices.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Extension of statute to electronic benefit transfer services.</heading>
<content> A bank holding company or nonbank subsidiary of a bank holding company that provides electronic benefit transfer services shall be subject to the anti-tying restrictions applicable to such services set forth in section 7(i)(11) of the Food Stamp Act of 1977 (<ref href="/us/usc/t7/s2016/i/11">7 U.S.C. 2016(i)(11)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.7/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> For purposes of this section, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> has the meaning given that term in section 106(a) of the Bank Holding Company Act Amendments of 1970 (<ref href="/us/usc/t12/s1971">12 U.S.C. 1971</ref>), but shall also include a United States branch, agency, or commercial lending company subsidiary of a foreign bank that is subject to section 106 pursuant to section 8(d) of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3106/d">12 U.S.C. 3106(d)</ref>), and any company made <?page num="156"?>subject to section 106 by section 4(f)(9) or 4(h) of the BHC Act.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.8">
<num value="225.8" style="-uslm-sgm:SECTNO">§ 225.8</num>
<heading style="-uslm-sgm:SUBJECT">Capital planning.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Purpose.</heading>
<content> This section establishes capital planning and prior notice and approval requirements for capital distributions by certain bank holding companies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Scope and reservation of authority—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/b/1" class="inline">
<num value="1">(1) </num>
<heading>Applicability.</heading>
<chapeau> Except as provided in paragraph (c) of this section, this section applies to:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any top-tier bank holding company domiciled in the United States with average total consolidated assets of $50 billion or more ($50 billion asset threshold);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any other bank holding company domiciled in the United States that is made subject to this section, in whole or in part, by order of the Board;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Any U.S. intermediate holding company subject to this section pursuant to <ref href="/us/cfr/t12/s252.153">12 CFR 252.153</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Any nonbank financial company supervised by the Board that is made subject to this section pursuant to a rule or order of the Board.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Average total consolidated assets.</heading>
<content> For purposes of this section, average total consolidated assets means the average of the total consolidated assets as reported by a bank holding company on its Consolidated Financial Statements for Bank Holding Companies (FR Y–9C) for the four most recent consecutive quarters. If the bank holding company has not filed the FR Y–9C for each of the four most recent consecutive quarters, average total consolidated assets means the average of the company's total consolidated assets, as reported on the company's FR Y–9C, for the most recent quarter or consecutive quarters, as applicable. Average total consolidated assets are measured on the as-of date of the most recent FR Y–9C used in the calculation of the average.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Ongoing applicability.</heading>
<content> A bank holding company (including any successor bank holding company) that is subject to any requirement in this section shall remain subject to such requirements unless and until its total consolidated assets fall below $50 billion for each of four consecutive quarters, as reported on the FR Y–9C and effective on the as-of date of the fourth consecutive FR Y–9C.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Reservation of authority.</heading>
<content> Nothing in this section shall limit the authority of the Federal Reserve to issue a capital directive or take any other supervisory or enforcement action, including an action to address unsafe or unsound practices or conditions or violations of law.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Rule of construction.</heading>
<content> Unless the context otherwise requires, any reference to bank holding company in this section shall include a U.S. intermediate holding company and shall include a nonbank financial company supervised by the Board to the extent this section is made applicable pursuant to a rule or order of the Board.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Transitional arrangements—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/c/1" class="inline">
<num value="1">(1) </num>
<heading>Transition periods for certain bank holding companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/c/1/i" class="inline">
<num value="i"> (i)</num>
<content> A bank holding company that meets the $50 billion asset threshold (as measured under paragraph (b) of this section) on or before September 30 of a calendar year must comply with the requirements of this section beginning on January 1 of the next calendar year, unless that time is extended by the Board in writing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A bank holding company that meets the $50 billion asset threshold after September 30 of a calendar year must comply with the requirements of this section beginning on January 1 of the second calendar year after the bank holding company meets the $50 billion asset threshold, unless that time is extended by the Board in writing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The Board or the appropriate Reserve Bank with the concurrence of the Board, may require a bank holding company described in paragraph (c)(1)(i) or (ii) of this section to comply with any or all of the requirements in paragraphs (e)(1), (e)(3), (f), or (g) of this section if the Board or appropriate Reserve Bank with concurrence of the Board, determines that the requirement is appropriate on a different date based on the company's risk profile, scope of operation, or financial condition and provides prior notice to the company of the determination.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Transition periods for subsidiaries of certain foreign banking organizations—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>U.S. intermediate holding companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/c/2/i/A" class="inline">
<num value="A"> (A)</num>
<content> A U.S. intermediate holding company <?page num="157"?>required to be established or designated pursuant to <ref href="/us/cfr/t12/s252.153">12 CFR 252.153</ref> on or before September 30 of a calendar year must comply with the requirements of this section beginning on January 1 of the next calendar year, unless that time is extended by the Board in writing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A U.S. intermediate holding company required to be established or designated pursuant to <ref href="/us/cfr/t12/s252.153">12 CFR 252.153</ref> after September 30 of a calendar year must comply with the requirements of this section beginning on January 1 of the second calendar year after the U.S. intermediate holding company is required to be established, unless that time is extended by the Board in writing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The Board or the appropriate Reserve Bank with the concurrence of the Board, may require a U.S. intermediate holding company described in paragraph (c)(2)(i)(A) or (B) of this section to comply with any or all of the requirements in paragraphs (e)(1), (e)(3), (f), or (g) of this section if the Board or appropriate Reserve Bank with concurrence of the Board, determines that the requirement is appropriate on a different date based on the company's risk profile, scope of operation, or financial condition and provides prior notice to the company of the determination.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Bank holding company subsidiaries of U.S. intermediate holding companies required to be established by <date date="2016-07-01">July 1, 2016</date>.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/c/2/ii/A" class="inline">
<num value="A"> (A)</num>
<content> Notwithstanding any other requirement in this section, a bank holding company that is a subsidiary of a U.S. intermediate holding company (or, with the mutual consent of the company and Board, another bank holding company domiciled in the United States) shall remain subject to paragraph (e) of this section until <date date="2017-12-31">December 31, 2017</date>, and shall remain subject to the requirements of paragraphs (f) and (g) of this section until the Board issues an objection or non-objection to the capital plan of the relevant U.S. intermediate holding company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/c/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> After the time periods set forth in paragraph (c)(2)(ii)(A) of this section, this section will cease to apply to a bank holding company that is a subsidiary of a U.S. intermediate holding company, unless otherwise determined by the Board in writing.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.8/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this section, the following definitions apply:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Advanced approaches</inline> means the risk-weighted assets calculation methodologies at <ref href="/us/cfr/t12/p217">12 CFR part 217</ref>, subpart E, as applicable, and any successor regulation.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Average total nonbank assets</inline> means:</p>
<p style="-uslm-sgm:P">(i) For purposes of the capital plan cycle beginning <date date="2017-01-01">January 1, 2017</date>:</p>
<p style="-uslm-sgm:P">(A) Total combined nonbank assets of nonbank subsidiaries, as reported on line 15a of Schedule PC–B of the Parent Company Only Financial Statements for Large Holding Companies (FR Y–9LP) as of <date date="2016-12-31">December 31, 2016</date>; plus</p>
<p style="-uslm-sgm:P">(B) The total amount of equity investments in nonbank subsidiaries and associated companies as reported on line 2a of Schedule PC–A of the FR Y–9LP as of <date date="2016-12-31">December 31, 2016</date> (except that any investments reflected in paragraph (d)(2)(i)(A) of this section may be eliminated); plus</p>
<p style="-uslm-sgm:P">(C) Assets of each Edge and Agreement Corporation, as reported on the Consolidated Report of Condition and Income for Edge and Agreement Corporations (FR 2886b) as of <date date="2016-12-31">December 31, 2016</date>, to the extent such corporation is designated as “Nonbanking” in the box on the front page of the FR 2886b; minus</p>
<p style="-uslm-sgm:P">(D) Assets of each federal savings association, federal savings bank, or thrift subsidiary, as reported on the Report of Condition and Income (Call Report) as of <date date="2016-12-31">December 31, 2016</date>.</p>
<p style="-uslm-sgm:P">(ii) For purposes of any capital plan cycles beginning on or after <date date="2018-01-01">January 1, 2018</date>, the average of the total nonbank assets of a holding company subject to the Federal Reserve Board's capital plan rule, calculated in accordance with the instructions to the FR Y–9LP, for the four most recent consecutive quarters or, if the bank holding company has not filed the FR Y–9LP for each of the four most recent consecutive quarters, for the most recent quarter or consecutive quarters, as applicable.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">BHC stress scenario</inline> means a scenario designed by a bank holding company that stresses the specific <?page num="158"?>vulnerabilities of the bank holding company's risk profile and operations, including those related to the company's capital adequacy and financial condition.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital action</inline> means any issuance or redemption of a debt or equity capital instrument, any capital distribution, and any similar action that the Federal Reserve determines could impact a bank holding company's consolidated capital.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital distribution</inline> means a redemption or repurchase of any debt or equity capital instrument, a payment of common or preferred stock dividends, a payment that may be temporarily or permanently suspended by the issuer on any instrument that is eligible for inclusion in the numerator of any minimum regulatory capital ratio, and any similar transaction that the Federal Reserve determines to be in substance a distribution of capital.</p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital plan</inline> means a written presentation of a bank holding company's capital planning strategies and capital adequacy process that includes the mandatory elements set forth in paragraph (e)(2) of this section.</p>
<p style="-uslm-sgm:P">(7) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital plan cycle</inline> means the period beginning on January 1 of a calendar year and ending on December 31 of that year.</p>
<p style="-uslm-sgm:P">(8) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital policy</inline> means a bank holding company's written assessment of the principles and guidelines used for capital planning, capital issuance, capital usage and distributions, including internal capital goals; the quantitative or qualitative guidelines for capital distributions; the strategies for addressing potential capital shortfalls; and the internal governance procedures around capital policy principles and guidelines.</p>
<p style="-uslm-sgm:P">(9) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Large and noncomplex bank holding company</inline> means any bank holding company subject to this section that, as of December 31 of the calendar year prior to the capital plan cycle:</p>
<p style="-uslm-sgm:P">(i) Has average total consolidated assets of less than $250 billion;</p>
<p style="-uslm-sgm:P">(ii) Has average total nonbank assets of less than $75 billion; and</p>
<p style="-uslm-sgm:P">(iii) Is not a bank holding company that is identified as a global systemically important BHC pursuant to <ref href="/us/cfr/t12/s217.402">§ 217.402</ref>.</p>
<p style="-uslm-sgm:P">(10) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minimum regulatory capital ratio</inline> means any minimum regulatory capital ratio that the Federal Reserve may require of a bank holding company, by regulation or order, including the bank holding company's tier 1 and supplementary leverage ratios as calculated under <ref href="/us/cfr/t12/p217">12 CFR part 217</ref>, including the deductions required under <ref href="/us/cfr/t12/s248.12">12 CFR 248.12</ref>, as applicable, and the bank holding company's common equity tier 1, tier 1, and total risk-based capital ratios as calculated under <ref href="/us/cfr/t12/p217">12 CFR part 217</ref>, including the deductions required under <ref href="/us/cfr/t12/s248.12">12 CFR 248.12</ref> and the transition provisions at <ref href="/us/cfr/t12/s217.1/f/4">12 CFR 217.1(f)(4)</ref> and 217.300; except that the bank holding company shall not use the advanced approaches to calculate its regulatory capital ratios.</p>
<p style="-uslm-sgm:P">(11) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonbank financial company supervised by the Board</inline> means a company that the Financial Stability Oversight Council has determined under section 113 of the Dodd-Frank Act (<ref href="/us/usc/t12/s5323">12 U.S.C. 5323</ref>) shall be supervised by the Board and for which such determination is still in effect.</p>
<p style="-uslm-sgm:P">(12) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Planning horizon</inline> means the period of at least nine consecutive quarters, beginning with the quarter preceding the quarter in which the bank holding company submits its capital plan, over which the relevant projections extend.</p>
<p style="-uslm-sgm:P">(13) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tier 1 capital</inline> has the same meaning as under <ref href="/us/cfr/t12/p217">12 CFR part 217</ref>.</p>
<p style="-uslm-sgm:P">(14) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">U.S. intermediate holding company</inline> means the top-tier U.S. company that is required to be established pursuant to <ref href="/us/cfr/t12/s252.153">12 CFR 252.153</ref>.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>General requirements—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/e/1" class="inline">
<num value="1">(1) </num>
<heading>Annual capital planning.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/e/1/i" class="inline">
<num value="i"> (i)</num>
<content> A bank holding company must develop and maintain a capital plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A bank holding company must submit its complete capital plan to the Board and the appropriate Reserve Bank by April 5 of each calendar year, or such later date as directed by the Board or by the appropriate Reserve Bank with concurrence of the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> The bank holding company's board of directors or a designated committee thereof must at least annually and prior to submission of the capital plan under paragraph (e)(1)(ii) of this section:
<?page num="159"?></chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/e/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Review the robustness of the bank holding company's process for assessing capital adequacy,</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Ensure that any deficiencies in the bank holding company's process for assessing capital adequacy are appropriately remedied; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/1/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Approve the bank holding company's capital plan.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Mandatory elements of capital plan.</heading>
<chapeau> A capital plan must contain at least the following elements:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> An assessment of the expected uses and sources of capital over the planning horizon that reflects the bank holding company's size, complexity, risk profile, and scope of operations, assuming both expected and stressful conditions, including:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Estimates of projected revenues, losses, reserves, and pro forma capital levels, including any minimum regulatory capital ratios (for example, leverage, tier 1 risk-based, and total risk-based capital ratios) and any additional capital measures deemed relevant by the bank holding company, over the planning horizon under expected conditions and under a range of scenarios, including any scenarios provided by the Federal Reserve and at least one BHC stress scenario;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A discussion of the results of any stress test required by law or regulation, and an explanation of how the capital plan takes these results into account; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A description of all planned capital actions over the planning horizon.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> A detailed description of the bank holding company's process for assessing capital adequacy, including:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A discussion of how the bank holding company will, under expected and stressful conditions, maintain capital commensurate with its risks, maintain capital above the minimum regulatory capital ratios, and serve as a source of strength to its subsidiary depository institutions;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A discussion of how the bank holding company will, under expected and stressful conditions, maintain sufficient capital to continue its operations by maintaining ready access to funding, meeting its obligations to creditors and other counterparties, and continuing to serve as a credit intermediary;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The bank holding company's capital policy; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A discussion of any expected changes to the bank holding company's business plan that are likely to have a material impact on the bank holding company's capital adequacy or liquidity.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Data collection.</heading>
<chapeau> Upon the request of the Board or appropriate Reserve Bank, the bank holding company shall provide the Federal Reserve with information regarding:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/e/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The bank holding company's financial condition, including its capital;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The bank holding company's structure;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Amount and risk characteristics of the bank holding company's on- and off-balance sheet exposures, including exposures within the bank holding company's trading account, other trading-related exposures (such as counterparty-credit risk exposures) or other items sensitive to changes in market factors, including, as appropriate, information about the sensitivity of positions to changes in market rates and prices;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The bank holding company's relevant policies and procedures, including risk management policies and procedures;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The bank holding company's liquidity profile and management;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> The loss, revenue, and expense estimation models used by the bank holding company for stress scenario analysis, including supporting documentation regarding each model's development and validation; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/3/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Any other relevant qualitative or quantitative information requested by the Board or by the appropriate Reserve Bank to facilitate review of the bank holding company's capital plan under this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Re-submission of a capital plan.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/i" class="inline">
<num value="i"> (i)</num>
<chapeau> A bank holding company must update and re-submit its capital plan to the appropriate Reserve Bank within 30 calendar days of the occurrence of one of the following events:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The bank holding company determines there has been or will be a material change in the bank holding company's risk profile, financial condition, or corporate structure since the bank <?page num="160"?>holding company last submitted the capital plan to the Board and the appropriate Reserve Bank under this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> The Board or the appropriate Reserve Bank with concurrence of the Board, directs the bank holding company in writing to revise and resubmit its capital plan for any of the following reasons:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/i/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The capital plan is incomplete or the capital plan, or the bank holding company's internal capital adequacy process, contains material weaknesses;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/i/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> There has been, or will likely be, a material change in the bank holding company's risk profile (including a material change in its business strategy or any risk exposure), financial condition, or corporate structure;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/i/B/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The BHC stress scenario(s) are not appropriate for the bank holding company's business model and portfolios, or changes in financial markets or the macro-economic outlook that could have a material impact on a bank holding company's risk profile and financial condition require the use of updated scenarios; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/i/B/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The capital plan or the condition of the bank holding company raise any of the issues described in paragraph (f)(2)(ii) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A bank holding company may resubmit its capital plan to the Federal Reserve if the Board or the appropriate Reserve Bank objects to the capital plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The Board or the appropriate Reserve Bank with concurrence of the Board, may extend the 30-day period in paragraph (e)(4)(i) of this section for up to an additional 60 calendar days, or such longer period as the Board or the appropriate Reserve Bank, with concurrence of the Board, determines, in its discretion, appropriate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Any updated capital plan must satisfy all the requirements of this section; however, a bank holding company may continue to rely on information submitted as part of a previously submitted capital plan to the extent that the information remains accurate and appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/e/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Confidential treatment of information submitted.</heading>
<content> The confidentiality of information submitted to the Board under this section and related materials shall be determined in accordance with applicable exemptions under the Freedom of Information Act (<ref href="/us/usc/t5/s552/b">5 U.S.C. 552(b)</ref>) and the Board's Rules Regarding Availability of Information (<ref href="/us/cfr/t12/p261">12 CFR part 261</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Review of capital plans by the Federal Reserve; publication of summary results—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/f/1" class="inline">
<num value="1">(1) </num>
<heading>Considerations and inputs.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/i" class="inline">
<num value="i"> (i)</num>
<chapeau> The Board or the appropriate Reserve Bank with concurrence of the Board, will consider the following factors in reviewing a bank holding company's capital plan:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The comprehensiveness of the capital plan, including the extent to which the analysis underlying the capital plan captures and addresses potential risks stemming from activities across the firm and the company's capital policy;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The reasonableness of the bank holding company's capital plan, the assumptions and analysis underlying the capital plan, and the robustness of its capital adequacy process; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The bank holding company's ability to maintain capital above each minimum regulatory capital ratio on a pro forma basis under expected and stressful conditions throughout the planning horizon, including but not limited to any scenarios required under paragraphs (e)(2)(i)(A) and (e)(2)(ii) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The Board or the appropriate Reserve Bank with concurrence of the Board, will also consider the following information in reviewing a bank holding company's capital plan:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Relevant supervisory information about the bank holding company and its subsidiaries;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The bank holding company's regulatory and financial reports, as well as supporting data that would allow for an analysis of the bank holding company's loss, revenue, and reserve projections;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> As applicable, the Federal Reserve's own pro forma estimates of the firm's potential losses, revenues, reserves, and resulting capital adequacy under expected and stressful conditions, including but not limited to any scenarios required under paragraphs (e)(2)(i)(A) and (e)(2)(ii) of this section, as well as the results of any stress tests <?page num="161"?>conducted by the bank holding company or the Federal Reserve; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/1/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Other information requested or required by the Board or the appropriate Reserve Bank, as well as any other information relevant, or related, to the bank holding company's capital adequacy.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Federal Reserve action on a capital plan—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/i" class="inline">
<num value="i">(i) </num>
<heading>Timing of action.</heading>
<chapeau> The Board or the appropriate Reserve Bank with concurrence of the Board, will object, in whole or in part, to the capital plan or provide the bank holding company with a notice of non-objection to the capital plan:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> By June 30 of the calendar year in which a capital plan was submitted pursuant to paragraph (e)(1)(ii) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> For a capital plan resubmitted pursuant to paragraph (e)(4) of this section, within 75 calendar days after the date on which a capital plan is resubmitted, unless the Board provides notice to the company that it is extending the time period.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Objection—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/ii/A" class="inline">
<num value="A">(A) </num>
<heading>Large and noncomplex bank holding companies.</heading>
<content> The Board, or the appropriate Reserve Bank with concurrence of the Board, may object to a capital plan submitted by a large and noncomplex bank holding company if it determines that the bank holding company has not demonstrated an ability to maintain capital above each minimum regulatory capital ratio on a pro forma basis under expected and stressful conditions throughout the planning horizon.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Bank holding companies that are not large and noncomplex bank holding companies.</heading>
<chapeau> The Board or the appropriate Reserve Bank with concurrence of the Board, may object to a capital plan submitted by a bank holding company that is not a large and noncomplex bank holding company if it determines that:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/ii/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The bank holding company has not demonstrated an ability to maintain capital above each minimum regulatory capital ratio on a pro forma basis under expected and stressful conditions throughout the planning horizon;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/ii/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The bank holding company has material unresolved supervisory issues, including but not limited to issues associated with its capital adequacy process;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/ii/B/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The assumptions and analysis underlying the bank holding company's capital plan, or the bank holding company's methodologies and practices that support its capital planning process, are not reasonable or appropriate; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/ii/B/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The bank holding company's capital planning process or proposed capital distributions otherwise constitute an unsafe or unsound practice, or would violate any law, regulation, Board order, directive, or condition imposed by, or written agreement with, the Board or the appropriate Reserve Bank. In determining whether a capital plan or any proposed capital distribution would constitute an unsafe or unsound practice, the Board or the appropriate Reserve Bank would consider whether the bank holding company is and would remain in sound financial condition after giving effect to the capital plan and all proposed capital distributions.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Notification of decision.</heading>
<content> The Board or the appropriate Reserve Bank will notify the bank holding company in writing of the reasons for a decision to object to a capital plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>General distribution limitation.</heading>
<content> If the Board or the appropriate Reserve Bank objects to a capital plan and until such time as the Board or the appropriate Reserve Bank with concurrence of the Board, issues a non-objection to the bank holding company's capital plan, the bank holding company may not make any capital distribution, other than capital distributions arising from the issuance of a regulatory capital instrument eligible for inclusion in the numerator of a minimum regulatory capital ratio or capital distributions with respect to which the Board or the appropriate Reserve Bank has indicated in writing its non-objection.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/2/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Publication of summary results.</heading>
<content> The Board may disclose publicly its decision to object or not object to a bank holding company's capital plan under this section, along with a summary of the Board's analyses of that company. Any disclosure under this paragraph will occur by June 30 of the calendar <?page num="162"?>year in which a capital plan was submitted pursuant to paragraph (e)(1)(ii) of this section, unless the Board determines that a later disclosure date is appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Request for reconsideration or hearing—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/i" class="inline">
<num value="i">(i) </num>
<heading>General.</heading>
<chapeau> Within 15 calendar days of receipt of a notice of objection to a capital plan by the Board or the appropriate Reserve Bank:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A bank holding company may submit a written request to the Board requesting reconsideration of the objection, including an explanation of why reconsideration should be granted. Within 15 calendar days of receipt of the bank holding company's request, the Board will notify the company of its decision to affirm or withdraw the objection to the bank holding company's capital plan or a specific capital distribution; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> As an alternative to paragraph (f)(3)(i)(A) of this section, a bank holding company may request an informal hearing on the objection.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Request for an informal hearing.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/ii/A" class="inline">
<num value="A"> (A)</num>
<content> A request for an informal hearing shall be in writing and shall be submitted within 15 calendar days of a notice of an objection. The Board may, in its sole discretion, order an informal hearing if the Board finds that a hearing is appropriate or necessary to resolve disputes regarding material issues of fact.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> An informal hearing shall be held within 30 calendar days of a request, if granted, provided that the Board may extend this period upon notice to the requesting party.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Written notice of the final decision of the Board shall be given to the bank holding company within 60 calendar days of the conclusion of any informal hearing ordered by the Board, provided that the Board may extend this period upon notice to the requesting party.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/3/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> While the Board's final decision is pending and until such time as the Board or the appropriate Reserve Bank with concurrence of the Board issues a non-objection to the bank holding company's capital plan, the bank holding company may not make any capital distribution, other than those capital distributions with respect to which the Board or the appropriate Reserve Bank has indicated in writing its non-objection.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Application of this section to other bank holding companies.</heading>
<content> The Board may apply this section, in whole or in part, to any other bank holding company by order based on the institution's size, level of complexity, risk profile, scope of operations, or financial condition.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Approval requirements for certain capital actions—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/g/1" class="inline">
<num value="1">(1) </num>
<heading>Circumstances requiring approval.</heading>
<chapeau> Notwithstanding a notice of non-objection under paragraph (f)(2)(i) of this section, a bank holding company may not make a capital distribution (excluding any capital distribution arising from the issuance of a regulatory capital instrument eligible for inclusion in the numerator of a minimum regulatory capital ratio) under the following circumstances, unless it receives prior approval from the Board or appropriate Reserve Bank pursuant to paragraph (g)(5) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/g/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> After giving effect to the capital distribution, the bank holding company would not meet a minimum regulatory capital ratio;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The Board or the appropriate Reserve Bank with concurrence of the Board, notifies the company in writing that the Federal Reserve has determined that the capital distribution would result in a material adverse change to the organization's capital or liquidity structure or that the company's earnings were materially underperforming projections;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Except as provided in paragraph (g)(2) of this section, the dollar amount of the capital distribution will exceed the amount described in the capital plan for which a non-objection was issued under this section, as measured on an aggregate basis beginning in the third quarter of the planning horizon through the quarter at issue; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The capital distribution would occur after the occurrence of an event requiring resubmission under paragraphs (e)(4)(i)(A) or (B) of this section and before the Federal Reserve has acted on the resubmitted capital plan.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Exception for well capitalized bank holding companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/i" class="inline">
<num value="i"> (i)</num>
<chapeau> A bank holding <?page num="163"?>company may make a capital distribution for which the dollar amount exceeds the amount described in the capital plan for which a non-objection was issued under paragraph (f)(2)(i) of this section if the following conditions are satisfied:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The bank holding company is, and after the capital distribution would remain, well capitalized as defined in <ref href="/us/cfr/t12/s225.2/r">§ 225.2(r)</ref>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The bank holding company's performance and capital levels are, and after the capital distribution would remain, consistent with its projections under expected conditions as set forth in its capital plan under paragraph (f)(2)(i) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Until <date date="2017-03-31">March 31, 2017</date>, the annual aggregate dollar amount of all capital distributions in the period beginning on July 1 of a calendar year and ending on June 30 of the following calendar year would not exceed the total amounts described in the company's capital plan for which the bank holding company received a notice of non-objection by more than 1.00 percent multiplied by the bank holding company's tier 1 capital, as reported to the Federal Reserve on the bank holding company's most recent first-quarter FR Y–9C;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Beginning <date date="2017-04-01">April 1, 2017</date>, the annual aggregate dollar amount of all capital distributions in the period beginning on July 1 of a calendar year and ending on June 30 of the following calendar year would not exceed the total amounts described in the company's capital plan for which the bank holding company received a notice of non-objection by more than 0.25 percent multiplied by the bank holding company's tier 1 capital, as reported to the Federal Reserve on the bank holding company's most recent first-quarter FR Y–9C;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Between July 1 of a calendar year and March 15 of the following calendar year, the bank holding company provides the appropriate Reserve Bank with notice 15 calendar days prior to a capital distribution that includes the elements described in paragraph (g)(4) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/i/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> The Board or the appropriate Reserve Bank with concurrence of the Board, does not object to the transaction proposed in the notice. In determining whether to object to the proposed transaction, the Board or the appropriate Reserve Bank shall apply the criteria described in paragraph (g)(5)(ii) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The exception in this paragraph (g)(2) shall not apply if the Board or the appropriate Reserve Bank notifies the bank holding company in writing that it is ineligible for this exception.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Net distribution limitation—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/i" class="inline">
<num value="i">(i) </num>
<heading>General.</heading>
<content> Notwithstanding a notice of non-objection under paragraph (f)(2)(i) of this section, a bank holding company must reduce its capital distributions in accordance with paragraph (g)(3)(ii) of this section if the bank holding company raises a smaller dollar amount of capital of a given category of regulatory capital instruments than it had included in its capital plan, as measured on an aggregate basis beginning in the third quarter of the planning horizon through the end of the current quarter.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Reduction of distributions—</heading>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/ii/A" class="inline">
<num value="A">(A) </num>
<heading>Common equity tier 1 capital.</heading>
<content> If the bank holding company raises a smaller dollar amount of common equity tier 1 capital (as defined in <ref href="/us/cfr/t12/s217.2">12 CFR 217.2</ref>), the bank holding company must reduce its capital distributions relating to common equity tier 1 capital such that the dollar amount of the bank holding company's capital distributions, net of the dollar amount of its capital raises, (“net distributions”) relating to common equity tier 1 capital is no greater than the dollar amount of net distributions relating to common equity tier 1 capital included in its capital plan, as measured on an aggregate basis beginning in the third quarter of the planning horizon through the end of the current quarter.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Additional tier 1 capital.</heading>
<content> If the bank holding company raises a smaller dollar amount of additional tier 1 capital (as defined in <ref href="/us/cfr/t12/s217.2">12 CFR 217.2</ref>), the bank holding company must reduce its capital distributions relating to additional tier 1 capital (other than scheduled payments on additional tier 1 capital instruments) such that the dollar amount of the bank holding company's net distributions relating to additional tier 1 capital is no greater than the <?page num="164"?>dollar amount of net distributions relating to additional tier 1 capital included in its capital plan, as measured on an aggregate basis beginning in the third quarter of the planning horizon through the end of the current quarter.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/ii/C" style="-uslm-sgm:P">
<num value="C">(C) </num>
<heading>Tier 2 capital.</heading>
<content> If the bank holding company raises a smaller dollar amount of tier 2 capital (as defined in <ref href="/us/cfr/t12/s217.2">12 CFR 217.2</ref>), the bank holding company must reduce its capital distributions relating to tier 2 capital (other than scheduled payments on tier 2 capital instruments) such that the dollar amount of the bank holding company's net distributions relating to tier 2 capital is no greater than the dollar amount of net distributions relating to tier 2 capital included in its capital plan, as measured on an aggregate basis beginning in the third quarter of the planning horizon through the end of the current quarter.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Exceptions.</heading>
<chapeau> Paragraphs (g)(3)(i) and (ii) of this section shall not apply:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> To the extent that the Board or appropriate Reserve Bank indicates in writing its non-objection pursuant to paragraph (g)(5) of this section, following a request for non-objection from the bank holding company that includes all of the information required to be submitted under paragraph (g)(4) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> To capital distributions arising from the issuance of a regulatory capital instrument eligible for inclusion in the numerator of a minimum regulatory capital ratio that the bank holding company had not included in its capital plan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> To the extent that the bank holding company raised a smaller dollar amount of capital in the category of regulatory capital instruments described in paragraph (g)(3)(i) of this section due to employee-directed capital issuances related to an employee stock ownership plan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> To the extent that the bank holding company raised a smaller dollar amount of capital in the category of regulatory capital instruments described in paragraph (g)(3)(i) of this section due to a planned merger or acquisition that is no longer expected to be consummated or for which the consideration paid is lower than the projected price in the capital plan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Until <date date="2017-03-31">March 31, 2017</date>, to the extent that the dollar amount by which the bank holding company's net distributions exceed the dollar amount of net distributions included in its capital plan in the category of regulatory capital instruments described in paragraph (g)(3)(i) of this section, as measured on an aggregate basis beginning in the third quarter of the planning horizon through the end of the current quarter, is less than 1.00 percent of the bank holding company's tier 1 capital, as reported to the Federal Reserve on the bank holding company's most recent first-quarter FR Y–9C; between July 1 of a calendar year and March 15 of the following calendar year, the bank holding company provides the appropriate Reserve Bank with notice 15 calendar days prior to any capital distribution in that category of regulatory capital instruments that includes the elements described in paragraph (g)(4) of this section; and the Board or the appropriate Reserve Bank with concurrence of the Board, does not object to the transaction proposed in the notice. In determining whether to object to the proposed transaction, the Board or the appropriate Reserve Bank shall apply the criteria described in paragraph (g)(5)(ii) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> Beginning <date date="2017-04-01">April 1, 2017</date>, to the extent that the dollar amount by which the bank holding company's net distributions exceed the dollar amount of net distributions included in its capital plan in the category of regulatory capital instruments described in paragraph (g)(3)(i) of this section, as measured on an aggregate basis beginning in the third quarter of the planning horizon through the end of the current quarter, is less than 0.25 percent of the bank holding company's tier 1 capital, as reported to the Federal Reserve on the bank holding company's most recent first-quarter FR Y–9C; between July 1 of a calendar year and March 15 of the following calendar year, the bank holding company provides the appropriate Reserve Bank with notice 15 calendar days prior to any capital distribution in that category of regulatory capital instruments that includes the elements described in paragraph (g)(4) of this section; and the <?page num="165"?>Board or the appropriate Reserve Bank with concurrence of the Board, does not object to the transaction proposed in the notice. In determining whether to object to the proposed transaction, the Board or the appropriate Reserve Bank shall apply the criteria described in paragraph (g)(5)(ii) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The exceptions in paragraph (g)(3)(iii) of this section shall not apply if the Board or the appropriate Reserve Bank notifies the bank holding company in writing that it is ineligible for this exception.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Contents of request.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/g/4/i" class="inline">
<num value="i"> (i)</num>
<chapeau> A request for a capital distribution under this section shall be filed between July 1 of a calendar year and March 1 of the following calendar year with the appropriate Reserve Bank and the Board and shall contain the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/g/4/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The bank holding company's current capital plan or an attestation that there have been no changes to the capital plan since it was last submitted to the Federal Reserve;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The purpose of the transaction;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/4/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A description of the capital distribution, including for redemptions or repurchases of securities, the gross consideration to be paid and the terms and sources of funding for the transaction, and for dividends, the amount of the dividend(s); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/4/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Any additional information requested by the Board or the appropriate Reserve Bank (which may include, among other things, an assessment of the bank holding company's capital adequacy under a revised stress scenario provided by the Federal Reserve, a revised capital plan, and supporting data).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any request submitted with respect to a capital distribution described in paragraph (g)(1)(i) of this section shall also include a plan for restoring the bank holding company's capital to an amount above a minimum level within 30 calendar days and a rationale for why the capital distribution would be appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Approval of certain capital distributions.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/g/5/i" class="inline">
<num value="i"> (i)</num>
<content> The Board or the appropriate Reserve Bank with concurrence of the Board, will act on a request under this paragraph (g)(5) within 30 calendar days after the receipt of all the information required under paragraph (g)(4) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In acting on a request under this paragraph, the Board or appropriate Reserve Bank will apply the considerations and principles in paragraph (f) of this section. In addition, the Board or the appropriate Reserve Bank may disapprove the transaction if the bank holding company does not provide all of the information required to be submitted under paragraph (g)(4) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Disapproval and hearing.</heading>
<paragraph identifier="/us/cfr/t12/s225.8/g/6/i" class="inline">
<num value="i"> (i)</num>
<chapeau> The Board or the appropriate Reserve Bank will notify the bank holding company in writing of the reasons for a decision to disapprove any proposed capital distribution. Within 15 calendar days after receipt of a disapproval by the Board, the bank holding company may submit a written request for a hearing.</chapeau>
<paragraph identifier="/us/cfr/t12/s225.8/g/6/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The Board may, in its sole discretion, order an informal hearing if the Board finds that a hearing is appropriate or necessary to resolve disputes regarding material issues of fact.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/6/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> An informal hearing shall be held within 30 calendar days of a request, if granted, provided that the Board may extend this period upon notice to the requesting party.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/6/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Written notice of the final decision of the Board shall be given to the bank holding company within 60 calendar days of the conclusion of any informal hearing ordered by the Board, provided that the Board may extend this period upon notice to the requesting party.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.8/g/6/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> While the Board's final decision is pending and until such time as the Board or the appropriate Reserve Bank with concurrence of the Board, approves the capital distribution at issue, the bank holding company may not make such capital distribution.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/9323">82 FR 9323</ref>, <date date="2017-02-03">Feb. 3, 2017</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spB">
<num value="B" style="-uslm-sgm:HED">Subpart B—</num>
<heading style="-uslm-sgm:HED">Acquisition of Bank Securities or Assets</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/62/9324">62 FR 9324</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.11"><?page num="166"?>
<num value="225.11" style="-uslm-sgm:SECTNO">§ 225.11 </num>
<heading style="-uslm-sgm:SUBJECT">Transactions requiring Board approval.</heading>
<chapeau style="-uslm-sgm:P">The following transactions require the Board's prior approval under section 3 of the Bank Holding Company Act except as exempted under <ref href="/us/cfr/t12/s225.12">§ 225.12</ref> or as otherwise covered by <ref href="/us/cfr/t12/s225.17">§ 225.17</ref> of this subpart:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.11/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Formation of bank holding company.</heading>
<content> Any action that causes a bank or other company to become a bank holding company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.11/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Acquisition of subsidiary bank.</heading>
<content> Any action that causes a bank to become a subsidiary of a bank holding company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.11/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Acquisition of control of bank or bank holding company securities.</heading>
<paragraph identifier="/us/cfr/t12/s225.11/c/1" class="inline">
<num value="1"> (1)</num>
<content> The acquisition by a bank holding company of direct or indirect ownership or control of any voting securities of a bank or bank holding company, if the acquisition results in the company's control of more than 5 percent of the outstanding shares of any class of voting securities of the bank or bank holding company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.11/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An acquisition includes the purchase of additional securities through the exercise of preemptive rights, but does not include securities received in a stock dividend or stock split that does not alter the bank holding company's proportional share of any class of voting securities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.11/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Acquisition of bank assets.</heading>
<content> The acquisition by a bank holding company or by a subsidiary thereof (other than a bank) of all or substantially all of the assets of a bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.11/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Merger of bank holding companies.</heading>
<content> The merger or consolidation of bank holding companies, including a merger through the purchase of assets and assumption of liabilities.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.11/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Transactions by foreign banking organization.</heading>
<content> Any transaction described in paragraphs (a) through (e) of this section by a foreign banking organization that involves the acquisition of an interest in a U.S. bank or in a bank holding company for which application would be required if the foreign banking organization were a bank holding company.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.12">
<num value="225.12" style="-uslm-sgm:SECTNO">§ 225.12 </num>
<heading style="-uslm-sgm:SUBJECT">Transactions not requiring Board approval.</heading>
<chapeau style="-uslm-sgm:P">The following transactions do <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> require the Board's approval under <ref href="/us/cfr/t12/s225.11">§ 225.11</ref> of this subpart:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.12/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Acquisition of securities in fiduciary capacity.</heading>
<chapeau> The acquisition by a bank or other company (other than a trust that is a company) of control of voting securities of a bank or bank holding company in good faith in a fiduciary capacity, unless:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.12/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The acquiring bank or other company has sole discretionary authority to vote the securities and retains this authority for more than two years; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The acquisition is for the benefit of the acquiring bank or other company, or its shareholders, employees, or subsidiaries.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Acquisition of securities in satisfaction of debts previously contracted.</heading>
<content> The acquisition by a bank or other company of control of voting securities of a bank or bank holding company in the regular course of securing or collecting a debt previously contracted in good faith, if the acquiring bank or other company divests the securities within two years of acquisition. The Board or Reserve Bank may grant requests for up to three one-year extensions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Acquisition of securities by bank holding company with majority control.</heading>
<content> The acquisition by a bank holding company of additional voting securities of a bank or bank holding company if more than 50 percent of the outstanding voting securities of the bank or bank holding company is lawfully controlled by the acquiring bank holding company prior to the acquisition.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Acquisitions involving bank mergers and internal corporate reorganizations—</heading>
<paragraph identifier="/us/cfr/t12/s225.12/d/1" class="inline">
<num value="1">(1) </num>
<heading>Transactions subject to Bank Merger Act.</heading>
<chapeau> The merger or consolidation of a subsidiary bank of a bank holding company with another bank, or the purchase of assets by the subsidiary bank, or a similar transaction involving subsidiary banks of a bank holding company, if the transaction requires the prior approval of a federal supervisory agency under the Bank Merger Act (<ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>) and does not involve the acquisition of shares of a bank. This exception does not include:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.12/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The merger of a nonsubsidiary bank and a nonoperating subsidiary <?page num="167"?>bank formed by a company for the purpose of acquiring the nonsubsidiary bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> Any transaction requiring the Board's prior approval under <ref href="/us/cfr/t12/s225.11/e">§ 225.11(e)</ref> of this subpart.</p>
<p style="-uslm-sgm:P">The Board may require an application under this subpart if it determines that the merger or consolidation would have a significant adverse impact on the financial condition of the bank holding company, or otherwise requires approval under section 3 of the BHC Act.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Certain acquisitions subject to Bank Merger Act.</heading>
<chapeau> The acquisition by a bank holding company of shares of a bank or company controlling a bank or the merger of a company controlling a bank with the bank holding company, if the transaction is part of the merger or consolidation of the bank with a subsidiary bank (other than a nonoperating subsidiary bank) of the acquiring bank holding company, or is part of the purchase of substantially all of the assets of the bank by a subsidiary bank (other than a nonoperating subsidiary bank) of the acquiring bank holding company, and if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The bank merger, consolidation, or asset purchase occurs simultaneously with the acquisition of the shares of the bank or bank holding company or the merger of holding companies, and the bank is not operated by the acquiring bank holding company as a separate entity other than as the survivor of the merger, consolidation, or asset purchase;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The transaction requires the prior approval of a federal supervisory agency under the Bank Merger Act (<ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The transaction does not involve the acquisition of any nonbank company that would require prior approval under section 4 of the BHC Act (<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Both before and after the transaction, the acquiring bank holding company meets the requirements of <ref href="/us/cfr/t12/p217">12 CFR part 217</ref>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<chapeau> At least 10 days prior to the transaction, the acquiring bank holding company has provided to the Reserve Bank written notice of the transaction that contains:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/v/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A copy of the filing made to the appropriate federal banking agency under the Bank Merger Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/v/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A description of the holding company's involvement in the transaction, the purchase price, and the source of funding for the purchase price; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Prior to expiration of the period provided in paragraph (d)(2)(v) of this section, the Reserve Bank has not informed the bank holding company that an application under <ref href="/us/cfr/t12/s225.11">§ 225.11</ref> is required.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Internal corporate reorganizations.</heading>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/i" class="inline">
<num value="i"> (i)</num>
<chapeau> Subject to paragraph (d)(3)(ii) of this section, any of the following transactions performed in the United States by a bank holding company:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The merger of holding companies that are subsidiaries of the bank holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content>
<p> The formation of a subsidiary holding company; <ref id="fnd3e10288" idref="fnd3e10293" style="-uslm-sgm:SU">1</ref>
</p>
<footnote id="fnd3e10293" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e10288" style="-uslm-sgm:SU">1</ref> In the case of a transaction that results in the formation or designation of a new bank holding company, the new bank holding company must complete the registration requirements described in <ref href="/us/cfr/t12/s225.5">§ 225.5</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The transfer of control or ownership of a subsidiary bank or a subsidiary holding company between one subsidiary holding company and another subsidiary holding company or the bank holding company.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> A transaction described in paragraph (d)(3)(i) of this section qualifies for this exception if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The transaction represents solely a corporate reorganization involving companies and insured depository institutions that, both preceding and following the transaction, are lawfully controlled and operated by the bank holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The transaction does not involve the acquisition of additional voting shares of an insured depository institution that, prior to the transaction, was less than majority owned by the bank holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The bank holding company is not organized in mutual form; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/d/3/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Both before and after the transaction, the bank holding company meets the Board's Capital Adequacy Guidelines (appendices A, B, C, D, and E of this part).</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Holding securities in escrow.</heading>
<content> The holding of any voting securities of a <?page num="168"?>bank or bank holding company in an escrow arrangement for the benefit of an applicant pending the Board's action on an application for approval of the proposed acquisition, if title to the securities and the voting rights remain with the seller and payment for the securities has not been made to the seller.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.12/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Acquisition of foreign banking organization.</heading>
<content> The acquisition of a foreign banking organization where the foreign banking organization does not directly or indirectly own or control a bank in the United States, unless the acquisition is also by a foreign banking organization and otherwise subject to <ref href="/us/cfr/t12/s225.11/f">§ 225.11(f)</ref> of this subpart.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[ Reg. Y, <ref href="/us/fr/62/9324">62 FR 9324</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/78/62291">78 FR 62291</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/70673">80 FR 70673</ref>, <date date="2015-11-16" role="amended">Nov. 16, 2015</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.13">
<num value="225.13" style="-uslm-sgm:SECTNO">§ 225.13 </num>
<heading style="-uslm-sgm:SUBJECT">Factors considered in acting on bank acquisition proposals.</heading>
<paragraph identifier="/us/cfr/t12/s225.13/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Factors requiring denial.</heading>
<chapeau> As specified in section 3(c) of the BHC Act, the Board may not approve any application under this subpart if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.13/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The transaction would result in a monopoly or would further any combination or conspiracy to monopolize, or to attempt to monopolize, the business of banking in any part of the United States;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The effect of the transaction may be substantially to lessen competition in any section of the country, tend to create a monopoly, or in any other manner be in restraint of trade, unless the Board finds that the transaction's anti-competitive effects are clearly outweighed by its probable effect in meeting the convenience and needs of the community;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The applicant has failed to provide the Board with adequate assurances that it will make available such information on its operations or activities, and the operations or activities of any affiliate of the applicant, that the Board deems appropriate to determine and enforce compliance with the BHC Act and other applicable federal banking statutes, and any regulations thereunder; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> In the case of an application involving a foreign banking organization, the foreign banking organization is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, as provided in <ref href="/us/cfr/t12/s211.24/c/1/ii">§ 211.24(c)(1)(ii)</ref> of the Board's Regulation K (<ref href="/us/cfr/t12/s211.24/c/1/ii">12 CFR 211.24(c)(1)(ii)</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Other factors.</heading>
<chapeau> In deciding applications under this subpart, the Board also considers the following factors with respect to the applicant, its subsidiaries, any banks related to the applicant through common ownership or management, and the bank or banks to be acquired:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.13/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Financial condition.</heading>
<content> Their financial condition and future prospects, including whether current and projected capital positions and levels of indebtedness conform to standards and policies established by the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Managerial resources.</heading>
<content> The competence, experience, and integrity of the officers, directors, and principal shareholders of the applicant, its subsidiaries, and the banks and bank holding companies concerned; their record of compliance with laws and regulations; and the record of the applicant and its affiliates of fulfilling any commitments to, and any conditions imposed by, the Board in connection with prior applications.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Convenience and needs of community.</heading>
<content> The convenience and needs of the communities to be served, including the record of performance under the Community Reinvestment Act of 1977 (<ref href="/us/usc/t12/s2901">12 U.S.C. 2901</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) and regulations issued thereunder, including the Board's Regulation BB (<ref href="/us/cfr/t12/p228">12 CFR part 228</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Interstate transactions.</heading>
<content> The Board may approve any application or notice under this subpart by a bank holding company to acquire control of all or substantially all of the assets of a bank located in a state other than the home state of the bank holding company, without regard to whether the transaction is prohibited under the law of any state, if the transaction complies with the requirements of section 3(d) of the BHC Act (<ref href="/us/usc/t12/s1842/d">12 U.S.C. 1842(d)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.13/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Conditional approvals.</heading>
<content> The Board may impose conditions on any approval, including conditions to address competitive, financial, managerial, safety and soundness, convenience and needs, compliance or other concerns, to ensure that approval is consistent with <?page num="169"?>the relevant statutory factors and other provisions of the BHC Act.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.14">
<num value="225.14" style="-uslm-sgm:SECTNO">§ 225.14 </num>
<heading style="-uslm-sgm:SUBJECT">Expedited action for certain bank acquisitions by well-run bank holding companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.14/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Filing of notice—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/a/1" class="inline">
<num value="1">(1) </num>
<heading>Information required and public notice.</heading>
<chapeau> As an alternative to the procedure provided in <ref href="/us/cfr/t12/s225.15">§ 225.15</ref>, a bank holding company that meets the requirements of paragraph (c) of this section may satisfy the prior approval requirements of <ref href="/us/cfr/t12/s225.11">§ 225.11</ref> in connection with the acquisition of shares, assets or control of a bank, or a merger or consolidation between bank holding companies, by providing the appropriate Reserve Bank with a written notice containing the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A certification that all of the criteria in paragraph (c) of this section are met;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> A description of the transaction that includes identification of the companies and insured depository institutions involved in the transaction <ref id="fnd3e10394" idref="fnd3e10400" style="-uslm-sgm:SU">3</ref> and identification of each banking market affected by the transaction;</p>
<footnote id="fnd3e10400" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e10394" style="-uslm-sgm:SU">3</ref> If, in connection with a transaction under this subpart, any person or group of persons proposes to acquire control of the acquiring bank holding company for purposes of the Bank Control Act or <ref href="/us/cfr/t12/s225.41">§ 225.41</ref>, the person or group of persons may fulfill the notice requirements of the Bank Control Act and <ref href="/us/cfr/t12/s225.43">§ 225.43</ref> by providing, as part of the submission by the acquiring bank holding company under this subpart, identifying and biographical information required in paragraph (6)(A) of the Bank Control Act (<ref href="/us/usc/t12/s1817/j/6/A">12 U.S.C. 1817(j)(6)(A)</ref>), as well as any financial or other information requested by the Reserve Bank under <ref href="/us/cfr/t12/s225.43">§ 225.43</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A description of the effect of the transaction on the convenience and needs of the communities to be served and of the actions being taken by the bank holding company to improve the CRA performance of any insured depository institution subsidiary that does not have at least a satisfactory CRA performance rating at the time of the transaction;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Evidence that notice of the proposal has been published in accordance with <ref href="/us/cfr/t12/s225.16/b/1">§ 225.16(b)(1)</ref>;
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/v/A" class="inline">
<num value="A">(A)</num>
<content> If the bank holding company has consolidated assets of $3 billion or more, an abbreviated consolidated <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> balance sheet as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction, consolidated <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> risk-based capital ratios for the acquiring bank holding company as of the most recent quarter, and a description of the purchase price and the terms and sources of funding for the transaction; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/v/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the bank holding company has consolidated assets of less than $3 billion, a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> parent-only balance sheet as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction, and a description of the purchase price, the terms and sources of funding for the transaction, and the sources and schedule for retiring any debt incurred in the transaction;
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> If the bank holding company has consolidated assets of less than $300 million, a list of and biographical information regarding any directors or senior executive officers of the resulting bank holding company that are not directors or senior executive officers of the acquiring bank holding company or of a company or institution to be acquired;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> For each insured depository institution whose Tier 1 capital, total capital, total assets or risk-weighted assets change as a result of the transaction, the total risk-weighted assets, total assets, Tier 1 capital and total capital of the institution on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> basis; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/1/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> The market indexes for each relevant banking market reflecting the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> effect of the transaction.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Waiver of unnecessary information.</heading>
<content> The Reserve Bank may reduce the information requirements in paragraph (a)(1)(v) through (viii) of this section as appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<paragraph identifier="/us/cfr/t12/s225.14/b/1" class="inline">
<num value="1">(1) </num>
<heading>Action on proposals under this section.</heading>
<content> The Board or the appropriate Reserve Bank shall act on a proposal submitted under this section or notify the bank holding company that the transaction is subject to the procedure in <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> within 5 business days after the close of the public comment period. The Board and the Reserve Bank shall not approve any proposal under this section prior to the third business day <?page num="170"?>following the close of the public comment period, unless an emergency exists that requires expedited or immediate action. The Board may extend the period for action under this section for up to 5 business days.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Acceptance of notice in event expedited procedure not available.</heading>
<content> In the event that the Board or the Reserve Bank determines after the filing of a notice under this section that a bank holding company may not use the procedure in this section and must file an application under <ref href="/us/cfr/t12/s225.15">§ 225.15</ref>, the application shall be deemed accepted for purposes of <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> as of the date that the notice was filed under this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Criteria for use of expedited procedure.</heading>
<chapeau> The procedure in this section is available only if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.14/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Well-capitalized organization—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/c/1/i" class="inline">
<num value="i">(i) </num>
<heading>Bank holding company.</heading>
<content> Both at the time of and immediately after the proposed transaction, the acquiring bank holding company is well-capitalized;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Insured depository institutions.</heading>
<chapeau> Both at the time of and immediately after the proposed transaction:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.14/c/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The lead insured depository institution of the acquiring bank holding company is well-capitalized;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Well-capitalized insured depository institutions control at least 80 percent of the total risk-weighted assets of insured depository institutions controlled by the acquiring bank holding company; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> No insured depository institution controlled by the acquiring bank holding company is undercapitalized;</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Well managed organization—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>Satisfactory examination ratings.</heading>
<content> At the time of the transaction, the acquiring bank holding company, its lead insured depository institution, and insured depository institutions that control at least 80 percent of the total risk-weighted assets of insured depository institutions controlled by the holding company are well managed and have received at least a satisfactory rating for compliance at their most recent examination if such rating was given;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>No poorly managed institutions.</heading>
<content> No insured depository institution controlled by the acquiring bank holding company has received 1 of the 2 lowest composite ratings at the later of the institution's most recent examination or subsequent review by the appropriate federal banking agency for the institution;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Recently acquired institutions excluded.</heading>
<chapeau> Any insured depository institution that has been acquired by the bank holding company during the 12-month period preceding the date on which written notice is filed under paragraph (a) of this section may be excluded for purposes of paragraph (c)(2)(ii) of this section if :</chapeau>
<paragraph identifier="/us/cfr/t12/s225.14/c/2/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The bank holding company has developed a plan acceptable to the appropriate federal banking agency for the institution to restore the capital and management of the institution; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/2/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> All insured depository institutions excluded under this paragraph represent, in the aggregate, less than 10 percent of the aggregate total risk-weighted assets of all insured depository institutions controlled by the bank holding company;</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Convenience and needs criteria—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/c/3/i" class="inline">
<num value="i">(i) </num>
<heading>Effect on the community.</heading>
<content> The record indicates that the proposed transaction would meet the convenience and needs of the community standard in the BHC Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Established CRA performance record.</heading>
<content> At the time of the transaction, the lead insured depository institution of the acquiring bank holding company and insured depository institutions that control at least 80 percent of the total risk-weighted assets of insured institutions controlled by the holding company have received a satisfactory or better composite rating at the most recent examination under the Community Reinvestment Act;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Public comment.</heading>
<content> No comment that is timely and substantive as provided in <ref href="/us/cfr/t12/s225.16">§ 225.16</ref> is received by the Board or the appropriate Reserve Bank other than a comment that supports approval of the proposal;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Competitive criteria—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/c/5/i" class="inline">
<num value="i">(i) </num>
<heading>Competitive screen.</heading>
<chapeau> Without regard to any divestitures proposed by the acquiring bank holding company, the acquisition does not cause:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.14/c/5/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Insured depository institutions controlled by the acquiring bank holding company to control in excess of 35 percent of market deposits in any relevant banking market; or
<?page num="171"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/5/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The Herfindahl-Hirschman index to increase by more than 200 points in any relevant banking market with a post-acquisition index of at least 1800; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Department of Justice.</heading>
<content> The Department of Justice has not indicated to the Board that consummation of the transaction is likely to have a significantly adverse effect on competition in any relevant banking market;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Size of acquisition—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/c/6/i" class="inline">
<num value="i">(i) </num>
<heading>In general—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/c/6/i/A" class="inline">
<num value="A">(A) </num>
<heading>Limited Growth.</heading>
<content> Except as provided in paragraph (c)(6)(ii) of this section, the sum of the aggregate risk-weighted assets to be acquired in the proposal and the aggregate risk- weighted assets acquired by the acquiring bank holding company in all other qualifying transactions does not exceed 35 percent of the consolidated risk-weighted assets of the acquiring bank holding company. For purposes of this paragraph <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other qualifying transactions</inline> means any transaction approved under this section or <ref href="/us/cfr/t12/s225.23">§ 225.23</ref> during the 12 months prior to filing the notice under this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/6/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Individual size limitation.</heading>
<content> The total risk-weighted assets to be acquired do not exceed $7.5 billion;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Small bank holding companies.</heading>
<content> Paragraph (c)(6)(i)(A) of this section shall not apply if, immediately following consummation of the proposed transaction, the consolidated risk-weighted assets of the acquiring bank holding company are less than $300 million;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Supervisory actions.</heading>
<content> During the 12-month period ending on the date on which the bank holding company proposes to consummate the proposed transaction, no formal administrative order, including a written agreement, cease and desist order, capital directive, prompt corrective action directive, asset maintenance agreement, or other formal enforcement action, is or was outstanding against the bank holding company or any insured depository institution subsidiary of the holding company, and no formal administrative enforcement proceeding involving any such enforcement action, order, or directive is or was pending;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Interstate acquisitions.</heading>
<content> Board-approval of the transaction is not prohibited under section 3(d) of the BHC Act;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Other supervisory considerations.</heading>
<content> Board approval of the transaction is not prohibited under the informational sufficiency or comprehensive home country supervision standards set forth in section 3(c)(3) of the BHC Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/c/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Notification.</heading>
<content> The acquiring bank holding company has not been notified by the Board, in its discretion, prior to the expiration of the period in paragraph (b)(1) of this section that an application under <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> is required in order to permit closer review of any financial, managerial, competitive, convenience and needs or other matter related to the factors that must be considered under this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Comment by primary banking supervisor—</heading>
<paragraph identifier="/us/cfr/t12/s225.14/d/1" class="inline">
<num value="1">(1) </num>
<heading>Notice.</heading>
<content> Upon receipt of a notice under this section, the appropriate Reserve Bank shall promptly furnish notice of the proposal and a copy of the information filed pursuant to paragraph (a) of this section to the primary banking supervisor of the insured depository institutions to be acquired.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Comment period.</heading>
<content> The primary banking supervisor shall have 30 calendar days (or such shorter time as agreed to by the primary banking supervisor) from the date of the letter giving notice in which to submit its views and recommendations to the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Action subject to supervisor's comment.</heading>
<content> Action by the Board or the Reserve Bank on a proposal under this section is subject to the condition that the primary banking supervisor not recommend in writing to the Board disapproval of the proposal prior to the expiration of the comment period described in paragraph (d)(2) of this section. In such event, any approval given under this section shall be revoked and, if required by section 3(b) of the BHC Act, the Board shall order a hearing on the proposal.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Emergencies.</heading>
<content> Notwithstanding paragraphs (d)(2) and (d)(3) of this section, the Board may provide the primary banking supervisor with 10 calendar days' notice of a proposal under this section if the Board finds that an emergency exists requiring expeditious action, and may act during the notice period or without providing notice to the primary banking supervisor if the <?page num="172"?>Board finds that it must act immediately to prevent probable failure.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Primary banking supervisor.</heading>
<chapeau> For purposes of this section and <ref href="/us/cfr/t12/s225.15/b">§ 225.15(b)</ref>, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">the primary banking supervisor</inline> for an institution is:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.14/d/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The Office of the Comptroller of the Currency, in the case of a national banking association or District bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/d/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The appropriate supervisory authority for the State in which the bank is chartered, in the case of a State bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/d/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The Director of the Office of Thrift Supervision, in the case of a savings association.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.14/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Branches and agencies of foreign banking organizations.</heading>
<content> For purposes of this section, a U.S. branch or agency of a foreign banking organization shall be considered to be an insured depository institution. A U.S. branch or agency of a foreign banking organization shall be subject to paragraph (c)(3)(ii) of this section only to the extent it is insured by the Federal Deposit Insurance Corporation in accordance with section 6 of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3104">12 U.S.C. 3104</ref>).</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9324">62 FR 9324</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/66/415">66 FR 415</ref>, <date date="2001-01-03" role="amended">Jan. 3, 2001</date>; <ref href="/us/fr/71/9901">71 FR 9901</ref>, <date date="2006-02-28" role="amended">Feb. 28, 2006</date>; <ref href="/us/fr/78/62291">78 FR 62291</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/20157">80 FR 20157</ref>, <date date="2015-04-15" role="amended">Apr. 15, 2015</date>; <ref href="/us/fr/83/44199">83 FR 44199</ref>, <date date="2018-08-30" role="amended">Aug. 30, 2018</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.15">
<num value="225.15" style="-uslm-sgm:SECTNO">§ 225.15 </num>
<heading style="-uslm-sgm:SUBJECT">Procedures for other bank acquisition proposals.</heading>
<paragraph identifier="/us/cfr/t12/s225.15/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Filing application.</heading>
<content> Except as provided in <ref href="/us/cfr/t12/s225.14">§ 225.14</ref>, an application for the Board's prior approval under this subpart shall be governed by the provisions of this section and shall be filed with the appropriate Reserve Bank on the designated form.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.15/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Notice to primary banking supervisor.</heading>
<content> Upon receipt of an application under this subpart, the Reserve Bank shall promptly furnish notice and a copy of the application to the primary banking supervisor of each bank to be acquired. The primary supervisor shall have 30 calendar days from the date of the letter giving notice in which to submit its views and recommendations to the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.15/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Accepting application for processing.</heading>
<content> Within 7 calendar days after the Reserve Bank receives an application under this section, the Reserve Bank shall accept it for processing as of the date the application was filed or return the application if it is substantially incomplete. Upon accepting an application, the Reserve Bank shall immediately send copies to the Board. The Reserve Bank or the Board may request additional information necessary to complete the record of an application at any time after accepting the application for processing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.15/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Action on applications—</heading>
<paragraph identifier="/us/cfr/t12/s225.15/d/1" class="inline">
<num value="1">(1) </num>
<heading>Action under delegated authority.</heading>
<content> The Reserve Bank shall approve an application under this section within 30 calendar days after the acceptance date for the application, unless the Reserve Bank, upon notice to the applicant, refers the application to the Board for decision because action under delegated authority is not appropriate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.15/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Board action.</heading>
<content> The Board shall act on an application under this subpart that is referred to it for decision within 60 calendar days after the acceptance date for the application, unless the Board notifies the applicant that the 60-day period is being extended for a specified period and states the reasons for the extension. In no event may the extension exceed the 91-day period provided in <ref href="/us/cfr/t12/s225.16/f">§ 225.16(f)</ref>. The Board may, at any time, request additional information that it believes is necessary for its decision.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.16">
<num value="225.16" style="-uslm-sgm:SECTNO">§ 225.16 </num>
<heading style="-uslm-sgm:SUBJECT">Public notice, comments, hearings, and other provisions governing applications and notices.</heading>
<paragraph identifier="/us/cfr/t12/s225.16/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> The provisions of this section apply to all notices and applications filed under <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> and <ref href="/us/cfr/t12/s225.15">§ 225.15</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Public notice—</heading>
<paragraph identifier="/us/cfr/t12/s225.16/b/1" class="inline">
<num value="1">(1) </num>
<heading>Newspaper publication—</heading>
<paragraph identifier="/us/cfr/t12/s225.16/b/1/i" class="inline">
<num value="i">(i) </num>
<heading>Location of publication.</heading>
<content> In the case of each notice or application submitted under <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> or <ref href="/us/cfr/t12/s225.15">§ 225.15</ref>, the applicant shall publish a notice in a newspaper of general circulation, in the form and at the locations specified in <ref href="/us/cfr/t12/s262.3">§ 262.3</ref> of the Rules of Procedure (<ref href="/us/cfr/t12/s262.3">12 CFR 262.3</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Contents of notice.</heading>
<content> A newspaper notice under this paragraph shall provide an opportunity for interested persons to comment on the proposal for a period of at least 30 calendar days;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Timing of publication.</heading>
<content> Each newspaper notice published in connection with a proposal under this paragraph <?page num="173"?>shall be published no more than 15 calendar days before and no later than 7 calendar days following the date that a notice or application is filed with the appropriate Reserve Bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<chapeau>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">notice</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Publication by Board.</inline> Upon receipt of a notice or application under <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> or <ref href="/us/cfr/t12/s225.15">§ 225.15</ref>, the Board shall promptly publish notice of the proposal in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> and shall provide an opportunity for interested persons to comment on the proposal for a period of no more than 30 days;</chapeau>
<paragraph identifier="/us/cfr/t12/s225.16/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Request for advance publication.</heading>
<content> A bank holding company may request that, during the 15-day period prior to filing a notice or application under <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> or <ref href="/us/cfr/t12/s225.15">§ 225.15</ref>, the Board publish notice of a proposal in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register.</inline> A request for advance <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> publication shall be made in writing to the appropriate Reserve Bank and shall contain the identifying information prescribed by the Board for <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> publication;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Waiver or shortening of notice.</heading>
<content> The Board may waive or shorten the required notice periods under this section if the Board determines that an emergency exists requiring expeditious action on the proposal, or if the Board finds that immediate action is necessary to prevent the probable failure of an insured depository institution.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Public comment—</heading>
<paragraph identifier="/us/cfr/t12/s225.16/c/1" class="inline">
<num value="1">(1) </num>
<heading>Timely comments.</heading>
<content> Interested persons may submit information and comments regarding a proposal filed under this subpart. A comment shall be considered timely for purposes of this subpart if the comment, together with all supplemental information, is submitted in writing in accordance with the Board's Rules of Procedure and received by the Board or the appropriate Reserve Bank prior to the expiration of the latest public comment period provided in paragraph (b) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Extension of comment period—</heading>
<paragraph identifier="/us/cfr/t12/s225.16/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> The Board may, in its discretion, extend the public comment period regarding any proposal submitted under this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Requests in connection with obtaining application or notice.</heading>
<content> In the event that an interested person has requested a copy of a notice or application submitted under this subpart, the Board may, in its discretion and based on the facts and circumstances, grant such person an extension of the comment period for up to 15 calendar days.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Joint requests by interested person and acquiring company.</heading>
<content> The Board will grant a joint request by an interested person and the acquiring bank holding company for an extension of the comment period for a reasonable period for a purpose related to the statutory factors the Board must consider under this subpart.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Substantive comment.</heading>
<content> A comment will be considered substantive for purposes of this subpart unless it involves individual complaints, or raises frivolous, previously-considered or wholly unsubstantiated claims or irrelevant issues.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Notice to Attorney General.</heading>
<content> The Board or Reserve Bank shall immediately notify the United States Attorney General of approval of any notice or application under <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> or <ref href="/us/cfr/t12/s225.15">§ 225.15</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Hearings.</heading>
<content> As provided in section 3(b) of the BHC Act, the Board shall order a hearing on any application or notice under <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> if the Board receives from the primary supervisor of the bank to be acquired, within the 30-day period specified in <ref href="/us/cfr/t12/s225.15/b">§ 225.15(b)</ref>, a written recommendation of disapproval of an application. The Board may order a formal or informal hearing or other proceeding on the application or notice, as provided in <ref href="/us/cfr/t12/s262.3/i/2">§ 262.3(i)(2)</ref> of the Board's Rules of Procedure. Any request for a hearing (other than from the primary supervisor) shall comply with <ref href="/us/cfr/t12/s262.3/e">§ 262.3(e)</ref> of the Rules of Procedure (<ref href="/us/cfr/t12/s262.3/e">12 CFR 262.3(e)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Approval through failure to act—</heading>
<paragraph identifier="/us/cfr/t12/s225.16/f/1" class="inline">
<num value="1">(1) </num>
<heading>Ninety-one day rule.</heading>
<content> An application or notice under <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> or <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> shall be deemed approved if the Board fails to act on the application or notice within 91 calendar days after the date of submission to the Board of the complete record on the application. For this purpose, the Board acts when it issues an order stating that the Board has approved or denied the application or notice, reflecting the votes of the members of the Board, and indicating that a statement of the reasons for the decision will follow promptly.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Complete record.</heading>
<chapeau> For the purpose of computing the commencement of the <?page num="174"?>91-day period, the record is complete on the latest of:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.16/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The date of receipt by the Board of an application or notice that has been accepted by the Reserve Bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The last day provided in any notice for receipt of comments and hearing requests on the application or notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/f/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The date of receipt by the Board of the last relevant material regarding the application or notice that is needed for the Board's decision, if the material is received from a source outside of the Federal Reserve System; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/f/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The date of completion of any hearing or other proceeding.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Exceptions to notice and hearing requirements—</heading>
<paragraph identifier="/us/cfr/t12/s225.16/g/1" class="inline">
<num value="1">(1) </num>
<heading>Probable bank failure.</heading>
<content> If the Board finds it must act immediately on an application or notice in order to prevent the probable failure of a bank or bank holding company, the Board may modify or dispense with the notice and hearing requirements of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Emergency.</heading>
<content> If the Board finds that, although immediate action on an application or notice is not necessary, an emergency exists requiring expeditious action, the Board shall provide the primary supervisor 10 days to submit its recommendation. The Board may act on such an application or notice without a hearing and may modify or dispense with the other notice and hearing requirements of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Waiting period.</heading>
<chapeau> A transaction approved under <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> or <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> shall not be consummated until 30 days after the date of approval of the application, except that a transaction may be consummated:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.16/h/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Immediately upon approval, if the Board has determined under paragraph (g) of this section that the application or notice involves a probable bank failure;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/h/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> On or after the 5th calendar day following the date of approval, if the Board has determined under paragraph (g) of this section that an emergency exists requiring expeditious action; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.16/h/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> On or after the 15th calendar day following the date of approval, if the Board has not received any adverse comments from the United States Attorney General relating to the competitive factors and the Attorney General has consented to the shorter waiting period.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.17">
<num value="225.17" style="-uslm-sgm:SECTNO">§ 225.17 </num>
<heading style="-uslm-sgm:SUBJECT">Notice procedure for one-bank holding company formations.</heading>
<paragraph identifier="/us/cfr/t12/s225.17/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Transactions that qualify under this section.</heading>
<chapeau> An acquisition by a company of control of a bank may be consummated 30 days after providing notice to the appropriate Reserve Bank in accordance with paragraph (b) of this section, provided that all of the following conditions are met:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.17/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content>
<p> The shareholder or shareholders who control at least 67 percent of the shares of the bank will control, immediately after the reorganization, at least 67 percent of the shares of the holding company in substantially the same proportion, except for changes in shareholders' interests resulting from the exercise of dissenting shareholders' rights under state or federal law; <ref id="fnd3e10826" idref="fnd3e10831" style="-uslm-sgm:SU">4</ref>
</p>
<footnote id="fnd3e10831" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e10826" style="-uslm-sgm:SU">4</ref> A shareholder of a bank in reorganization will be considered to have the same proportional interest in the holding company if the shareholder interest increases, on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro rata</inline> basis, as a result of either the redemption of shares from dissenting shareholders by the bank or bank holding company, or the acquisition of shares of dissenting shareholders by the remaining shareholders.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> No shareholder, or group of shareholders acting in concert, will, following the reorganization, own or control 10 percent or more of any class of voting shares of the bank holding company, unless that shareholder or group of shareholders was authorized, after review under the Change in Bank Control Act of 1978 (<ref href="/us/usc/t12/s1817/j">12 U.S.C. 1817(j)</ref>) by the appropriate federal banking agency for the bank, to own or control 10 percent or more of any class of voting shares of the bank; <ref id="fnd3e10839" idref="fnd3e10844" style="-uslm-sgm:SU">5</ref>
</p>
<footnote id="fnd3e10844" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e10839" style="-uslm-sgm:SU">5</ref> This procedure is not available in cases in which the exercise of dissenting shareholders' rights would cause a company that is not a bank holding company (other than the company in formation) to be required to register as a bank holding company. This procedure also is not available for the formation of a bank holding company organized in mutual form.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The bank is adequately capitalized (as defined in section 38 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1831o">12 U.S.C. 1831o</ref>));</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The bank received at least a composite “satisfactory” rating at its most <?page num="175"?>recent examination, in the event that the bank was examined;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> At the time of the reorganization, neither the bank nor any of its officers, directors, or principal shareholders is involved in any unresolved supervisory or enforcement matters with any appropriate federal banking agency;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/a/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content>
<p> The company demonstrates that any debt that it incurs at the time of the reorganization, and the proposed means of retiring this debt, will not place undue burden on the holding company or its subsidiary on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> basis; <ref id="fnd3e10860" idref="fnd3e10866" style="-uslm-sgm:SU">6</ref>
</p>
<footnote id="fnd3e10866" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e10860" style="-uslm-sgm:SU">6</ref> For a banking organization with consolidated assets, on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> basis, of less than $3 billion (other than a banking organization that will control a de novo bank), this requirement is satisfied if the proposal complies with the Board's Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (appendix C of this part).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/a/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> The holding company will not, as a result of the reorganization, acquire control of any additional bank or engage in any activities other than those of managing and controlling banks; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/a/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> During this period, neither the appropriate Reserve Bank nor the Board objected to the proposal or required the filing of an application under <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> of this subpart.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Contents of notice.</heading>
<chapeau> A notice filed under this paragraph shall include:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.17/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Certification by the notificant's board of directors that the requirements of <ref href="/us/usc/t12/s1842/a/C">12 U.S.C. 1842(a)(C)</ref> and this section are met by the proposal;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A list identifying all principal shareholders of the bank prior to the reorganization and of the holding company following the reorganization, and specifying the percentage of shares held by each principal shareholder in the bank and proposed to be held in the new holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> A description of the resulting management of the proposed bank holding company and its subsidiary bank, including:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.17/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Biographical information regarding any senior officers and directors of the resulting bank holding company who were not senior officers or directors of the bank prior to the reorganization; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A detailed history of the involvement of any officer, director, or principal shareholder of the resulting bank holding company in any administrative or criminal proceeding; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Pro forma</heading>
<content> financial statements for the holding company, and a description of the amount, source, and terms of debt, if any, that the bank holding company proposes to incur, and information regarding the sources and timing for debt service and retirement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Acknowledgment of notice.</heading>
<content> Within 7 calendar days following receipt of a notice under this section, the Reserve Bank shall provide the notificant with a written acknowledgment of receipt of the notice. This written acknowledgment shall indicate that the transaction described in the notice may be consummated on the 30th calendar day after the date of receipt of the notice if the Reserve Bank or the Board has not objected to the proposal during that time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.17/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Application required upon objection.</heading>
<content> The Reserve Bank or the Board may object to a proposal during the notice period by providing the bank holding company with a written explanation of the reasons for the objection. In such case, the bank holding company may file an application for prior approval of the proposal pursuant to <ref href="/us/cfr/t12/s225.15">§ 225.15</ref> of this subpart.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9319">62 FR 9319</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/71/9902">71 FR 9902</ref>, <date date="2006-02-28" role="amended">Feb. 28, 2006</date>; <ref href="/us/fr/78/62291">78 FR 62291</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/20157">80 FR 20157</ref>, <date date="2015-04-15" role="amended">Apr. 15, 2015</date>; <ref href="/us/fr/83/44199">83 FR 44199</ref>, <date date="2018-08-30" role="amended">Aug. 30, 2018</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spC">
<num value="C" style="-uslm-sgm:HED">Subpart C—</num>
<heading style="-uslm-sgm:HED">Nonbanking Activities and Acquisitions by Bank Holding Companies</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/62/9329">62 FR 9329</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.21">
<num value="225.21" style="-uslm-sgm:SECTNO">§ 225.21 </num>
<heading style="-uslm-sgm:SUBJECT">Prohibited nonbanking activities and acquisitions; exempt bank holding companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.21/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Prohibited nonbanking activities and acquisitions.</heading>
<chapeau> Except as provided in <ref href="/us/cfr/t12/s225.22">§ 225.22</ref> of this subpart, a bank holding company or a subsidiary may not engage in, or acquire or control, directly or indirectly, voting securities or assets of a company engaged in, any activity other than:
<?page num="176"?></chapeau>
<paragraph identifier="/us/cfr/t12/s225.21/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Banking or managing or controlling banks and other subsidiaries authorized under the BHC Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.21/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An activity that the Board determines to be so closely related to banking, or managing or controlling banks as to be a proper incident thereto, including any incidental activities that are necessary to carry on such an activity, if the bank holding company has obtained the prior approval of the Board for that activity in accordance with the requirements of this regulation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.21/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exempt bank holding companies.</heading>
<chapeau> The following bank holding companies are exempt from the provisions of this subpart:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.21/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Family-owned companies.</heading>
<content> Any company that is a “company covered in 1970” (as defined in section 2(b) of the BHC Act), more than 85 percent of the voting securities of which was collectively owned on <date date="1968-06-30">June 30, 1968</date>, and continuously thereafter, by members of the same family (or their spouses) who are lineal descendants of common ancestors.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.21/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Labor, agricultural, and horticultural organizations.</heading>
<content> Any company that was on <date date="1977-01-04">January 4, 1977</date>, both a bank holding company and a labor, agricultural, or horticultural organization exempt from taxation under section 501 of the Internal Revenue Code (<ref href="/us/usc/t26/s501/c">26 U.S.C. 501(c)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.21/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Companies granted hardship exemption.</heading>
<content> Any bank holding company that has controlled only one bank since before <date date="1968-07-01">July 1, 1968</date>, and that has been granted an exemption by the Board under section 4(d) of the BHC Act, subject to any conditions imposed by the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.21/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Companies granted exemption on other grounds.</heading>
<chapeau> Any company that acquired control of a bank before <date date="1982-12-10">December 10, 1982</date>, without the Board's prior approval under section 3 of the BHC Act, on the basis of a narrow interpretation of the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">demand deposit</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">commercial loan,</inline> if the Board has determined that:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.21/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Coverage of the company as a bank holding company under this subpart would be unfair or represent an unreasonable hardship; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.21/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Exclusion of the company from coverage under this part is consistent with the purposes of the BHC Act and section 106 of the Bank Holding Company Act Amendments of 1970 (<ref href="/us/usc/t12/s1971">12 U.S.C. 1971</ref>, 1972(1)). The provisions of <ref href="/us/cfr/t12/s225.4">§ 225.4</ref> of subpart A of this part do not apply to a company exempt under this paragraph.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.22">
<num value="225.22" style="-uslm-sgm:SECTNO">§ 225.22 </num>
<heading style="-uslm-sgm:SUBJECT">Exempt nonbanking activities and acquisitions.</heading>
<paragraph identifier="/us/cfr/t12/s225.22/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Certain de novo activities.</heading>
<chapeau> A bank holding company may, either directly or indirectly, engage <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">de novo</inline> in any nonbanking activity listed in <ref href="/us/cfr/t12/s225.28/b">§ 225.28(b)</ref> (other than operation of an insured depository institution) without obtaining the Board's prior approval if the bank holding company:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Meets the requirements of paragraphs (c) (1), (2), and (6) of <ref href="/us/cfr/t12/s225.23">§ 225.23</ref>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Conducts the activity in compliance with all Board orders and regulations governing the activity; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Within 10 business days after commencing the activity, provides written notice to the appropriate Reserve Bank describing the activity, identifying the company or companies engaged in the activity, and certifying that the activity will be conducted in accordance with the Board's orders and regulations and that the bank holding company meets the requirements of paragraphs (c) (1), (2), and (6) of <ref href="/us/cfr/t12/s225.23">§ 225.23</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Servicing activities.</heading>
<chapeau> A bank holding company may, without the Board's prior approval under this subpart, furnish services to or perform services for, or establish or acquire a company that engages solely in servicing activities for:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The bank holding company or its subsidiaries in connection with their activities as authorized by law, including services that are necessary to fulfill commitments entered into by the subsidiaries with third parties, if the bank holding company or servicing company complies with the Board's published interpretations and does not act as principal in dealing with third parties; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> The internal operations of the bank holding company or its subsidiaries. Services for the internal operations of the bank holding company or its subsidiaries include, but are not limited to:
<?page num="177"?></chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Accounting, auditing, and appraising;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Advertising and public relations;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Data processing and data transmission services, data bases, or facilities;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Personnel services;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Courier services;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Holding or operating property used wholly or substantially by a subsidiary in its operations or for its future use;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Liquidating property acquired from a subsidiary;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> Liquidating property acquired from any sources either prior to <date date="1956-05-09">May 9, 1956</date>, or the date on which the company became a bank holding company, whichever is later; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/b/2/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<content> Selling, purchasing, or underwriting insurance, such as blanket bond insurance, group insurance for employees, and property and casualty insurance.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Safe deposit business.</heading>
<content> A bank holding company or nonbank subsidiary may, without the Board's prior approval, conduct a safe deposit business, or acquire voting securities of a company that conducts such a business.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Nonbanking acquisitions not requiring prior Board approval.</heading>
<chapeau> The Board's prior approval is not required under this subpart for the following acquisitions:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/d/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>DPC acquisitions.</heading>
<paragraph identifier="/us/cfr/t12/s225.22/d/1/i" class="inline">
<num value="i"> (i)</num>
<content> Voting securities or assets, acquired by foreclosure or otherwise, in the ordinary course of collecting a debt previously contracted (DPC property) in good faith, if the DPC property is divested within two years of acquisition.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The Board may, upon request, extend this two-year period for up to three additional years. The Board may permit additional extensions for up to 5 years (for a total of 10 years), for shares, real estate or other assets where the holding company demonstrates that each extension would not be detrimental to the public interest and either the bank holding company has made good faith attempts to dispose of such shares, real estate or other assets or disposal of the shares, real estate or other assets during the initial period would have been detrimental to the company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Transfers of DPC property within the bank holding company system do not extend any period for divestiture of the property.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Securities or assets required to be divested by subsidiary.</heading>
<content> Voting securities or assets required to be divested by a subsidiary at the request of an examining federal or state authority (except by the Board under the BHC Act or this regulation), if the bank holding company divests the securities or assets within two years from the date acquired from the subsidiary.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Fiduciary investments.</heading>
<chapeau> Voting securities or assets acquired by a bank or other company (other than a trust that is a company) in good faith in a fiduciary capacity, if the voting securities or assets are:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Held in the ordinary course of business; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Not acquired for the benefit of the company or its shareholders, employees, or subsidiaries.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Securities eligible for investment by national bank.</heading>
<content> Voting securities of the kinds and amounts explicitly eligible by federal statute (other than section 4 of the Bank Service Corporation Act, <ref href="/us/usc/t12/s1864">12 U.S.C. 1864</ref>) for investment by a national bank, and voting securities acquired prior to <date date="1971-06-30">June 30, 1971</date>, in reliance on section 4(c)(5) of the BHC Act and interpretations of the Comptroller of the Currency under section 5136 of the Revised Statutes (<ref href="/us/usc/t12/s24/7">12 U.S.C. 24(7)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Securities or property representing 5 percent or less of a company.</heading>
<content> Voting securities of a company or property that, in the aggregate, represent 5 percent or less of the outstanding shares of any class of voting securities of a company, or that represent a 5 percent interest or less in the property, subject to the provisions of <ref href="/us/cfr/t12/s225.137">12 CFR 225.137</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Securities of investment company.</heading>
<content> Voting securities of an investment company that is solely engaged in investing in securities and that does not own or control more than 5 percent of the outstanding shares of any class of voting securities of any company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Assets acquired in ordinary course of business.</heading>
<content> Assets of a company acquired in the ordinary course of business, subject to the provisions of <ref href="/us/cfr/t12/s225.132">12 CFR 225.132</ref>, if the assets relate to activities in <?page num="178"?>which the acquiring company has previously received Board approval under this regulation to engage.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Asset acquisitions by lending company or industrial bank.</heading>
<chapeau> Assets of an office(s) of a company, all or substantially all of which relate to making, acquiring, or servicing loans if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/d/8/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The acquiring company has previously received Board approval under this regulation or is not required to obtain prior Board approval under this regulation to engage in lending activities or industrial banking activities;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/8/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The assets acquired during any 12-month period do not represent more than 50 percent of the risk-weighted assets (on a consolidated basis) of the acquiring lending company or industrial bank, or more than $100 million, whichever amount is less;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/8/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The assets acquired do not represent more than 50 percent of the selling company's consolidated assets that are devoted to lending activities or industrial banking business;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/8/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The acquiring company notifies the Reserve Bank of the acquisition within 30 days after the acquisition; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/d/8/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The acquiring company, after giving effect to the transaction, meets the requirements of <ref href="/us/cfr/t12/p217">12 CFR part 217</ref>, and the Board has not previously notified the acquiring company that it may not acquire assets under the exemption in this paragraph (d).</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Acquisition of securities by subsidiary banks—</heading>
<paragraph identifier="/us/cfr/t12/s225.22/e/1" class="inline">
<num value="1">(1) </num>
<heading>National bank.</heading>
<content> A national bank or its subsidiary may, without the Board's approval under this subpart, acquire or retain securities on the basis of section 4(c)(5) of the BHC Act in accordance with the regulations of the Comptroller of the Currency.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>State bank.</heading>
<chapeau> A state-chartered bank or its subsidiary may, insofar as federal law is concerned, and without the Board's prior approval under this subpart:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Acquire or retain securities, on the basis of section 4(c)(5) of the BHC Act, of the kinds and amounts explicitly eligible by federal statute for investment by a national bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Acquire or retain all (but, except for directors' qualifying shares, not less than all) of the securities of a company that engages solely in activities in which the parent bank may engage, at locations at which the bank may engage in the activity, and subject to the same limitations as if the bank were engaging in the activity directly.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Activities and securities of new bank holding companies.</heading>
<content> A company that becomes a bank holding company may, for a period of two years, engage in nonbanking activities and control voting securities or assets of a nonbank subsidiary, if the bank holding company engaged in such activities or controlled such voting securities or assets on the date it became a bank holding company. The Board may grant requests for up to three one-year extensions of the two-year period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Grandfathered activities and securities.</heading>
<chapeau> Unless the Board orders divestiture or termination under section 4(a)(2) of the BHC Act, a “company covered in 1970,” as defined in section 2(b) of the BHC Act, may:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.22/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Retain voting securities or assets and engage in activities that it has lawfully held or engaged in continuously since <date date="1968-06-30">June 30, 1968</date>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Acquire voting securities of any newly formed company to engage in such activities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.22/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Securities or activities exempt under Regulation K.</heading>
<content> A bank holding company may acquire voting securities or assets and engage in activities as authorized in Regulation K (<ref href="/us/cfr/t12/p211">12 CFR part 211</ref>).</content>
</paragraph>
<source style="-uslm-sgm:CITA">[ Reg. Y, <ref href="/us/fr/62/9329">62 FR 9329</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/78/62291">78 FR 62291</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/70673">80 FR 70673</ref>, <date date="2015-11-16" role="amended">Nov. 16, 2015</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.23">
<num value="225.23" style="-uslm-sgm:SECTNO">§ 225.23 </num>
<heading style="-uslm-sgm:SUBJECT">Expedited action for certain nonbanking proposals by well-run bank holding companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.23/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Filing of notice—</heading>
<paragraph identifier="/us/cfr/t12/s225.23/a/1" class="inline">
<num value="1">(1) </num>
<heading>Information required.</heading>
<chapeau>
<p> A bank holding company that meets the requirements of paragraph (c) of this section may satisfy the notice requirement of this subpart in connection with the acquisition of voting securities or assets of a company engaged in nonbanking activities that the Board has permitted by order or <?page num="179"?>regulation (other than an insured depository institution), <ref id="fnd3e11142" idref="fnd3e11151" style="-uslm-sgm:SU">2</ref> or a proposal to engage <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">de novo,</inline> either directly or indirectly, in a nonbanking activity that the Board has permitted by order or by regulation, by providing the appropriate Reserve Bank with a written notice containing the following:</p>
<footnote id="fnd3e11151" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11142" style="-uslm-sgm:SU">2</ref> A bank holding company may acquire voting securities or assets of a savings association or other insured depository institution that is not a bank by using the procedures in <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> of subpart B if the bank holding company and the proposal qualify under that section as if the savings association or other institution were a bank for purposes of that section.</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A certification that all of the criteria in paragraph (c) of this section are met;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A description of the transaction that includes identification of the companies involved in the transaction, the activities to be conducted, and a commitment to conduct the proposed activities in conformity with the Board's regulations and orders governing the conduct of the proposed activity;
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> If the proposal involves an acquisition of a going concern:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> If the bank holding company has consolidated assets of $3 billion or more, an abbreviated consolidated <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> balance sheet for the acquiring bank holding company as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction, consolidated <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> risk-based capital ratios for the acquiring bank holding company as of the most recent quarter, a description of the purchase price and the terms and sources of funding for the transaction, and the total revenue and net income of the company to be acquired;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the bank holding company has consolidated assets of less than $3 billion, a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> parent-only balance sheet as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction, a description of the purchase price and the terms and sources of funding for the transaction and the sources and schedule for retiring any debt incurred in the transaction, and the total assets, off-balance sheet items, revenue and net income of the company to be acquired; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> For each insured depository institution whose Tier 1 capital, total capital, total assets or risk-weighted assets change as a result of the transaction, the total risk-weighted assets, total assets, Tier 1 capital and total capital of the institution on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> basis;
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Identification of the geographic markets in which competition would be affected by the proposal, a description of the effect of the proposal on competition in the relevant markets, a list of the major competitors in that market in the proposed activity if the affected market is local in nature, and, if requested, the market indexes for the relevant market; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/a/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> A description of the public benefits that can reasonably be expected to result from the transaction.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Waiver of unnecessary information.</heading>
<content> The Reserve Bank may reduce the information requirements in paragraphs (a)(1) (iii) and (iv) of this section as appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<paragraph identifier="/us/cfr/t12/s225.23/b/1" class="inline">
<num value="1">(1) </num>
<heading>Action on proposals under this section.</heading>
<content> The Board or the appropriate Reserve Bank shall act on a proposal submitted under this section, or notify the bank holding company that the transaction is subject to the procedure in <ref href="/us/cfr/t12/s225.24">§ 225.24</ref>, within 12 business days following the filing of all of the information required in paragraph (a) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Acceptance of notice if expedited procedure not available.</heading>
<content> If the Board or the Reserve Bank determines, after the filing of a notice under this section, that a bank holding company may not use the procedure in this section and must file a notice under <ref href="/us/cfr/t12/s225.24">§ 225.24</ref>, the notice shall be deemed accepted for purposes of <ref href="/us/cfr/t12/s225.24">§ 225.24</ref> as of the date that the notice was filed under this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Criteria for use of expedited procedure.</heading>
<chapeau> The procedure in this section is available only if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.23/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Well-capitalized organization—</heading>
<paragraph identifier="/us/cfr/t12/s225.23/c/1/i" class="inline">
<num value="i">(i) </num>
<heading>Bank holding company.</heading>
<content> Both at the time of and immediately after the proposed transaction, the acquiring bank holding company is well-capitalized;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Insured depository institutions.</heading>
<chapeau> Both at the time of and immediately after the transaction:
<?page num="180"?></chapeau>
<paragraph identifier="/us/cfr/t12/s225.23/c/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The lead insured depository institution of the acquiring bank holding company is well-capitalized;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Well-capitalized insured depository institutions control at least 80 percent of the total risk-weighted assets of insured depository institutions controlled by the acquiring bank holding company; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> No insured depository institution controlled by the acquiring bank holding company is undercapitalized;</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Well managed organization—</heading>
<paragraph identifier="/us/cfr/t12/s225.23/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>Satisfactory examination ratings.</heading>
<content> At the time of the transaction, the acquiring bank holding company, its lead insured depository institution, and insured depository institutions that control at least 80 percent of the total risk-weighted assets of insured depository institutions controlled by the holding company are well managed and have received at least a satisfactory rating for compliance at their most recent examination if such rating was given;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>No poorly managed institutions.</heading>
<content> No insured depository institution controlled by the acquiring bank holding company has received 1 of the 2 lowest composite ratings at the later of the institution's most recent examination or subsequent review by the appropriate federal banking agency for the institution.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Recently acquired institutions excluded.</heading>
<chapeau> Any insured depository institution that has been acquired by the bank holding company during the 12-month period preceding the date on which written notice is filed under paragraph (a) of this section may be excluded for purposes of paragraph (c)(2)(ii) of this section if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.23/c/2/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The bank holding company has developed a plan acceptable to the appropriate federal banking agency for the institution to restore the capital and management of the institution; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/2/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> All insured depository institutions excluded under this paragraph represent, in the aggregate, less than 10 percent of the aggregate total risk-weighted assets of all insured depository institutions controlled by the bank holding company;</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Permissible activity.</heading>
<paragraph identifier="/us/cfr/t12/s225.23/c/3/i" class="inline">
<num value="i"> (i)</num>
<content> The Board has determined by regulation or order that each activity proposed to be conducted is so closely related to banking, or managing or controlling banks, as to be a proper incident thereto; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The Board has not indicated that proposals to engage in the activity are subject to the notice procedure provided in <ref href="/us/cfr/t12/s225.24">§ 225.24</ref>;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Competitive criteria—</heading>
<paragraph identifier="/us/cfr/t12/s225.23/c/4/i" class="inline">
<num value="i">(i) </num>
<heading>Competitive screen.</heading>
<chapeau> In the case of the acquisition of a going concern, the acquisition, without regard to any divestitures proposed by the acquiring bank holding company, does not cause:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.23/c/4/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The acquiring bank holding company to control in excess of 35 percent of the market share in any relevant market; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The Herfindahl-Hirschman index to increase by more than 200 points in any relevant market with a post-acquisition index of at least 1800; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Other competitive factors.</heading>
<content> The Board has not indicated that the transaction is subject to close scrutiny on competitive grounds;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Size of acquisition—</heading>
<paragraph identifier="/us/cfr/t12/s225.23/c/5/i" class="inline">
<num value="i">(i) </num>
<heading>In general—</heading>
<paragraph identifier="/us/cfr/t12/s225.23/c/5/i/A" class="inline">
<num value="A">(A) </num>
<heading>Limited growth.</heading>
<content> Except as provided in paragraph (c)(5)(ii) of this section, the sum of aggregate risk-weighted assets to be acquired in the proposal and the aggregate risk-weighted assets acquired by the acquiring bank holding company in all other qualifying transactions does not exceed 35 percent of the consolidated risk-weighted assets of the acquiring bank holding company. For purposes of this paragraph, “other qualifying transactions” means any transaction approved under this section or <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> during the 12 months prior to filing the notice under this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/5/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Consideration paid.</heading>
<content> The gross consideration to be paid by the acquiring bank holding company in the proposal does not exceed 15 percent of the consolidated Tier 1 capital of the acquiring bank holding company; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/5/i/C" style="-uslm-sgm:P">
<num value="C">(C) </num>
<heading>Individual size limitation.</heading>
<content> The total risk-weighted assets to be acquired do not exceed $7.5 billion;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Small bank holding companies.</heading>
<content> Paragraph (c)(5)(i)(A) of this section shall not apply if, immediately following consummation of the proposed transaction, the consolidated risk-weighted assets of the acquiring bank holding company are less than $300 million;
<?page num="181"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Supervisory actions.</heading>
<content> During the 12-month period ending on the date on which the bank holding company proposes to consummate the proposed transaction, no formal administrative order, including a written agreement, cease and desist order, capital directive, prompt corrective action directive, asset maintenance agreement, or other formal enforcement order is or was outstanding against the bank holding company or any insured depository institution subsidiary of the holding company, and no formal administrative enforcement proceeding involving any such enforcement action, order, or directive is or was pending; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Notification.</heading>
<content> The bank holding company has not been notified by the Board, in its discretion, prior to the expiration of the period in paragraph (b) of this section that a notice under <ref href="/us/cfr/t12/s225.24">§ 225.24</ref> is required in order to permit closer review of any potential adverse effect or other matter related to the factors that must be considered under this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.23/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Branches and agencies of foreign banking organizations.</heading>
<content> For purposes of this section, a U.S. branch or agency of a foreign banking organization shall be considered to be an insured depository institution.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9329">62 FR 9329</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/66/415">66 FR 415</ref>, <date date="2001-01-03" role="amended">Jan. 3, 2001</date>; <ref href="/us/fr/71/9902">71 FR 9902</ref>, <date date="2006-02-28" role="amended">Feb. 28, 2006</date>; <ref href="/us/fr/78/62291">78 FR 62291</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/20157">80 FR 20157</ref>, <date date="2015-04-15" role="amended">Apr. 15, 2015</date>; <ref href="/us/fr/83/44199">83 FR 44199</ref>, <date date="2018-08-30" role="amended">Aug. 30, 2018</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.24">
<num value="225.24" style="-uslm-sgm:SECTNO">§ 225.24 </num>
<heading style="-uslm-sgm:SUBJECT">Procedures for other nonbanking proposals.</heading>
<paragraph identifier="/us/cfr/t12/s225.24/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Notice required for nonbanking activities.</heading>
<chapeau> Except as provided in <ref href="/us/cfr/t12/s225.22">§§ 225.22</ref> and 225.23, a notice for the Board's prior approval under <ref href="/us/cfr/t12/s225.21/a">§ 225.21(a)</ref> to engage in or acquire a company engaged in a nonbanking activity shall be filed by a bank holding company (including a company seeking to become a bank holding company) with the appropriate Reserve Bank in accordance with this section and the Board's Rules of Procedure (<ref href="/us/cfr/t12/s262.3">12 CFR 262.3</ref>).</chapeau>
<paragraph identifier="/us/cfr/t12/s225.24/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Engaging de novo in listed activities.</heading>
<content> A bank holding company seeking to commence or to engage <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">de novo,</inline> either directly or through a subsidiary, in a nonbanking activity listed in <ref href="/us/cfr/t12/s225.28">§ 225.28</ref> shall file a notice containing a description of the activities to be conducted and the identity of the company that will conduct the activity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Acquiring company engaged in listed activities.</heading>
<chapeau> A bank holding company seeking to acquire or control voting securities or assets of a company engaged in a nonbanking activity listed in <ref href="/us/cfr/t12/s225.28">§ 225.28</ref> shall file a notice containing the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A description of the proposal, including a description of each proposed activity, and the effect of the proposal on competition among entities engaging in each proposed activity in each relevant market with relevant market indexes;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The identity of any entity involved in the proposal, and, if the notificant proposes to conduct the activity through an existing subsidiary, a description of the existing activities of the subsidiary;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement of the public benefits that can reasonably be expected to result from the proposal;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<chapeau> If the bank holding company has consolidated assets of $150 million or more:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/iv/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Parent company and consolidated <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> balance sheets for the acquiring bank holding company as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/iv/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Consolidated <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> risk-based capital and leverage ratio calculations for the acquiring bank holding company as of the most recent quarter; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/iv/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A description of the purchase price and the terms and sources of funding for the transaction;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<chapeau> If the bank holding company has consolidated assets of less than $150 million:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/v/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> parent-only balance sheet as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/v/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A description of the purchase price and the terms and sources of funding for the transaction and, if the transaction is debt funded, one-year income statement and cash flow projections for the parent company, and the sources and schedule for retiring any debt incurred in the transaction;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> For each insured depository institution whose Tier 1 capital, total <?page num="182"?>capital, total assets or risk-weighted assets change as a result of the transaction, the total risk-weighted assets, total assets, Tier 1 capital and total capital of the institution on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> basis; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> A description of the management expertise, internal controls and risk management systems that will be utilized in the conduct of the proposed activities; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/a/2/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> A copy of the purchase agreements, and balance sheet and income statements for the most recent quarter and year-end for any company to be acquired.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Notice provided to Board.</heading>
<content> The Reserve Bank shall immediately send to the Board a copy of any notice received under paragraphs (a)(2) or (a)(3) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Notice to public—</heading>
<paragraph identifier="/us/cfr/t12/s225.24/c/1" class="inline">
<num value="1">(1) </num>
<heading>Listed activities and activities approved by order.</heading>
<paragraph identifier="/us/cfr/t12/s225.24/c/1/i" class="inline">
<num value="i"> (i)</num>
<chapeau> In a case involving an activity listed in <ref href="/us/cfr/t12/s225.28">§ 225.28</ref> or previously approved by the Board by order, the Reserve Bank shall notify the Board for publication in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> immediately upon receipt by the Reserve Bank of:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.24/c/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A notice under this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/c/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A written request that notice of a proposal under this section or <ref href="/us/cfr/t12/s225.23">§ 225.23</ref> be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register.</inline> Such a request may request that <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> publication occur up to 15 calendar days prior to submission of a notice under this subpart.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> notice published under this paragraph shall invite public comment on the proposal, generally for a period of 15 days.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>New activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.24/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> In the case of a notice under this subpart involving an activity that is not listed in <ref href="/us/cfr/t12/s225.28">§ 225.28</ref> and that has not been previously approved by the Board by order, the Board shall send notice of the proposal to the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> for publication, unless the Board determines that the notificant has not demonstrated that the activity is so closely related to banking or to managing or controlling banks as to be a proper incident thereto. The <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> notice shall invite public comment on the proposal for a reasonable period of time, generally for 30 days.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Time for publication.</heading>
<content> The Board shall send the notice required under this paragraph to the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> within 10 business days of acceptance by the Reserve Bank. The Board may extend the 10-day period for an additional 30 calendar days upon notice to the notificant. In the event notice of a proposal is not published for comment, the Board shall inform the notificant of the reasons for the decision.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Action on notices—</heading>
<paragraph identifier="/us/cfr/t12/s225.24/d/1" class="inline">
<num value="1">(1) </num>
<heading>Reserve Bank action—</heading>
<paragraph identifier="/us/cfr/t12/s225.24/d/1/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> Within 30 calendar days after receipt by the Reserve Bank of a notice filed pursuant to paragraphs (a)(1) or (a)(2) of this section, the Reserve Banks shall:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.24/d/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Approve the notice; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Refer the notice to the Board for decision because action under delegated authority is not appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Return of incomplete notice.</heading>
<content> Within 7 calendar days of receipt, the Reserve Bank may return any notice as informationally incomplete that does not contain all of the information required by this subpart. The return of such a notice shall be deemed action on the notice.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Notice of action.</heading>
<content> The Reserve Bank shall promptly notify the bank holding company of any action or referral under this paragraph.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Close of public comment period.</heading>
<content> The Reserve Bank shall not approve any notice under this paragraph (d)(1) of this section prior to the third business day after the close of the public comment period, unless an emergency exists that requires expedited or immediate action.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Board action; internal schedule.</heading>
<content> The Board seeks to act on every notice referred to it for decision within 60 days of the date that the notice is filed with the Reserve Bank. If the Board is unable to act within this period, the Board shall notify the notificant and explain the reasons and the date by which the Board expects to act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<paragraph identifier="/us/cfr/t12/s225.24/d/3/i" class="inline">
<num value="i">(i) </num>
<heading>Required time limit for System action.</heading>
<content> The Board or the Reserve Bank shall act on any notice under this section within 60 days after the submission of a complete notice. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Extension of required period for action—</heading>
<paragraph identifier="/us/cfr/t12/s225.24/d/3/ii/A" class="inline">
<num value="A">(A) </num>
<heading>In general.</heading>
<content> The Board may extend the 60-day period required for Board action under paragraph (d)(3)(i) <?page num="183"?>of this section for an additional 30 days upon notice to the notificant. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Unlisted activities.</heading>
<content> If a notice involves a proposal to engage in an activity that is not listed in <ref href="/us/cfr/t12/s225.28">§ 225.28</ref>, the Board may extend the period required for Board action under paragraph (d)(3)(i) of this section for an additional 90 days. This 90-day extension is in addition to the 30-day extension period provided in paragraph (d)(3)(ii)(A) of this section. The Board shall notify the notificant that the notice period has been extended and explain the reasons for the extension. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Requests for additional information.</heading>
<content> The Board or the Reserve Bank may modify the information requirements under this section or at any time request any additional information that either believes is needed for a decision on any notice under this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.24/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Tolling of period.</heading>
<content> The Board or the Reserve Bank may at any time extend or toll the time period for action on a notice for any period with the consent of the notificant.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9332">62 FR 9332</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/62/60640">62 FR 60640</ref>, <date date="1997-11-12" role="amended">Nov. 12, 1997</date>; <ref href="/us/fr/65/14438">65 FR 14438</ref>, <date date="2000-03-17" role="amended">Mar. 17, 2000</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.25">
<num value="225.25" style="-uslm-sgm:SECTNO">§ 225.25 </num>
<heading style="-uslm-sgm:SUBJECT">Hearings, alteration of activities, and other matters.</heading>
<paragraph identifier="/us/cfr/t12/s225.25/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Hearings—</heading>
<paragraph identifier="/us/cfr/t12/s225.25/a/1" class="inline">
<num value="1">(1) </num>
<heading>Procedure to request hearing.</heading>
<content> Any request for a hearing on a notice under this subpart shall comply with the provisions of <ref href="/us/cfr/t12/s262.3/e">12 CFR 262.3(e)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Determination to hold hearing.</heading>
<content> The Board may order a formal or informal hearing or other proceeding on a notice as provided in <ref href="/us/cfr/t12/s262.3/i/2">12 CFR 262.3(i)(2)</ref>. The Board shall order a hearing only if there are disputed issues of material fact that cannot be resolved in some other manner.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Extension of period for hearing.</heading>
<content> The Board may extend the time for action on any notice for such time as is reasonably necessary to conduct a hearing and evaluate the hearing record. Such extension shall not exceed 91 calendar days after the date of submission to the Board of the complete record on the notice. The procedures for computation of the 91-day rule as set forth in <ref href="/us/cfr/t12/s225.16/f">§ 225.16(f)</ref> apply to notices under this subpart that involve hearings.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Approval through failure to act.</heading>
<paragraph identifier="/us/cfr/t12/s225.25/b/1" class="inline">
<num value="1"> (1)</num>
<content> Except as provided in paragraph (a) of this section or <ref href="/us/cfr/t12/s225.24/d/5">§ 225.24(d)(5)</ref>, a notice under this subpart shall be deemed to be approved at the conclusion of the period that begins on the date the complete notice is received by the Reserve Bank or the Board and that ends 60 calendar days plus any applicable extension and tolling period thereafter. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Complete notice.</heading>
<content> For purposes of paragraph (b)(1) of this section, a notice shall be deemed complete at such time as it contains all information required by this subpart and all other information requested by the Board or the Reserve Bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Notice to expand or alter nonbanking activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.25/c/1" class="inline">
<num value="1">(1) </num>
<heading>De novo expansion.</heading>
<chapeau> A notice under this subpart is required to open a new office or to form a subsidiary to engage in, or to relocate an existing office engaged in, a nonbanking activity that the Board has previously approved for the bank holding company under this regulation, only if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.25/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The Board's prior approval was limited geographically;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The activity is to be conducted in a country outside of the United States and the bank holding company has not previously received prior Board approval under this regulation to engage in the activity in that country; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The Board or appropriate Reserve Bank has notified the company that a notice under this subpart is required.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Activities outside United States.</heading>
<content> With respect to activities to be engaged in outside the United States that require approval under this subpart, the procedures of this section apply only to activities to be engaged in directly by a bank holding company that is not a qualifying foreign banking organization, or by a nonbank subsidiary of a bank holding company approved under this subpart. Regulation K (<ref href="/us/cfr/t12/p211">12 CFR part 211</ref>) governs other international operations of bank holding companies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Alteration of nonbanking activity.</heading>
<content> Unless otherwise permitted by the Board, a notice under this subpart is required to alter a nonbanking activity in any material respect from that considered by the Board in acting on the application or notice to engage in the activity.
<?page num="184"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.25/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Emergency savings association acquisitions.</heading>
<content> In the case of a notice to acquire a savings association, the Board may modify or dispense with the public notice and hearing requirements of this subpart if the Board finds that an emergency exists that requires the Board to act immediately and the primary federal regulator of the institution concurs.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9333">62 FR 9333</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended by Reg. Y, <ref href="/us/fr/62/60640">62 FR 60640</ref>, <date date="1997-11-12" role="amended">Nov. 12, 1997</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.26">
<num value="225.26" style="-uslm-sgm:SECTNO">§ 225.26 </num>
<heading style="-uslm-sgm:SUBJECT">Factors considered in acting on nonbanking proposals.</heading>
<paragraph identifier="/us/cfr/t12/s225.26/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> In evaluating a notice under <ref href="/us/cfr/t12/s225.23">§ 225.23</ref> or <ref href="/us/cfr/t12/s225.24">§ 225.24</ref>, the Board shall consider whether the notificant's performance of the activities can reasonably be expected to produce benefits to the public (such as greater convenience, increased competition, and gains in efficiency) that outweigh possible adverse effects (such as undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.26/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Financial and managerial resources.</heading>
<content> Consideration of the factors in paragraph (a) of this section includes an evaluation of the financial and managerial resources of the notificant, including its subsidiaries and any company to be acquired, the effect of the proposed transaction on those resources, and the management expertise, internal control and risk-management systems, and capital of the entity conducting the activity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.26/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Competitive effect of de novo proposals.</heading>
<content> Unless the record demonstrates otherwise, the commencement or expansion of a nonbanking activity <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">de novo</inline> is presumed to result in benefits to the public through increased competition.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.26/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Denial for lack of information.</heading>
<content> The Board may deny any notice submitted under this subpart if the notificant neglects, fails, or refuses to furnish all information required by the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.26/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Conditional approvals.</heading>
<content> The Board may impose conditions on any approval, including conditions to address permissibility, financial, managerial, safety and soundness, competitive, compliance, conflicts of interest, or other concerns to ensure that approval is consistent with the relevant statutory factors and other provisions of the BHC Act.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.27">
<num value="225.27" style="-uslm-sgm:SECTNO">§ 225.27 </num>
<heading style="-uslm-sgm:SUBJECT">Procedures for determining scope of nonbanking activities.</heading>
<paragraph identifier="/us/cfr/t12/s225.27/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Advisory opinions regarding scope of previously approved nonbanking activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.27/a/1" class="inline">
<num value="1">(1) </num>
<heading>Request for advisory opinion.</heading>
<content> Any person may submit a request to the Board for an advisory opinion regarding the scope of any permissible nonbanking activity. The request shall be submitted in writing to the Board and shall identify the proposed parameters of the activity, or describe the service or product that will be provided, and contain an explanation supporting an interpretation regarding the scope of the permissible nonbanking activity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.27/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Response to request.</heading>
<content> The Board shall provide an advisory opinion within 45 days of receiving a written request under this paragraph.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.27/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Procedure for consideration of new activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.27/b/1" class="inline">
<num value="1">(1) </num>
<heading>Initiation of proceeding.</heading>
<content> The Board may, at any time, on its own initiative or in response to a written request from any person, initiate a proceeding to determine whether any activity is so closely related to banking or managing or controlling banks as to be a proper incident thereto.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.27/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Requests for determination.</heading>
<content> Any request for a Board determination that an activity is so closely related to banking or managing or controlling banks as to be a proper incident thereto, shall be submitted to the Board in writing, and shall contain evidence that the proposed activity is so closely related to banking or managing or controlling banks as to be a proper incident thereto.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.27/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Publication.</heading>
<content> The Board shall publish in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> notice that it is considering the permissibility of a new activity and invite public comment for a period of at least 30 calendar days. In the case of a request submitted under paragraph (b) of this section, the Board may determine not to publish notice of the request if the Board determines that the requester has provided no reasonable basis for a determination that the activity is so closely related to banking, or managing or controlling banks as to be a <?page num="185"?>proper incident thereto, and notifies the requester of the determination.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.27/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Comments and hearing requests.</heading>
<content> Any comment and any request for a hearing regarding a proposal under this section shall comply with the provisions of <ref href="/us/cfr/t12/s262.3/e">§ 262.3(e)</ref> of the Board's Rules of Procedure (<ref href="/us/cfr/t12/s262.3/e">12 CFR 262.3(e)</ref>).
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.28">
<num value="225.28" style="-uslm-sgm:SECTNO">§ 225.28 </num>
<heading style="-uslm-sgm:SUBJECT">List of permissible nonbanking activities.</heading>
<paragraph identifier="/us/cfr/t12/s225.28/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Closely related nonbanking activities.</heading>
<content> The activities listed in paragraph (b) of this section are so closely related to banking or managing or controlling banks as to be a proper incident thereto, and may be engaged in by a bank holding company or its subsidiary in accordance with the requirements of this regulation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Activities determined by regulation to be permissible—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/1" class="inline">
<num value="1">(1) </num>
<heading>Extending credit and servicing loans.</heading>
<content> Making, acquiring, brokering, or servicing loans or other extensions of credit (including factoring, issuing letters of credit and accepting drafts) for the company's account or for the account of others.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Activities related to extending credit.</heading>
<chapeau> Any activity usual in connection with making, acquiring, brokering or servicing loans or other extensions of credit, as determined by the Board. The Board has determined that the following activities are usual in connection with making, acquiring, brokering or servicing loans or other extensions of credit:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Real estate and personal property appraising.</heading>
<content> Performing appraisals of real estate and tangible and intangible personal property, including securities.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Arranging commercial real estate equity financing.</heading>
<content> Acting as intermediary for the financing of commercial or industrial income-producing real estate by arranging for the transfer of the title, control, and risk of such a real estate project to one or more investors, if the bank holding company and its affiliates do not have an interest in, or participate in managing or developing, a real estate project for which it arranges equity financing, and do not promote or sponsor the development of the property.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Check-guaranty services.</heading>
<content> Authorizing a subscribing merchant to accept personal checks tendered by the merchant's customers in payment for goods and services, and purchasing from the merchant validly authorized checks that are subsequently dishonored.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Collection agency services.</heading>
<content> Collecting overdue accounts receivable, either retail or commercial.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Credit bureau services.</heading>
<content> Maintaining information related to the credit history of consumers and providing the information to a credit grantor who is considering a borrower's application for credit or who has extended credit to the borrower.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi) </num>
<heading>Asset management, servicing, and collection activities.</heading>
<content>
<p> Engaging under contract with a third party in asset management, servicing, and collection <ref id="fnd3e11699" idref="fnd3e11706" style="-uslm-sgm:SU">3</ref> of assets of a type that an insured depository institution may originate and own, if the company does not engage in real property management or real estate brokerage services as part of these services.</p>
<footnote id="fnd3e11706" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11699" style="-uslm-sgm:SU">3</ref> Asset management services include acting as agent in the liquidation or sale of loans and collateral for loans, including real estate and other assets acquired through foreclosure or in satisfaction of debts previously contracted.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii) </num>
<heading>Acquiring debt in default.</heading>
<chapeau> Acquiring debt that is in default at the time of acquisition, if the company:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/vii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content>
<p> Divests shares or assets securing debt in default that are not permissible investments for bank holding companies, within the time period required for divestiture of property acquired in satisfaction of a debt previously contracted under <ref href="/us/cfr/t12/s225.12/b">§ 225.12(b)</ref>; <ref id="fnd3e11716" idref="fnd3e11721" style="-uslm-sgm:SU">4</ref>
</p>
<footnote id="fnd3e11721" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11716" style="-uslm-sgm:SU">4</ref> For this purpose, the divestiture period for property begins on the date that the debt is acquired, regardless of when legal title to the property is acquired.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/vii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Stands only in the position of a creditor and does not purchase equity of obligors of debt in default (other than equity that may be collateral for such debt); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/vii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Does not acquire debt in default secured by shares of a bank or bank holding company.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/2/viii" style="-uslm-sgm:P">
<num value="viii">(viii) </num>
<heading>Real estate settlement servicing.</heading>
<content>
<p> Providing real estate settlement services. <ref id="fnd3e11733" idref="fnd3e11738" style="-uslm-sgm:SU">5</ref>
</p>
<footnote id="fnd3e11738" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11733" style="-uslm-sgm:SU">5</ref> For purposes of this section, real estate settlement services do not include providing title insurance as principal, agent, or broker.</p>
</content>
</footnote>
<?page num="186"?>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Leasing personal or real property.</heading>
<chapeau> Leasing personal or real property or acting as agent, broker, or adviser in leasing such property if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content>
<p> The lease is on a nonoperating basis; <ref id="fnd3e11749" idref="fnd3e11755" style="-uslm-sgm:SU">6</ref>
</p>
<footnote id="fnd3e11755" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11749" style="-uslm-sgm:SU">6</ref> The requirement that the lease be on a nonoperating basis means that the bank holding company may not, directly or indirectly, engage in operating, servicing, maintaining, or repairing leased property during the lease term. For purposes of the leasing of automobiles, the requirement that the lease be on a nonoperating basis means that the bank holding company may not, directly or indirectly: (1) Provide servicing, repair, or maintenance of the leased vehicle during the lease term; (2) purchase parts and accessories in bulk or for an individual vehicle after the lessee has taken delivery of the vehicle; (3) provide the loan of an automobile during servicing of the leased vehicle; (4) purchase insurance for the lessee; or (5) provide for the renewal of the vehicle's license merely as a service to the lessee where the lessee could renew the license without authorization from the lessor. The bank holding company may arrange for a third party to provide these services or products.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The initial term of the lease is at least 90 days;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> In the case of leases involving real property:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/3/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> At the inception of the initial lease, the effect of the transaction will yield a return that will compensate the lessor for not less than the lessor's full investment in the property plus the estimated total cost of financing the property over the term of the lease from rental payments, estimated tax benefits, and the estimated residual value of the property at the expiration of the initial lease; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/3/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The estimated residual value of property for purposes of paragraph (b)(3)(iii)(A) of this section shall not exceed 25 percent of the acquisition cost of the property to the lessor.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Operating nonbank depository institutions—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/4/i" class="inline">
<num value="i">(i) </num>
<heading>Industrial banking.</heading>
<content> Owning, controlling, or operating an industrial bank, Morris Plan bank, or industrial loan company, so long as the institution is not a bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Operating savings association.</heading>
<content> Owning, controlling, or operating a savings association, if the savings association engages only in deposit-taking activities, lending, and other activities that are permissible for bank holding companies under this subpart C.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Trust company functions.</heading>
<content> Performing functions or activities that may be performed by a trust company (including activities of a fiduciary, agency, or custodial nature), in the manner authorized by federal or state law, so long as the company is not a bank for purposes of section 2(c) of the Bank Holding Company Act.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Financial and investment advisory activities.</heading>
<chapeau> Acting as investment or financial advisor to any person, including (without, in any way, limiting the foregoing):</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/6/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Serving as investment adviser (as defined in section 2(a)(20) of the Investment Company Act of 1940, <ref href="/us/usc/t15/s80a–2/a/20">15 U.S.C. 80a–2(a)(20)</ref>), to an investment company registered under that act, including sponsoring, organizing, and managing a closed-end investment company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Furnishing general economic information and advice, general economic statistical forecasting services, and industry studies;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content>
<p> Providing advice in connection with mergers, acquisitions, divestitures, investments, joint ventures, leveraged buyouts, recapitalizations, capital structurings, financing transactions and similar transactions, and conducting financial feasibility studies;<ref id="fnd3e11796" idref="fnd3e11801" style="-uslm-sgm:SU">7</ref>
</p>
<footnote id="fnd3e11801" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11796" style="-uslm-sgm:SU">7</ref> Feasibility studies do not include assisting management with the planning or marketing for a given project or providing general operational or management advice.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/6/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Providing information, statistical forecasting, and advice with respect to any transaction in foreign exchange, swaps, and similar transactions, commodities, and any forward contract, option, future, option on a future, and similar instruments;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/6/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Providing educational courses, and instructional materials to consumers on individual financial management matters; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/6/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Providing tax-planning and tax-preparation services to any person.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Agency transactional services for customer investments—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/i" class="inline">
<num value="i">(i) </num>
<heading>Securities brokerage.</heading>
<content> Providing securities brokerage services (including securities clearing and/or securities execution services on an exchange), whether alone or in combination with investment advisory <?page num="187"?>services, and incidental activities (including related securities credit activities and custodial services), if the securities brokerage services are restricted to buying and selling securities solely as agent for the account of customers and do not include securities underwriting or dealing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Riskless principal transactions.</heading>
<chapeau> Buying and selling in the secondary market all types of securities on the order of customers as a “riskless principal” to the extent of engaging in a transaction in which the company, after receiving an order to buy (or sell) a security from a customer, purchases (or sells) the security for its own account to offset a contemporaneous sale to (or purchase from) the customer. This does not include:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content>
<p> Selling bank-ineligible securities <ref id="fnd3e11827" idref="fnd3e11833" style="-uslm-sgm:SU">8</ref> at the order of a customer that is the issuer of the securities, or selling bank-ineligible securities in any transaction where the company has a contractual agreement to place the securities as agent of the issuer; or</p>
<footnote id="fnd3e11833" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11827" style="-uslm-sgm:SU">8</ref> A bank-ineligible security is any security that a State member bank is not permitted to underwrite or deal in under <ref href="/us/usc/t12/s24">12 U.S.C. 24</ref> and 335.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content>
<p> Acting as a riskless principal in any transaction involving a bank-ineligible security for which the company or any of its affiliates acts as underwriter (during the period of the underwriting or for 30 days thereafter) or dealer. <ref id="fnd3e11838" idref="fnd3e11843" style="-uslm-sgm:SU">9</ref>
</p>
<footnote id="fnd3e11843" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11838" style="-uslm-sgm:SU">9</ref> A company or its affiliates may not enter quotes for specific bank-ineligible securities in any dealer quotation system in connection with the company's riskless principal transactions; except that the company or its affiliates may enter “bid” or “ask” quotations, or publish “offering wanted” or “bid wanted” notices on trading systems other than NASDAQ or an exchange, if the company or its affiliate does not enter price quotations on different sides of the market for a particular security during any two-day period.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Private placement services.</heading>
<content> Acting as agent for the private placement of securities in accordance with the requirements of the Securities Act of 1933 (1933 Act) and the rules of the Securities and Exchange Commission, if the company engaged in the activity does not purchase or repurchase for its own account the securities being placed, or hold in inventory unsold portions of issues of these securities.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Futures commission merchant.</heading>
<chapeau> Acting as a futures commission merchant (FCM) for unaffiliated persons in the execution, clearance, or execution and clearance of any futures contract and option on a futures contract traded on an exchange in the United States or abroad if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/iv/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The activity is conducted through a separately incorporated subsidiary of the bank holding company, which may engage in activities other than FCM activities (including, but not limited to, permissible advisory and trading activities); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/iv/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The parent bank holding company does not provide a guarantee or otherwise become liable to the exchange or clearing association other than for those trades conducted by the subsidiary for its own account or for the account of any affiliate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/7/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Other transactional services.</heading>
<content> Providing to customers as agent transactional services with respect to swaps and similar transactions, any transaction described in paragraph (b)(8) of this section, any transaction that is permissible for a state member bank, and any other transaction involving a forward contract, option, futures, option on a futures or similar contract (whether traded on an exchange or not) relating to a commodity that is traded on an exchange.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Investment transactions as principal—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/i" class="inline">
<num value="i">(i) </num>
<heading>Underwriting and dealing in government obligations and money market instruments.</heading>
<content> Underwriting and dealing in obligations of the United States, general obligations of states and their political subdivisions, and other obligations that state member banks of the Federal Reserve System may be authorized to underwrite and deal in under <ref href="/us/usc/t12/s24">12 U.S.C. 24</ref> and 335, including banker's acceptances and certificates of deposit, under the same limitations as would be applicable if the activity were performed by the bank holding company's subsidiary member banks or its subsidiary nonmember banks as if they were member banks.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Investing and trading activities.</heading>
<chapeau> Engaging as principal in:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Foreign exchange;
<?page num="188"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau>
<p> Forward contracts, options, futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on any rate, price, financial asset (including gold, silver, platinum, palladium, copper, or any other metal approved by the Board), nonfinancial asset, or group of assets, other than a bank-ineligible security, <ref id="fnd3e11884" idref="fnd3e11890" style="-uslm-sgm:SU">10</ref> if: </p>
<footnote id="fnd3e11890" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11884" style="-uslm-sgm:SU">10</ref> A bank-ineligible security is any security that a state member bank is not permitted to underwrite or deal in under <ref href="/us/usc/t12/s24">12 U.S.C. 24</ref> and 335.</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A state member bank is authorized to invest in the asset underlying the contract; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The contract requires cash settlement; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> The contract allows for assignment, termination, or offset prior to delivery or expiration, and the company— </chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Makes every reasonable effort to avoid taking or making delivery of the asset underlying the contract; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Receives and instantaneously transfers title to the underlying asset, by operation of contract and without taking or making physical delivery of the asset; or </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> The contract does not allow for assignment, termination, or offset prior to delivery or expiration and is based on an asset for which futures contracts or options on futures contracts have been approved for trading on a U.S. contract market by the Commodity Futures Trading Commission, and the company— </chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Makes every reasonable effort to avoid taking or making delivery of the asset underlying the contract; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/B/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Receives and instantaneously transfers title to the underlying asset, by operation of contract and without taking or making physical delivery of the asset. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content>
<p> Forward contracts, options, <ref id="fnd3e11936" idref="fnd3e11942" style="-uslm-sgm:SU">11</ref> futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on an index of a rate, a price, or the value of any financial asset, nonfinancial asset, or group of assets, if the contract requires cash settlement.</p>
<footnote id="fnd3e11942" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11936" style="-uslm-sgm:SU">11</ref> This reference does not include acting as a dealer in options based on indices of bank-ineligible securities when the options are traded on securities exchanges. These options are securities for purposes of the federal securities laws and bank-ineligible securities for purposes of section 20 of the Glass-Steagall Act, <ref href="/us/usc/t12/s337">12 U.S.C. 337</ref>. Similarly, this reference does not include acting as a dealer in any other instrument that is a bank-ineligible security for purposes of section 20. A bank holding company may deal in these instruments in accordance with the Board's orders on dealing in bank-ineligible securities.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/8/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Buying and selling bullion, and related activities.</heading>
<content> Buying, selling and storing bars, rounds, bullion, and coins of gold, silver, platinum, palladium, copper, and any other metal approved by the Board, for the company's own account and the account of others, and providing incidental services such as arranging for storage, safe custody, assaying, and shipment.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Management consulting and counseling activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i" class="inline">
<num value="i">(i) </num>
<heading>Management consulting.</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i/A" class="inline">
<num value="A"> (A)</num>
<chapeau>
<p> Providing management consulting advice: <ref id="fnd3e11958" idref="fnd3e11964" style="-uslm-sgm:SU">12</ref>
</p>
<footnote id="fnd3e11964" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e11958" style="-uslm-sgm:SU">12</ref> In performing this activity, bank holding companies are not authorized to perform tasks or operations or provide services to client institutions either on a daily or continuing basis, except as necessary to instruct the client institution on how to perform such services for itself. See also the Board's interpretation of bank management consulting advice (<ref href="/us/cfr/t12/s225.131">12 CFR 225.131</ref>).</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i/A/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> On any matter to unaffiliated depository institutions, including commercial banks, savings and loan associations, savings banks, credit unions, industrial banks, Morris Plan banks, cooperative banks, industrial loan companies, trust companies, and branches or agencies of foreign banks;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i/A/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> On any financial, economic, accounting, or audit matter to any other company.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> A company conducting management consulting activities under this subparagraph and any affiliate of such company may not:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Own or control, directly or indirectly, more than 5 percent of the voting securities of the client institution; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Allow a management official, as defined in <ref href="/us/cfr/t12/s212.2/h">12 CFR 212.2(h)</ref>, of the company or any of its affiliates to serve as a management official of the client institution, except where such interlocking relationship is permitted pursuant to an exemption granted under 12 <?page num="189"?>CFR 212.4(b) or otherwise permitted by the Board.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A company conducting management consulting activities may provide management consulting services to customers not described in paragraph (b)(9)(i)(A)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) of this section or regarding matters not described in paragraph (b)(9)(i)(A)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) of this section, if the total annual revenue derived from those management consulting services does not exceed 30 percent of the company's total annual revenue derived from management consulting activities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Employee benefits consulting services.</heading>
<content> Providing consulting services to employee benefit, compensation and insurance plans, including designing plans, assisting in the implementation of plans, providing administrative services to plans, and developing employee communication programs for plans.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Career counseling services.</heading>
<chapeau> Providing career counseling services to:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content>
<p> A financial organization <ref id="fnd3e12011" idref="fnd3e12017" style="-uslm-sgm:SU">13</ref> and individuals currently employed by, or recently displaced from, a financial organization;</p>
<footnote id="fnd3e12017" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12011" style="-uslm-sgm:SU">13</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financial organization</inline> refers to insured depository institution holding companies and their subsidiaries, other than nonbanking affiliates of diversified savings and loan holding companies that engage in activities not permissible under section 4(c)(8) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1842/c/8">12 U.S.C. 1842(c)(8)</ref>).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Individuals who are seeking employment at a financial organization; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/9/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Individuals who are currently employed in or who seek positions in the finance, accounting, and audit departments of any company.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Support services—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/10/i" class="inline">
<num value="i">(i) </num>
<heading>Courier services.</heading>
<chapeau> Providing courier services for:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/10/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Checks, commercial papers, documents, and written instruments (excluding currency or bearer-type negotiable instruments) that are exchanged among banks and financial institutions; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/10/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content>
<p> Audit and accounting media of a banking or financial nature and other business records and documents used in processing such media. <ref id="fnd3e12040" idref="fnd3e12045" style="-uslm-sgm:SU">14</ref>
</p>
<footnote id="fnd3e12045" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12040" style="-uslm-sgm:SU">14</ref> See also the Board's interpretation on courier activities (<ref href="/us/cfr/t12/s225.129">12 CFR 225.129</ref>), which sets forth conditions for bank holding company entry into the activity.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/10/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Printing and selling MICR-encoded items.</heading>
<content> Printing and selling checks and related documents, including corporate image checks, cash tickets, voucher checks, deposit slips, savings withdrawal packages, and other forms that require Magnetic Ink Character Recognition (MICR) encoding.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11" style="-uslm-sgm:P">
<num value="11">(11) </num>
<heading>Insurance agency and underwriting—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/i" class="inline">
<num value="i">(i) </num>
<heading>Credit insurance.</heading>
<chapeau> Acting as principal, agent, or broker for insurance (including home mortgage redemption insurance) that is:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Directly related to an extension of credit by the bank holding company or any of its subsidiaries; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content>
<p> Limited to ensuring the repayment of the outstanding balance due on the extension of credit <ref id="fnd3e12065" idref="fnd3e12071" style="-uslm-sgm:SU">15</ref> in the event of the death, disability, or involuntary unemployment of the debtor.</p>
<footnote id="fnd3e12071" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12065" style="-uslm-sgm:SU">15</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Extension of credit</inline> includes direct loans to borrowers, loans purchased from other lenders, and leases of real or personal property so long as the leases are nonoperating and full-payout leases that meet the requirements of paragraph (b)(3) of this section.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Finance company subsidiary.</heading>
<chapeau>
<p> Acting as agent or broker for insurance directly related to an extension of credit by a finance company <ref id="fnd3e12083" idref="fnd3e12089" style="-uslm-sgm:SU">16</ref> that is a subsidiary of a bank holding company, if:</p>
<footnote id="fnd3e12089" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12083" style="-uslm-sgm:SU">16</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance company</inline> includes all non-deposit-taking financial institutions that engage in a significant degree of consumer lending (excluding lending secured by first mortgages) and all financial institutions specifically defined by individual states as finance companies and that engage in a significant degree of consumer lending.</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The insurance is limited to ensuring repayment of the outstanding balance on such extension of credit in the event of loss or damage to any property used as collateral for the extension of credit; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content>
<p> The extension of credit is not more than $10,000, or $25,000 if it is to finance the purchase of a residential manufactured home <ref id="fnd3e12099" idref="fnd3e12105" style="-uslm-sgm:SU">17</ref> and the credit is secured by the home; and</p>
<footnote id="fnd3e12105" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12099" style="-uslm-sgm:SU">17</ref> These limitations increase at the end of each calendar year, beginning with 1982, by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers published by the Bureau of Labor Statistics.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<chapeau> The applicant commits to notify borrowers in writing that:
<?page num="190"?></chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/ii/C/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> They are not required to purchase such insurance from the applicant;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/ii/C/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Such insurance does not insure any interest of the borrower in the collateral; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/ii/C/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The applicant will accept more comprehensive property insurance in place of such single-interest insurance.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Insurance in small towns.</heading>
<chapeau> Engaging in any insurance agency activity in a place where the bank holding company or a subsidiary of the bank holding company has a lending office and that:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Has a population not exceeding 5,000 (as shown in the preceding decennial census); or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Has inadequate insurance agency facilities, as determined by the Board, after notice and opportunity for hearing.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Insurance-agency activities conducted on <date date="1982-05-01">May 1, 1982</date>.</heading>
<chapeau>
<p> Engaging in any specific insurance-agency activity <ref id="fnd3e12141" idref="fnd3e12151" style="-uslm-sgm:SU">18</ref> if the bank holding company, or subsidiary conducting the specific activity, conducted such activity on <date date="1982-05-01">May 1, 1982</date>, or received Board approval to conduct such activity on or before <date date="1982-05-01">May 1, 1982</date>. <ref id="fnd3e12145" idref="fnd3e12156" style="-uslm-sgm:SU">19</ref> A bank holding company or subsidiary engaging in a specific insurance agency activity under this clause may:</p>
<footnote id="fnd3e12151" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12141" style="-uslm-sgm:SU">18</ref> Nothing contained in this provision shall preclude a bank holding company subsidiary that is authorized to engage in a specific insurance-agency activity under this clause from continuing to engage in the particular activity after merger with an affiliate, if the merger is for legitimate business purposes and prior notice has been provided to the Board.</p>
</content>
</footnote>
<footnote id="fnd3e12156" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12145" style="-uslm-sgm:SU">19</ref> For the purposes of this paragraph, activities engaged in on <date date="1982-05-01">May 1, 1982</date>, include activities carried on subsequently as the result of an application to engage in such activities pending before the Board on <date date="1982-05-01">May 1, 1982</date>, and approved subsequently by the Board or as the result of the acquisition by such company pursuant to a binding written contract entered into on or before <date date="1982-05-01">May 1, 1982</date>, of another company engaged in such activities at the time of the acquisition.</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iv/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<chapeau> Engage in such specific insurance agency activity only at locations:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iv/A/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> In the state in which the bank holding company has its principal place of business (as defined in <ref href="/us/usc/t12/s1842/d">12 U.S.C. 1842(d)</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iv/A/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In any state or states immediately adjacent to such state; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iv/A/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> In any state in which the specific insurance-agency activity was conducted (or was approved to be conducted) by such bank holding company or subsidiary thereof or by any other subsidiary of such bank holding company on <date date="1982-05-01">May 1, 1982</date>; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/iv/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Provide other insurance coverages that may become available after <date date="1982-05-01">May 1, 1982</date>, so long as those coverages insure against the types of risks as (or are otherwise functionally equivalent to) coverages sold or approved to be sold on <date date="1982-05-01">May 1, 1982</date>, by the bank holding company or subsidiary.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Supervision of retail insurance agents.</heading>
<chapeau> Supervising on behalf of insurance underwriters the activities of retail insurance agents who sell:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/v/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Fidelity insurance and property and casualty insurance on the real and personal property used in the operations of the bank holding company or its subsidiaries; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/v/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Group insurance that protects the employees of the bank holding company or its subsidiaries.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/vi" style="-uslm-sgm:P">
<num value="vi">(vi) </num>
<heading>Small bank holding companies.</heading>
<content> Engaging in any insurance-agency activity if the bank holding company has total consolidated assets of $50 million or less. A bank holding company performing insurance-agency activities under this paragraph may not engage in the sale of life insurance or annuities except as provided in paragraphs (b)(11) (i) and (iii) of this section, and it may not continue to engage in insurance-agency activities pursuant to this provision more than 90 days after the end of the quarterly reporting period in which total assets of the holding company and its subsidiaries exceed $50 million.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/11/vii" style="-uslm-sgm:P">
<num value="vii">(vii) </num>
<heading>Insurance-agency activities conducted before 1971.</heading>
<content> Engaging in any insurance-agency activity performed at any location in the United States directly or indirectly by a bank holding company that was engaged in insurance-agency activities prior to <date date="1971-01-01">January 1, 1971</date>, as a consequence of approval by the Board prior to <date date="1971-01-01">January 1, 1971</date>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/12" style="-uslm-sgm:P">
<num value="12">(12) </num>
<heading>Community development activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/12/i" class="inline">
<num value="i">(i) </num>
<heading>Financing and investment activities.</heading>
<content> Making equity and debt investments in corporations or projects designed primarily to promote community welfare, such as the economic rehabilitation <?page num="191"?>and development of low-income areas by providing housing, services, or jobs for residents.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/12/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Advisory activities.</heading>
<content> Providing advisory and related services for programs designed primarily to promote community welfare.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/13" style="-uslm-sgm:P">
<num value="13">(13) </num>
<heading>Money orders, savings bonds, and traveler's checks.</heading>
<content> The issuance and sale at retail of money orders and similar consumer-type payment instruments; the sale of U.S. savings bonds; and the issuance and sale of traveler's checks.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/14" style="-uslm-sgm:P">
<num value="14">(14) </num>
<heading>Data processing.</heading>
<paragraph identifier="/us/cfr/t12/s225.28/b/14/i" class="inline">
<num value="i"> (i)</num>
<chapeau> Providing data processing, data storage and data transmission services, facilities (including data processing, data storage and data transmission hardware, software, documentation, or operating personnel), databases, advice, and access to such services, facilities, or data-bases by any technological means, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.28/b/14/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The data to be processed, stored or furnished are financial, banking or economic; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/14/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The hardware provided in connection therewith is offered only in conjunction with software designed and marketed for the processing, storage and transmission of financial, banking, or economic data, and where the general purpose hardware does not constitute more than 30 percent of the cost of any packaged offering. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.28/b/14/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A company conducting data processing, data storage, and data transmission activities may conduct data processing, data storage, and data transmission activities not described in paragraph (b)(14)(i) of this section if the total annual revenue derived from those activities does not exceed 49 percent of the company's total annual revenues derived from data processing, data storage and data transmission activities.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9329">62 FR 9329</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/68/39810">68 FR 39810</ref>, <date date="2003-07-03" role="amended">July 3, 2003</date>; <ref href="/us/fr/68/41901">68 FR 41901</ref>, <date date="2003-07-16" role="amended">July 16, 2003</date>; <ref href="/us/fr/68/68499">68 FR 68499</ref>, <date date="2003-12-09" role="amended">Dec. 9, 2003</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spD">
<num value="D" style="-uslm-sgm:HED">Subpart D—</num>
<heading style="-uslm-sgm:HED">Control and Divestiture Proceedings
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.31">
<num value="225.31" style="-uslm-sgm:SECTNO">§ 225.31</num>
<heading style="-uslm-sgm:SUBJECT">Control proceedings.</heading>
<paragraph identifier="/us/cfr/t12/s225.31/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Preliminary determination of control.</heading>
<paragraph identifier="/us/cfr/t12/s225.31/a/1" class="inline">
<num value="1"> (1)</num>
<chapeau> The Board may issue a preliminary determination of control under the procedures set forth in this section in any case in which:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.31/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any of the presumptions of control set forth in paragraph (d) of this section is present; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> It otherwise appears that a company has the power to exercise a controlling influence over the management or policies of a bank or other company.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the Board makes a preliminary determination of control under this section, the Board shall send notice to the controlling company containing a statement of the facts upon which the preliminary determination is based.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Response to preliminary determination of control.</heading>
<chapeau> Within 30 calendar days of issuance by the Board of a preliminary determination of control or such longer period permitted by the Board, the company against whom the determination has been made shall:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.31/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Submit for the Board's approval a specific plan for the prompt termination of the control relationship;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> File an application under subpart B or C of this regulation to retain the control relationship; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Contest the preliminary determination by filing a response, setting forth the facts and circumstances in support of its position that no control exists, and, if desired, requesting a hearing or other proceeding.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Hearing and final determination.</heading>
<paragraph identifier="/us/cfr/t12/s225.31/c/1" class="inline">
<num value="1"> (1)</num>
<content> The Board shall order a formal hearing or other appropriate proceeding upon the request of a company that contests a preliminary determination that the company has the power to exercise a controlling influence over the management or policies of a bank or other company, if the Board finds that material facts are in dispute. The Board may also in its discretion order a formal hearing or other proceeding with respect to a preliminary determination that the company controls voting securities of the bank or other company under the presumptions in paragraph (d)(1) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> At a hearing or other proceeding, any applicable presumptions established by paragraph (d) of this section shall be considered in accordance with the Federal Rules of Evidence and the Board's Rules of Practice for Formal Hearings (<ref href="/us/cfr/t12/p263">12 CFR part 263</ref>).
<?page num="192"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> After considering the submissions of the company and other evidence, including the record of any hearing or other proceeding, the Board shall issue a final order determining whether the company controls voting securities, or has the power to exercise a controlling influence over the management or policies, of the bank or other company. If a control relationship is found, the Board may direct the company to terminate the control relationship or to file an application for the Board's approval to retain the control relationship under subpart B or C of this regulation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Rebuttable presumptions of control.</heading>
<chapeau> The following rebuttable presumptions shall be used in any proceeding under this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.31/d/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Control of voting securities—</heading>
<paragraph identifier="/us/cfr/t12/s225.31/d/1/i" class="inline">
<num value="i">(i) </num>
<heading>Securities convertible into voting securities.</heading>
<content> A company that owns, controls, or holds securities that are immediately convertible, at the option of the holder or owner, into voting securities of a bank or other company, controls the voting securities.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Option or restriction on voting securities.</heading>
<chapeau> A company that enters into an agreement or understanding under which the rights of a holder of voting securities of a bank or other company are restricted in any manner controls the securities. This presumption does not apply where the agreement or understanding:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.31/d/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Is a mutual agreement among shareholders granting to each other a right of first refusal with respect to their shares;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Is incident to a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> loan transaction; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Relates to restrictions on transferability and continues only for the time necessary to obtain approval from the appropriate Federal supervisory authority with respect to acquisition by the company of the securities.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Control over company—</heading>
<paragraph identifier="/us/cfr/t12/s225.31/d/2/i" class="inline">
<num value="i">(i) </num>
<heading>Management agreement.</heading>
<content> A company that enters into any agreement or understanding with a bank or other company (other than an investment advisory agreement), such as a management contract, under which the first company or any of its subsidiaries directs or exercises significant influence over the general management or overall operations of the bank or other company controls the bank or other company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Shares controlled by company and associated individuals.</heading>
<content> A company that, together with its management officials or controlling shareholders (including members of the immediate families of either), owns, controls, or holds with power to vote 25 percent or more of the outstanding shares of any class of voting securities of a bank or other company controls the bank or other company, if the first company owns, controls, or holds with power to vote more than 5 percent of the outstanding shares of any class of voting securities of the bank or other company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Common management officials.</heading>
<content> A company that has one or more management officials in common with a bank or other company controls the bank or other company, if the first company owns, controls or holds with power to vote more than 5 percent of the outstanding shares of any class of voting securities of the bank or other company, and no other person controls as much as 5 percent of the outstanding shares of any class of voting securities of the bank or other company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/d/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Shares held as fiduciary.</heading>
<content> The presumptions in paragraphs (d)(2) (ii) and (iii) of this section do not apply if the securities are held by the company in a fiduciary capacity without sole discretionary authority to exercise the voting rights.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Presumption of non-control—</heading>
<paragraph identifier="/us/cfr/t12/s225.31/e/1" class="inline">
<num value="1">(1)</num>
<content> In any proceeding under this section, there is a presumption that any company that directly or indirectly owns, controls, or has power to vote less than 5 percent of the outstanding shares of any class of voting securities of a bank or other company does not have control over that bank or other company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.31/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In any proceeding under this section, or judicial proceeding under the BHC Act, other than a proceeding in which the Board has made a preliminary determination that a company has the power to exercise a controlling influence over the management or policies of the bank or other company, a company may not be held to have had control over the bank or other company at any given time, unless that company, at the time in question, directly or indirectly owned, controlled, <?page num="193"?>or had power to vote 5 percent or more of the outstanding shares of any class of voting securities of the bank or other company, or had already been found to have control on the basis of the existence of a controlling influence relationship.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/49/818">49 FR 818</ref>, <date date="1984-01-05">Jan. 5, 1984</date>, as amended at <ref href="/us/fr/58/474">58 FR 474</ref>, <date date="1993-01-06" role="amended">Jan. 6, 1993</date>; Reg. Y, <ref href="/us/fr/62/9338">62 FR 9338</ref>, <date date="1997-02-28" role="amended">Feb. 28, 1997</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spE">
<num value="E" style="-uslm-sgm:HED">Subpart E—</num>
<heading style="-uslm-sgm:HED">Change in Bank Control</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/62/9338">62 FR 9338</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.41">
<num value="225.41" style="-uslm-sgm:SECTNO">§ 225.41 </num>
<heading style="-uslm-sgm:SUBJECT">Transactions requiring prior notice.</heading>
<paragraph identifier="/us/cfr/t12/s225.41/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Prior notice requirement.</heading>
<content> Any person acting directly or indirectly, or through or in concert with one or more persons, shall give the Board 60 days' written notice, as specified in <ref href="/us/cfr/t12/s225.43">§ 225.43</ref> of this subpart, before acquiring control of a state member bank or bank holding company, unless the acquisition is exempt under <ref href="/us/cfr/t12/s225.42">§ 225.42</ref>.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.41/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this subpart:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acquisition</inline> includes a purchase, assignment, transfer, or pledge of voting securities, or an increase in percentage ownership of a state member bank or a bank holding company resulting from a redemption of voting securities.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acting in concert</inline> includes knowing participation in a joint activity or parallel action towards a common goal of acquiring control of a state member bank or bank holding company whether or not pursuant to an express agreement.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Immediate family</inline> includes a person's father, mother, stepfather, stepmother, brother, sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, the spouse of any of the foregoing, and the person's spouse.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Acquisitions requiring prior notice—</heading>
<paragraph identifier="/us/cfr/t12/s225.41/c/1" class="inline">
<num value="1">(1) </num>
<heading>Acquisition of control.</heading>
<content> The acquisition of voting securities of a state member bank or bank holding company constitutes the acquisition of control under the Bank Control Act, requiring prior notice to the Board, if, immediately after the transaction, the acquiring person (or persons acting in concert) will own, control, or hold with power to vote 25 percent or more of any class of voting securities of the institution.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Rebuttable presumption of control.</heading>
<chapeau> The Board presumes that an acquisition of voting securities of a state member bank or bank holding company constitutes the acquisition of control under the Bank Control Act, requiring prior notice to the Board, if, immediately after the transaction, the acquiring person (or persons acting in concert) will own, control, or hold with power to vote 10 percent or more of any class of voting securities of the institution, and if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.41/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The institution has registered securities under section 12 of the Securities Exchange Act of 1934 (<ref href="/us/usc/t15/s78l">15 U.S.C. 78l</ref>); or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> No other person will own, control, or hold the power to vote a greater percentage of that class of voting securities immediately after the transaction. <ref id="fnd3e12390" idref="fnd3e12396" style="-uslm-sgm:SU">1</ref>
</p>
<footnote id="fnd3e12396" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e12390" style="-uslm-sgm:SU">1</ref> If two or more persons, not acting in concert, each propose to acquire simultaneously equal percentages of 10 percent or more of a class of voting securities of the state member bank or bank holding company, each person must file prior notice to the Board.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Rebuttable presumption of concerted action.</heading>
<chapeau> The following persons shall be presumed to be acting in concert for purposes of this subpart:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.41/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A company and any controlling shareholder, partner, trustee, or management official of the company, if both the company and the person own voting securities of the state member bank or bank holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An individual and the individual's immediate family;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Companies under common control;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Persons that are parties to any agreement, contract, understanding, relationship, or other arrangement, whether written or otherwise, regarding the acquisition, voting, or transfer of control of voting securities of a state member bank or bank holding company, other than through a revocable proxy as described in <ref href="/us/cfr/t12/s225.42/a/5">§ 225.42(a)(5)</ref> of this subpart;
<?page num="194"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/d/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Persons that have made, or propose to make, a joint filing under sections 13 or 14 of the Securities Exchange Act of 1934 (<ref href="/us/usc/t15/s78m">15 U.S.C. 78m</ref> or 78n), and the rules promulgated thereunder by the Securities and Exchange Commission; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/d/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> A person and any trust for which the person serves as trustee.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Acquisitions of loans in default.</heading>
<content> The Board presumes an acquisition of a loan in default that is secured by voting securities of a state member bank or bank holding company to be an acquisition of the underlying securities for purposes of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Other transactions.</heading>
<content> Transactions other than those set forth in paragraph (c) of this section resulting in a person's control of less than 25 percent of a class of voting securities of a state member bank or bank holding company are not deemed by the Board to constitute control for purposes of the Bank Control Act.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.41/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Rebuttal of presumptions.</heading>
<content> Prior notice to the Board is not required for any acquisition of voting securities under the presumption of control set forth in this section, if the Board finds that the acquisition will not result in control. The Board shall afford any person seeking to rebut a presumption in this section an opportunity to present views in writing or, if appropriate, orally before its designated representatives at an informal conference.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.42">
<num value="225.42" style="-uslm-sgm:SECTNO">§ 225.42 </num>
<heading style="-uslm-sgm:SUBJECT">Transactions not requiring prior notice.</heading>
<paragraph identifier="/us/cfr/t12/s225.42/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Exempt transactions.</heading>
<chapeau> The following transactions do not require notice to the Board under this subpart:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.42/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Existing control relationships.</heading>
<chapeau> The acquisition of additional voting securities of a state member bank or bank holding company by a person who:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.42/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Continuously since <date date="1979-03-09">March 9, 1979</date> (or since the institution commenced business, if later), held power to vote 25 percent or more of any class of voting securities of the institution; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is presumed, under <ref href="/us/cfr/t12/s225.41/c/2">§ 225.41(c)(2)</ref> of this subpart, to have controlled the institution continuously since <date date="1979-03-09">March 9, 1979</date>, if the aggregate amount of voting securities held does not exceed 25 percent or more of any class of voting securities of the institution or, in other cases, where the Board determines that the person has controlled the bank continuously since <date date="1979-03-09">March 9, 1979</date>;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Increase of previously authorized acquisitions.</heading>
<content> Unless the Board or the Reserve Bank otherwise provides in writing, the acquisition of additional shares of a class of voting securities of a state member bank or bank holding company by any person (or persons acting in concert) who has lawfully acquired and maintained control of the institution (for purposes of <ref href="/us/cfr/t12/s225.41/c">§ 225.41(c)</ref> of this subpart), after complying with the procedures and receiving approval to acquire voting securities of the institution under this subpart, or in connection with an application approved under section 3 of the BHC Act (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>; <ref href="/us/cfr/t12/s225.11">§ 225.11</ref> of subpart B of this part) or section 18(c) of the Federal Deposit Insurance Act (Bank Merger Act, <ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Acquisitions subject to approval under BHC Act or Bank Merger Act.</heading>
<content> Any acquisition of voting securities subject to approval under section 3 of the BHC Act (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>; <ref href="/us/cfr/t12/s225.11">§ 225.11</ref> of subpart B of this part), or section 18(c) of the Federal Deposit Insurance Act (Bank Merger Act, <ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Transactions exempt under BHC Act.</heading>
<content> Any transaction described in sections 2(a)(5), 3(a)(A), or 3(a)(B) of the BHC Act (<ref href="/us/usc/t12/s1841/a/5">12 U.S.C. 1841(a)(5)</ref>, 1842(a)(A), and 1842(a)(B)), by a person described in those provisions;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Proxy solicitation.</heading>
<content> The acquisition of the power to vote securities of a state member bank or bank holding company through receipt of a revocable proxy in connection with a proxy solicitation for the purposes of conducting business at a regular or special meeting of the institution, if the proxy terminates within a reasonable period after the meeting;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/a/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Stock dividends.</heading>
<content> The receipt of voting securities of a state member bank or bank holding company through a stock dividend or stock split if the proportional interest of the recipient in the institution remains substantially the same; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/a/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Acquisition of foreign banking organization.</heading>
<content> The acquisition of voting securities of a qualifying foreign banking organization. (This exemption does not extend to the reports and information <?page num="195"?>required under paragraphs 9, 10, and 12 of the Bank Control Act (<ref href="/us/usc/t12/s1817/j">12 U.S.C. 1817(j)</ref> (9), (10), and (12)) and <ref href="/us/cfr/t12/s225.44">§ 225.44</ref> of this subpart.)</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Prior notice exemption.</heading>
<paragraph identifier="/us/cfr/t12/s225.42/b/1" class="inline">
<num value="1"> (1)</num>
<chapeau> The following acquisitions of voting securities of a state member bank or bank holding company, which would otherwise require prior notice under this subpart, are not subject to the prior notice requirements if the acquiring person notifies the appropriate Reserve Bank within 90 calendar days after the acquisition and provides any relevant information requested by the Reserve Bank:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.42/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Acquisition of voting securities through inheritance;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Acquisition of voting securities as a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> gift; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Acquisition of voting securities in satisfaction of a debt previously contracted (DPC) in good faith.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> The following acquisitions of voting securities of a state member bank or bank holding company, which would otherwise require prior notice under this subpart, are not subject to the prior notice requirements if the acquiring person does not reasonably have advance knowledge of the transaction, and provides the written notice required under section 225.43 to the appropriate Reserve Bank within 90 calendar days after the transaction occurs:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.42/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Acquisition of voting securities resulting from a redemption of voting securities by the issuing bank or bank holding company; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Acquisition of voting securities as a result of actions (including the sale of securities) by any third party that is not within the control of the acquiror.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.42/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Nothing in paragraphs (b)(1) or (b)(2) of this section limits the authority of the Board to disapprove a notice pursuant to <ref href="/us/cfr/t12/s225.43/h">§ 225.43(h)</ref> of this subpart.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.43">
<num value="225.43" style="-uslm-sgm:SECTNO">§ 225.43</num>
<heading style="-uslm-sgm:SUBJECT">Procedures for filing, processing, publishing, and acting on notices.</heading>
<paragraph identifier="/us/cfr/t12/s225.43/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Filing notice.</heading>
<paragraph identifier="/us/cfr/t12/s225.43/a/1" class="inline">
<num value="1"> (1)</num>
<content> A notice required under this subpart shall be filed with the appropriate Reserve Bank and shall contain all the information required by paragraph 6 of the Bank Control Act (<ref href="/us/usc/t12/s1817/j/6">12 U.S.C. 1817(j)(6)</ref>), or prescribed in the designated Board form.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The Board may waive any of the informational requirements of the notice if the Board determines that it is in the public interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A notificant shall notify the appropriate Reserve Bank or the Board immediately of any material changes in a notice submitted to the Reserve Bank, including changes in financial or other conditions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> When the acquiring person is an individual, or group of individuals acting in concert, the requirement to provide personal financial data may be satisfied by a current statement of assets and liabilities and an income summary, as required in the designated Board form, together with a statement of any material changes since the date of the statement or summary. The Reserve Bank or the Board, nevertheless, may request additional information, if appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Acceptance of notice.</heading>
<content> The 60-day notice period specified in <ref href="/us/cfr/t12/s225.41">§ 225.41</ref> of this subpart begins on the date of receipt of a complete notice. The Reserve Bank shall notify the person or persons submitting a notice under this subpart in writing of the date the notice is or was complete and thereby accepted for processing. The Reserve Bank or the Board may request additional relevant information at any time after the date of acceptance.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Publication—</heading>
<paragraph identifier="/us/cfr/t12/s225.43/c/1" class="inline">
<num value="1">(1) </num>
<heading>Newspaper Announcement.</heading>
<content> Any person(s) filing a notice under this subpart shall publish, in a form prescribed by the Board, an announcement soliciting public comment on the proposed acquisition. The announcement shall be published in a newspaper of general circulation in the community in which the head office of the state member bank to be acquired is located or, in the case of a proposed acquisition of a bank holding company, in the community in which its head office is located and in the community in which the head office of each of its subsidiary banks is located. The announcement shall be published no earlier than 15 calendar days before the filing of the notice with the appropriate Reserve Bank and no later than 10 calendar days after the filing date; and the publisher's affidavit of a publication shall be provided to the appropriate Reserve Bank.
<?page num="196"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Contents of newspaper announcement.</heading>
<chapeau> The newspaper announcement shall state:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.43/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The name of each person identified in the notice as a proposed acquiror of the bank or bank holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The name of the bank or bank holding company to be acquired, including the name of each of the bank holding company's subsidiary banks; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that interested persons may submit comments on the notice to the Board or the appropriate Reserve Bank for a period of 20 days, or such shorter period as may be provided, pursuant to paragraph (c)(5) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<content>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">announcement.</inline> The Board shall, upon filing of a notice under this subpart, publish announcement in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> of receipt of the notice. The <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> announcement shall contain the information required under paragraphs (c)(2)(i) and (c)(2)(ii) of this section and a statement that interested persons may submit comments on the proposed acquisition for a period of 15 calendar days, or such shorter period as may be provided, pursuant to paragraph (c)(5) of this section. The Board may waive publication in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register,</inline> if the Board determines that such action is appropriate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Delay of publication.</heading>
<content> The Board may permit delay in the publication required under paragraphs (c)(1) and (c)(3) of this section if the Board determines, for good cause shown, that it is in the public interest to grant such delay. Requests for delay of publication may be submitted to the appropriate Reserve Bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Shortening or waiving notice.</heading>
<content> The Board may shorten or waive the public comment or newspaper publication requirements of this paragraph, or act on a notice before the expiration of a public comment period, if it determines in writing that an emergency exists, or that disclosure of the notice, solicitation of public comment, or delay until expiration of the public comment period would seriously threaten the safety or soundness of the bank or bank holding company to be acquired.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Consideration of public comments.</heading>
<content> In acting upon a notice filed under this subpart, the Board shall consider all public comments received in writing within the period specified in the newspaper or <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> announcement, whichever is later. At the Board's option, comments received after this period may, but need not, be considered.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Standing.</heading>
<content> No person (other than the acquiring person) who submits comments or information on a notice filed under this subpart shall thereby become a party to the proceeding or acquire any standing or right to participate in the Board's consideration of the notice or to appeal or otherwise contest the notice or the Board's action regarding the notice.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Time period for Board action—</heading>
<paragraph identifier="/us/cfr/t12/s225.43/d/1" class="inline">
<num value="1">(1) </num>
<heading>Consummation of acquisition—</heading>
<paragraph identifier="/us/cfr/t12/s225.43/d/1/i" class="inline">
<num value="i">(i)</num>
<content> The notificant(s) may consummate the proposed acquisition 60 days after submission to the Reserve Bank of a complete notice under paragraph (a) of this section, unless within that period the Board disapproves the proposed acquisition or extends the 60-day period, as provided under paragraph (d)(2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The notificant(s) may consummate the proposed transaction before the expiration of the 60-day period if the Board notifies the notificant(s) in writing of the Board's intention not to disapprove the acquisition.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Extensions of time period.</heading>
<paragraph identifier="/us/cfr/t12/s225.43/d/2/i" class="inline">
<num value="i"> (i)</num>
<content> The Board may extend the 60-day period in paragraph (d)(1) of this section for an additional 30 days by notifying the acquiring person(s).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The Board may further extend the period during which it may disapprove a notice for two additional periods of not more than 45 days each, if the Board determines that:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.43/d/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Any acquiring person has not furnished all the information required under paragraph (a) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Any material information submitted is substantially inaccurate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d/2/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The Board is unable to complete the investigation of an acquiring person because of inadequate cooperation or delay by that person; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d/2/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Additional time is needed to investigate and determine that no acquiring person has a record of failing to <?page num="197"?>comply with the requirements of the Bank Secrecy Act, <ref href="/us/usc/t31/ch53/schII">subchapter II of Chapter 53 of title 31, United States Code</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If the Board extends the time period under this paragraph, it shall notify the acquiring person(s) of the reasons therefor and shall include a statement of the information, if any, deemed incomplete or inaccurate.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Advice to bank supervisory agencies.</heading>
<paragraph identifier="/us/cfr/t12/s225.43/e/1" class="inline">
<num value="1"> (1)</num>
<content> Upon accepting a notice relating to acquisition of securities of a state member bank, the Reserve Bank shall send a copy of the notice to the appropriate state bank supervisor, which shall have 30 calendar days from the date the notice is sent in which to submit its views and recommendations to the Board. The Reserve Bank also shall send a copy of any notice to the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the Board finds that it must act immediately in order to prevent the probable failure of the bank or bank holding company involved, the Board may dispense with or modify the requirements for notice to the state supervisor.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Investigation and report.</heading>
<paragraph identifier="/us/cfr/t12/s225.43/f/1" class="inline">
<num value="1"> (1)</num>
<content> After receiving a notice under this subpart, the Board or the appropriate Reserve Bank shall conduct an investigation of the competence, experience, integrity, and financial ability of each person by and for whom an acquisition is to be made. The Board shall also make an independent determination of the accuracy and completeness of any information required to be contained in a notice under paragraph (a) of this section. In investigating any notice accepted under this subpart, the Board or Reserve Bank may solicit information or views from any person, including any bank or bank holding company involved in the notice, and any appropriate state, federal, or foreign governmental authority.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The Board or the appropriate Reserve Bank shall prepare a written report of its investigation, which shall contain, at a minimum, a summary of the results of the investigation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Factors considered in acting on notices.</heading>
<content> In reviewing a notice filed under this subpart, the Board shall consider the information in the record, the views and recommendations of the appropriate bank supervisor, and any other relevant information obtained during any investigation of the notice.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Disapproval and hearing—</heading>
<paragraph identifier="/us/cfr/t12/s225.43/h/1" class="inline">
<num value="1">(1) </num>
<heading>Disapproval of notice.</heading>
<content> The Board may disapprove an acquisition if it finds adverse effects with respect to any of the factors set forth in paragraph 7 of the Bank Control Act (<ref href="/us/usc/t12/s1817/j/7">12 U.S.C. 1817(j)(7)</ref>) (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> competitive, financial, managerial, banking, or incompleteness of information).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/h/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Disapproval notification.</heading>
<content> Within three days after its decision to issue a notice of intent to disapprove any proposed acquisition, the Board shall notify the acquiring person in writing of the reasons for the action.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.43/h/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Hearing.</heading>
<content> Within 10 calendar days of receipt of the notice of the Board's intent to disapprove, the acquiring person may submit a written request for a hearing. Any hearing conducted under this paragraph shall be in accordance with the Rules of Practice for Formal Hearings (<ref href="/us/cfr/t12/p263">12 CFR part 263</ref>). At the conclusion of the hearing, the Board shall, by order, approve or disapprove the proposed acquisition on the basis of the record of the hearing. If the acquiring person does not request a hearing, the notice of intent to disapprove becomes final and unappealable.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.44">
<num value="225.44" style="-uslm-sgm:SECTNO">§ 225.44</num>
<heading style="-uslm-sgm:SUBJECT">Reporting of stock loans.</heading>
<paragraph identifier="/us/cfr/t12/s225.44/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Requirements.</heading>
<paragraph identifier="/us/cfr/t12/s225.44/a/1" class="inline">
<num value="1"> (1)</num>
<content> Any foreign bank or affiliate of a foreign bank that has credit outstanding to any person or group of persons, in the aggregate, which is secured, directly or indirectly, by 25 percent or more of any class of voting securities of a state member bank, shall file a consolidated report with the appropriate Reserve Bank for the state member bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.44/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The foreign bank or its affiliate also shall file a copy of the report with its appropriate Federal banking agency.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.44/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Any shares of the state member bank held by the foreign bank or any affiliate of the foreign bank as principal must be included in the calculation of the number of shares in which the foreign bank or its affiliate has a security interest for purposes of paragraph (a) of this section.
<?page num="198"?></content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.44/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of paragraph (a) of this section:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign bank</inline> shall have the same meaning as in section 1(b) of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref>).</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit outstanding</inline> includes any loan or extension of credit; the issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of credit; and any other type of transaction that extends credit or financing to the person or group of persons.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Group of persons</inline> includes any number of persons that the foreign bank or any affiliate of a foreign bank has reason to believe:</p>
<p style="-uslm-sgm:P">(i) Are acting together, in concert, or with one another to acquire or control shares of the same insured depository institution, including an acquisition of shares of the same depository institution at approximately the same time under substantially the same terms; or</p>
<p style="-uslm-sgm:P">(ii) Have made, or propose to make, a joint filing under section 13 or 14 of the Securities Exchange Act of 1934 (<ref href="/us/usc/t15/s78m">15 U.S.C. 78m</ref> or 78n), and the rules promulgated thereunder by the Securities and Exchange Commission regarding ownership of the shares of the same insured depository institution.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.44/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exceptions.</heading>
<chapeau> Compliance with paragraph (a) of this section is not required if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.44/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The person or group of persons referred to in that paragraph has disclosed the amount borrowed and the security interest therein to the Board or appropriate Reserve Bank in connection with a notice filed under <ref href="/us/cfr/t12/s225.41">§ 225.41</ref> of this subpart, or another application filed with the Board or Reserve Bank as a substitute for a notice under <ref href="/us/cfr/t12/s225.41">§ 225.41</ref> of this subpart, including an application filed under section 3 of the BHC Act (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>) or section 18(c) of the Federal Deposit Insurance Act (Bank Merger Act, <ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>), or an application for membership in the Federal Reserve System; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.44/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The transaction involves a person or group of persons that has been the owner or owners of record of the stock for a period of one year or more; or, if the transaction involves stock issued by a newly chartered bank, before the bank is opened for business.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.44/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Report requirements.</heading>
<paragraph identifier="/us/cfr/t12/s225.44/d/1" class="inline">
<num value="1"> (1)</num>
<content> The consolidated report shall indicate the number and percentage of shares securing each applicable extension of credit, the identity of the borrower, and the number of shares held as principal by the foreign bank and any affiliate thereof.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.44/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A foreign bank, or any affiliate of a foreign bank, shall file the consolidated report in writing within 30 days of the date on which the foreign bank or affiliate first believes that the security for any outstanding credit consists of 25 percent or more of any class of voting securities of a state member bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.44/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Other reporting requirements.</heading>
<content> A foreign bank, or any affiliate thereof, that is supervised by the System and is required to report credit outstanding that is secured by the shares of an insured depository institution to another Federal banking agency also shall file a copy of the report with the appropriate Reserve Bank.
</content>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spF">
<num value="F" style="-uslm-sgm:HED">Subpart F—</num>
<heading style="-uslm-sgm:HED">Limitations on Nonbank Banks
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.52">
<num value="225.52" style="-uslm-sgm:SECTNO">§ 225.52 </num>
<heading style="-uslm-sgm:SUBJECT">Limitation on overdrafts.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.52/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this section—</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account</inline> means a reserve account, clearing account, or deposit account as defined in the Board's Regulation D (<ref href="/us/cfr/t12/s204.2/a/1/i">12 CFR 204.2(a)(1)(i)</ref>), that is maintained at a Federal Reserve Bank or nonbank bank.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cash item</inline> means (i) a check other than a check classified as a noncash item; or (ii) any other item payable on demand and collectible at par that the Federal Reserve Bank of the district in which the item is payable is willing to accept as a cash item.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discount window loan</inline> means any credit extended by a Federal Reserve Bank to a nonbank bank or industrial bank pursuant to the provisions of the Board's Regulation A (<ref href="/us/cfr/t12/p201">12 CFR part 201</ref>).</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Industrial bank</inline> means an institution as defined in section 2(c)(2)(H) of the BHC Act (<ref href="/us/usc/t12/s1841/c/2/H">12 U.S.C. 1841(c)(2)(H)</ref>).</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Noncash item</inline> means an item handled by a Reserve Bank as a noncash item under the Reserve Bank's “Collection of Noncash Items Operating <?page num="199"?>Circular” (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> a maturing bankers' acceptance or a maturing security, or a demand item, such as a check, with special instructions or an item that has not been preprinted or post-encoded).</p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other nonelectronic transactions</inline> include all other transactions not included as funds transfers, book-entry securities transfers, cash items, noncash items, automated clearing house transactions, net settlement entries, and discount window loans (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> original issue of securities or redemption of securities).</p>
<p style="-uslm-sgm:P">(7) An <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">overdraft</inline> in an account occurs whenever the Federal Reserve Bank, nonbank bank, or industrial bank holding an account posts a transaction to the account of the nonbank bank, industrial bank, or affiliate that exceeds the aggregate balance of the accounts of the nonbank bank, industrial bank, or affiliate, as determined by the posting rules set forth in paragraphs (d) and (e) of this section and continues until the aggregate balance of the account is zero or greater.</p>
<p style="-uslm-sgm:P">(8) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transfer item</inline> means an item as defined in subpart B of Regulation J (<ref href="/us/cfr/t12/s210.25">12 CFR 210.25</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq</inline>).</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Restriction on overdrafts—</heading>
<paragraph identifier="/us/cfr/t12/s225.52/b/1" class="inline">
<num value="1">(1) </num>
<heading>Affiliates.</heading>
<content> Neither a nonbank bank nor an industrial bank shall permit any affiliate to incur any overdraft in its account with the nonbank bank or industrial bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Nonbank banks or industrial banks.</heading>
<paragraph identifier="/us/cfr/t12/s225.52/b/2/i" class="inline">
<num value="i"> (i)</num>
<content> No nonbank bank or industrial bank shall incur any overdraft in its account at a Federal Reserve Bank on behalf of an affiliate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> An overdraft by a nonbank bank or industrial bank in its account at a Federal Reserve Bank shall be deemed to be on behalf of an affiliate whenever:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/b/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A nonbank bank or industrial bank holds an account for an affiliate from which third-party payments can be made; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/b/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> When the posting of an affiliate's transaction to the nonbank bank's or industrial bank's account at a Reserve Bank creates an overdraft in its account at a Federal Reserve Bank or increases the amount of an existing overdraft in its account at a Federal Reserve Bank.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Permissible overdrafts.</heading>
<chapeau> The following are permissible overdrafts not subject to paragraph (b) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Inadvertent error.</heading>
<content> An overdraft in its account by a nonbank bank or its affiliate, or an industrial bank or its affiliate, that results from an inadvertent computer error or inadvertent accounting error, that was not reasonably forseeable or could not have been prevented through the maintenance of procedures reasonably adopted by the nonbank bank or affiliate to avoid such overdraft; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Fully secured primary dealer affiliate overdrafts.</heading>
<paragraph identifier="/us/cfr/t12/s225.52/c/2/i" class="inline">
<num value="i"> (i)</num>
<content> An overdraft incurred by an affiliate of a nonbank bank, which affiliate is recognized as a primary dealer by the Federal Reserve Bank of New York, in the affiliate's account at the nonbank bank, or an overdraft incurred by a nonbank bank on behalf of its primary dealer affiliate in the nonbank bank's account at a Federal Reserve Bank; <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">provided:</inline> the overdraft is fully secured by bonds, notes, or other obligations which are direct obligations of the United States or on which the principal and interest are fully guaranteed by the United States or by securities and obligations eligible for settlement on the Federal Reserve book-entry system.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> An overdraft by a nonbank bank in its account at a Federal Reserve Bank that is on behalf of a primary dealer affiliate is fully secured when that portion of its overdraft at the Federal Reserve Bank that corresponds to the transaction posted for an affiliate that caused or increased the nonbank bank's overdraft is fully secured in accordance with paragraph (c)(2)(iii) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> An overdraft is fully secured under paragraph (c)(2)(i) when the nonbank bank can demonstrate that the overdraft is secured, at all times, by a perfected security interest in specific, identified obligations described in paragraph (c)(2)(i) with a market value that, in the judgment of the Reserve Bank holding the nonbank bank's account, is sufficiently in excess of the amount of the overdraft to provide a margin of protection in a volatile market or in the event the securities need to be liquidated quickly.
<?page num="200"?></content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Posting by Federal Reserve Banks.</heading>
<chapeau> For purposes of determining the balance of an account under this section, payments and transfers by nonbank banks and industrial banks processed by the Federal Reserve Banks shall be considered posted to their accounts at Federal Reserve Banks as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/d/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Funds transfers.</heading>
<chapeau> Transfer items shall be posted:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> To the transferor's account at the time the transfer is actually made by the transferor's Federal Reserve Bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> To the transferee's account at the time the transferee's Reserve Bank sends the transfer item or sends or telephones the advice of credit for the item to the transferee, whichever occurs first.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Book-entry securities transfers against payment.</heading>
<content> A book-entry securities transfer against payment shall be posted: (i) to the transferor's account at the time the entry is made by the transferor's Reserve Bank; and (ii) to the transferee's account at the time the entry is made by the transferee's Reserve Bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Discount window loans.</heading>
<content> Credit for a discount window loan shall be posted to the account of a nonbank bank or industrial bank at the close of business on the day that it is made or such earlier time as may be specifically agreed to by the Federal Reserve Bank and the nonbank bank under the terms of the loan. Debit for repayment of a discount window loan shall be posted to the account of the nonbank bank or industrial bank as of the close of business on the day of maturity of the loan or such earlier time as may be agreed to by the Federal Reserve Bank and the nonbank bank or required by the Federal Reserve Bank under the terms of the loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Other transactions.</heading>
<content> Total aggregate credits for automated clearing house transfers, cash items, noncash items, net settlement entries, and other nonelectronic transactions shall be posted to the account of a nonbank bank or industrial bank as of the opening of business on settlement day. Total aggregate debits for these transactions and entries shall be posted to the account of a nonbank bank or industrial bank as of the close of business on settlement day.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Posting by nonbank banks and industrial banks.</heading>
<chapeau> For purposes of determining the balance of an affiliate's account under this section, payments and transfers through an affiliate's account at a nonbank bank or industrial bank shall be posted as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/e/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Funds transfers.</heading>
<paragraph identifier="/us/cfr/t12/s225.52/e/1/i" class="inline">
<num value="i"> (i)</num>
<chapeau> Fedwire transfer items shall be posted:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/e/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> To the transferor affiliate's account no later than the time the transfer is actually made by the transferor's Federal Reserve Bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> To the transferee affiliate's account no earlier than the time the transferee's Reserve Bank sends the transfer item, or sends or telephones the advice of credit for the item to the transferee, whichever occurs first.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> For funds transfers not sent or received through Federal Reserve Banks, debits shall be posted to the transferor affiliate's account not later than the time the nonbank bank or industrial bank becomes obligated on the transfer. Credits shall not be posted to the transferee affiliate's account before the nonbank bank or industrial bank has received actually and finally collected funds for the transfer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Book-entry securities transfers against payment.</heading>
<paragraph identifier="/us/cfr/t12/s225.52/e/2/i" class="inline">
<num value="i"> (i)</num>
<chapeau> A book-entry securities transfer against payment shall be posted:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/e/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> To the transferor affiliate's account not earlier than the time the entry is made by the transferor's Reserve Bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> To the transferee affiliate's account not later than the time the entry is made by the transferee's Reserve Bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> For book-entry securities transfers against payment that are not sent or received through Federal Reserve Banks, entries shall be posted:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.52/e/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> To the buyer-affiliate's account not later than the time the nonbank bank or industrial bank becomes obligated on the transfer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> To the seller-affiliate's account not before the nonbank bank or industrial bank has received actually and finally collected funds for the transfer.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Other transactions—</heading>
<paragraph identifier="/us/cfr/t12/s225.52/e/3/i" class="inline">
<num value="i">(i) </num>
<heading>Credits.</heading>
<content> Except as otherwise provided in this paragraph, credits for cash items, noncash <?page num="201"?>items, ACH transfers, net settlement entries, and all other nonelectronic transactions shall be posted to an affiliate's account on the day of the transaction (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> settlement day for ACH transactions or the day of credit for check transactions), but no earlier than the Federal Reserve Bank's opening of business on that day. Credit for cash items that are required by federal or state statute or regulation to be made available to the depositor for withdrawal prior to the posting time set forth in the preceding paragraph shall be posted as of the required availability time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.52/e/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Debits.</heading>
<content> Debits for cash items, noncash items, ACH transfers, net settlement entries, and all other nonelectronic transactions shall be posted to an affiliate's account on the day of the transaction (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> settlement day for ACH transactions or the day of presentment for check transactions), but no later than the Federal Reserve Bank's close of business on that day. If a check drawn on an affiliate's account or an ACH debit transfer received by an affiliate is returned timely by the nonbank bank or industrial bank in accordance with applicable law and agreements, no entry need to be posted to the affiliate's account for such item.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/53/37744">53 FR 37744</ref>, <date date="1988-09-28">Sept. 28, 1988</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spG">
<num value="G" style="-uslm-sgm:HED">Subpart G—</num>
<heading style="-uslm-sgm:HED">Appraisal Standards for Federally Related Transactions</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/55/27771">55 FR 27771</ref>, <date date="1990-07-05">July 5, 1990</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.61">
<num value="225.61" style="-uslm-sgm:SECTNO">§ 225.61</num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, and scope. </heading>
<paragraph identifier="/us/cfr/t12/s225.61/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority.</heading>
<content> This subpart is issued by the Board of Governors of the Federal Reserve System (the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board</inline>) under title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">FlRREA</inline>) (Pub. L. No. 101–73, <ref href="/us/stat/103/183">103 Stat. 183</ref> (1989)), <ref href="/us/usc/t12/s3310">12 U.S.C. 3310</ref>, 3331–3351, and section 5(b) of the Bank Holding Company Act, <ref href="/us/usc/t12/s1844/b">12 U.S.C. 1844(b)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.61/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purpose and scope.</heading>
<paragraph identifier="/us/cfr/t12/s225.61/b/1" class="inline">
<num value="1"> (1)</num>
<content> Title XI provides protection for federal financial and public policy interests in real estate related transactions by requiring real estate appraisals used in connection with federally related transactions to be performed in writing, in accordance with uniform standards, by appraisers whose competency has been demonstrated and whose professional conduct will be subject to effective supervision. This subpart implements the requirements of title XI, and applies to all federally related transactions entered into by the Board or by institutions regulated by the Board (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">regulated institutions</inline>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.61/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> This subpart: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.61/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Identifies which real estate-related financial transactions require the services of an appraiser; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.61/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Prescribes which categories of federally related transactions shall be appraised by a State certified appraiser and which by a State licensed appraiser; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.61/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Prescribes minimum standards for the performance of real estate appraisals in connection with federally related transactions under the jurisdiction of the Board.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s225.62">
<num value="225.62" style="-uslm-sgm:SECTNO">§ 225.62</num>
<heading style="-uslm-sgm:SUBJECT">Definitions. </heading>
<content>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal</inline> means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information. </p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal Foundation</inline> means the Appraisal Foundation established on <date date="1987-11-30">November 30, 1987</date>, as a not-for-profit corporation under the laws of Illinois. </p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal Subcommittee</inline> means the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. </p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business loan</inline> means a loan or extension of credit to any corporation, general or limited partnership, business trust, joint venture, pool, syndicate, sole proprietorship, or other business entity.
</p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Commercial real estate transaction</inline> means a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property.
</p>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Complex 1-to-4 family residential property appraisal</inline> means one in which the property to be appraised, the form of ownership, or market conditions are atypical.
<?page num="202"?></p>
<p style="-uslm-sgm:P">(g) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Federally related transaction</inline> means any real estate-related financial transaction entered into on or after <date date="1990-08-09">August 9, 1990</date>, that: </p>
<p style="-uslm-sgm:P">(1) The Board or any regulated institution engages in or contracts for; and </p>
<p style="-uslm-sgm:P">(2) Requires the services of an appraiser. </p>
<p style="-uslm-sgm:P">(h) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Market value</inline> means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: </p>
<p style="-uslm-sgm:P">(1) Buyer and seller are typically motivated; </p>
<p style="-uslm-sgm:P">(2) Both parties are well informed or well advised, and acting in what they consider their own best interests; </p>
<p style="-uslm-sgm:P">(3) A reasonable time is allowed for exposure in the open market; </p>
<p style="-uslm-sgm:P">(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and </p>
<p style="-uslm-sgm:P">(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. </p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Real estate</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">real property</inline> means an identified parcel or tract of land, with improvements, and includes easements, rights of way, undivided or future interests, or similar rights in a tract of land, but does not include mineral rights, timber rights, growing crops, water rights, or similar interests severable from the land when the transaction does not involve the associated parcel or tract of land.</p>
<p style="-uslm-sgm:P">(j) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Real estate-related financial transaction</inline> means any transaction involving: </p>
<p style="-uslm-sgm:P">(1) The sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing thereof; or </p>
<p style="-uslm-sgm:P">(2) The refinancing of real property or interests in real property; or </p>
<p style="-uslm-sgm:P">(3) The use of real property or interests in property as security for a loan or investment, including mortgage-backed securities. </p>
<p style="-uslm-sgm:P">(k) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State certified appraiser</inline> means any individual who has satisfied the requirements for certification in a State or territory whose criteria for certification as a real estate appraiser currently meet or exceed the minimum criteria for certification issued by the Appraiser Qualifications Board of the Appraisal Foundation. No individual shall be a State certified appraiser unless such individual has achieved a passing grade upon a suitable examination administered by a State or territory that is consistent with and equivalent to the Uniform State Certification Examination issued or endorsed by the Appraiser Qualifications Board of the Appraisal Foundation. In addition, the Appraisal Subcommittee must not have issued a finding that the policies, practices, or procedures of the State or territory are inconsistent with title XI of FIRREA. The Board may, from time to time, impose additional qualification criteria for certified appraisers performing appraisals in connection with federally related transactions within its jurisdiction. </p>
<p style="-uslm-sgm:P">(l) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State licensed appraiser</inline> means any individual who has satisfied the requirements for licensing in a State or territory where the licensing procedures comply with title XI of FIRREA and where the Appraisal Subcommittee has not issued a finding that the policies, practices, or procedures of the State or territory are inconsistent with title XI. The Board may, from time to time, impose additional qualification criteria for licensed appraisers performing appraisals in connection with federally related transactions within the Board's jurisdiction. </p>
<p style="-uslm-sgm:P">(m) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tract development</inline> means a project of five units or more that is constructed or is to be constructed as a single development. </p>
<p style="-uslm-sgm:P">(n) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transaction value</inline> means: </p>
<p style="-uslm-sgm:P">(1) For loans or other extensions of credit, the amount of the loan or extension of credit; </p>
<p style="-uslm-sgm:P">(2) For sales, leases, purchases, and investments in or exchanges of real property, the market value of the real property interest involved; and </p>
<p style="-uslm-sgm:P">(3) For the pooling of loans or interests in real property for resale or purchase, the amount of the loan or the <?page num="203"?>market value of the real property calculated with respect to each such loan or interest in real property. </p>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/55/27771">55 FR 27771</ref>, <date date="1990-07-05">July 5, 1990</date>, as amended at <ref href="/us/fr/59/29500">59 FR 29500</ref>, <date date="1994-06-07" role="amended">June 7, 1994</date>; <ref href="/us/fr/83/15035">83 FR 15035</ref>, <date date="2018-04-09" role="amended">Apr. 9, 2018</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.63">
<num value="225.63" style="-uslm-sgm:SECTNO">§ 225.63</num>
<heading style="-uslm-sgm:SUBJECT">Appraisals required; transactions requiring a State certified or licensed appraiser.</heading>
<paragraph identifier="/us/cfr/t12/s225.63/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Appraisals required.</heading>
<chapeau> An appraisal performed by a State certified or licensed appraiser is required for all real estate-related financial transactions except those in which: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.63/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The transaction value is $250,000 or less; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A lien on real estate has been taken as collateral in an abundance of caution; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The transaction is not secured by real estate; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A lien on real estate has been taken for purposes other than the real estate's value; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<chapeau> The transaction is a business loan that: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.63/a/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Has a transaction value of $1 million or less; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<chapeau> The transaction involves an existing extension of credit at the lending institution, provided that: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.63/a/7/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution's real estate collateral protection after the transaction, even with the advancement of new monies; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> There is no advancement of new monies, other than funds necessary to cover reasonable closing costs; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> The transaction involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgaged-backed securities, and each loan or interest in a loan, pooled loan, or real property interest met Board regulatory requirements for appraisals at the time of origination; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/9" style="-uslm-sgm:P">
<num value="9">(9)</num>
<content> The transaction is wholly or partially insured or guaranteed by a United States government agency or United States government sponsored agency; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/10" style="-uslm-sgm:P">
<num value="10">(10)</num>
<chapeau> The transaction either: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.63/a/10/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Qualifies for sale to a United States government agency or United States government sponsored agency; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/10/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Involves a residential real estate transaction in which the appraisal conforms to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation appraisal standards applicable to that category of real estate; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/11" style="-uslm-sgm:P">
<num value="11">(11)</num>
<content> The regulated institution is acting in a fiduciary capacity and is not required to obtain an appraisal under other law; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/12" style="-uslm-sgm:P">
<num value="12">(12)</num>
<content> The transaction involves underwriting or dealing in mortgage-backed securities;
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/13" style="-uslm-sgm:P">
<num value="13">(13)</num>
<content> The Board determines that the services of an appraiser are not necessary in order to protect Federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/a/14" style="-uslm-sgm:P">
<num value="14">(14)</num>
<content> The transaction is a commercial real estate transaction that has a transaction value of $500,000 or less.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Evaluations required.</heading>
<content> For a transaction that does not require the services of a State certified or licensed appraiser under paragraph (a)(1), (a)(5), (a)(7), or (a)(14) of this section, the institution shall obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Appraisals to address safety and soundness concerns.</heading>
<content> The Board reserves the right to require an appraisal under this subpart whenever the agency believes it is necessary to address safety and soundness concerns. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Transactions requiring a State certified appraiser—</heading>
<paragraph identifier="/us/cfr/t12/s225.63/d/1" class="inline">
<num value="1">(1) </num>
<heading>All transactions of $1,000,000 or more.</heading>
<content> All federally related transactions having a transaction value of $1,000,000 or more shall require an appraisal prepared by a State certified appraiser.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Commercial real estate transactions of more than $500,000.</heading>
<content> All federally related transactions that are commercial <?page num="204"?>real estate transactions having a transaction value of more than $500,000 shall require an appraisal prepared by a State certified appraiser.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Complex residential transactions of $250,000 or more.</heading>
<chapeau> All complex 1-to-4 family residential property appraisals rendered in connection with federally related transactions shall require a State certified appraiser if the transaction value is $250,000 or more. A regulated institution may presume that appraisals of 1-to-4 family residential properties are not complex, unless the institution has readily available information that a given appraisal will be complex. The regulated institution shall be responsible for making the final determination of whether the appraisal is complex. If during the course of the appraisal a licensed appraiser identifies factors that would result in the property, form of ownership, or market conditions being considered atypical, then either: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.63/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The regulated institution may ask the licensed appraiser to complete the appraisal and have a certified appraiser approve and co-sign the appraisal; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The institution may engage a certified appraiser to complete the appraisal. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.63/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Transactions requiring either a State certified or licensed appraiser.</heading>
<content> All appraisals for federally related transactions not requiring the services of a State certified appraiser shall be prepared by either a State certified appraiser or a State licensed appraiser.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/55/27771">55 FR 27771</ref>, <date date="1990-07-05">July 5, 1990</date>, as amended at <ref href="/us/fr/58/15077">58 FR 15077</ref>, <date date="1993-03-19" role="amended">Mar. 19, 1993</date>; <ref href="/us/fr/59/29500">59 FR 29500</ref>, <date date="1994-06-07" role="amended">June 7, 1994</date>; <ref href="/us/fr/63/65532">63 FR 65532</ref>, <date date="1998-11-27" role="amended">Nov. 27, 1998</date>; <ref href="/us/fr/83/15035">83 FR 15035</ref>, <date date="2018-04-09" role="amended">Apr. 9, 2018</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.64">
<num value="225.64" style="-uslm-sgm:SECTNO">§ 225.64 </num>
<heading style="-uslm-sgm:SUBJECT">Minimum appraisal standards.</heading>
<chapeau style="-uslm-sgm:P">For federally related transactions, all appraisals shall, at a minimum: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.64/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Standards Board of the Appraisal Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless principles of safe and sound banking require compliance with stricter standards; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.64/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Be written and contain sufficient information and analysis to support the institution's decision to engage in the transaction; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.64/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms, and tract developments with unsold units; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.64/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Be based upon the definition of market value as set forth in this subpart; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.64/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Be performed by State licensed or certified appraisers in accordance with requirements set forth in this subpart. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/59/29501">59 FR 29501</ref>, <date date="1994-06-07">June 7, 1994</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.65">
<num value="225.65" style="-uslm-sgm:SECTNO">§ 225.65</num>
<heading style="-uslm-sgm:SUBJECT">Appraiser independence.</heading>
<paragraph identifier="/us/cfr/t12/s225.65/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Staff appraisers.</heading>
<content> If an appraisal is prepared by a staff appraiser, that appraiser must be independent of the lending, investment, and collection functions and not involved, except as an appraiser, in the federally related transaction, and have no direct or indirect interest, financial or otherwise, in the property. If the only qualified persons available to perform an appraisal are involved in the lending, investment, or collection functions of the regulated institution, the regulated institution shall take appropriate steps to ensure that the appraisers exercise independent judgment and that the appraisal is adequate. Such steps include, but are not limited to, prohibiting an individual from performing appraisals in connection with federally related transactions in which the appraiser is otherwise involved and prohibiting directors and officers from participating in any vote or approval involving assets on which they performed an appraisal. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.65/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Fee appraisers.</heading>
<paragraph identifier="/us/cfr/t12/s225.65/b/1" class="inline">
<num value="1"> (1)</num>
<content> If an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the regulated institution or its agent, and have no direct or indirect interest, financial or otherwise, in the property or the transaction. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.65/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> A regulated institution also may accept an appraisal that was prepared by an appraiser engaged directly by another financial services institution, if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.65/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.65/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The regulated institution determines that the appraisal conforms to <?page num="205"?>the requirements of this subpart and is otherwise acceptable. </content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/55/27771">55 FR 27771</ref>, <date date="1990-07-05">July 5, 1990</date>, as amended at <ref href="/us/fr/59/29501">59 FR 29501</ref>, <date date="1994-06-07" role="amended">June 7, 1994</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.66">
<num value="225.66" style="-uslm-sgm:SECTNO">§ 225.66</num>
<heading style="-uslm-sgm:SUBJECT">Professional association membership; competency. </heading>
<paragraph identifier="/us/cfr/t12/s225.66/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Membership in appraisal organizations.</heading>
<content> A State certified appraiser or a State licensed appraiser may not be excluded from consideration for an assignment for a federally related transaction solely by virtue of membership or lack of membership in any particular appraisal organization. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.66/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Competency.</heading>
<content> All staff and fee appraisers performing appraisals in connection with federally related transactions must be State certified or licensed, as appropriate. However, a State certified or licensed appraiser may not be considered competent solely by virtue of being certified or licensed. Any determination of competency shall be based upon the individual's experience and educational background as they relate to the particular appraisal assignment for which he or she is being considered.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.67">
<num value="225.67" style="-uslm-sgm:SECTNO">§ 225.67</num>
<heading style="-uslm-sgm:SUBJECT">Enforcement. </heading>
<content style="-uslm-sgm:P">Institutions and institution-affiliated parties, including staff appraisers and fee appraisers, may be subject to removal and/or prohibition orders, cease and desist orders, and the imposition of civil money penalties pursuant to the Federal Deposit Insurance Act, <ref href="/us/usc/t12/s1811">12 U.S.C 1811</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.,</inline> as amended, or other applicable law.
</content>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spH">
<num value="H" style="-uslm-sgm:HED">Subpart H—</num>
<heading style="-uslm-sgm:HED">Notice of Addition or Change of Directors and Senior Executive Officers</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/62/9341">62 FR 9341</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s225.71">
<num value="225.71" style="-uslm-sgm:SECTNO">§ 225.71 </num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Director</inline> means a person who serves on the board of directors of a regulated institution, except that this term does not include an advisory director who:</p>
<p style="-uslm-sgm:P">(1) Is not elected by the shareholders of the regulated institution;</p>
<p style="-uslm-sgm:P">(2) Is not authorized to vote on any matters before the board of directors or any committee thereof;</p>
<p style="-uslm-sgm:P">(3) Solely provides general policy advice to the board of directors and any committee thereof; and</p>
<p style="-uslm-sgm:P">(4) Has not been identified by the Board or Reserve Bank as a person who performs the functions of a director for purposes of this subpart.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Regulated institution</inline> means a state member bank or a bank holding company.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Senior executive officer</inline> means a person who holds the title or, without regard to title, salary, or compensation, performs the function of one or more of the following positions: president, chief executive officer, chief operating officer, chief financial officer, chief lending officer, or chief investment officer. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Senior executive officer</inline> also includes any other person identified by the Board or Reserve Bank, whether or not hired as an employee, with significant influence over, or who participates in, major policymaking decisions of the regulated institution.</p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Troubled condition</inline> for a regulated institution means an institution that:</p>
<p style="-uslm-sgm:P">(1) Has a composite rating, as determined in its most recent report of examination or inspection, of 4 or 5 under the Uniform Financial Institutions Rating System or under the Federal Reserve Bank Holding Company Rating System;</p>
<p style="-uslm-sgm:P">(2) Is subject to a cease-and-desist order or formal written agreement that requires action to improve the financial condition of the institution, unless otherwise informed in writing by the Board or Reserve Bank; or</p>
<p style="-uslm-sgm:P">(3) Is informed in writing by the Board or Reserve Bank that it is in troubled condition for purposes of the requirements of this subpart on the basis of the institution's most recent report of condition or report of examination or inspection, or other information available to the Board or Reserve Bank.
</p>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.72">
<num value="225.72" style="-uslm-sgm:SECTNO">§ 225.72 </num>
<heading style="-uslm-sgm:SUBJECT">Director and officer appointments; prior notice requirement.</heading>
<paragraph identifier="/us/cfr/t12/s225.72/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Prior notice by regulated institution.</heading>
<chapeau> A regulated institution shall give the <?page num="206"?>Board 30 days' written notice, as specified in <ref href="/us/cfr/t12/s225.73">§ 225.73</ref>, before adding or replacing any member of its board of directors, employing any person as a senior executive officer of the institution, or changing the responsibilities of any senior executive officer so that the person would assume a different senior executive officer position, if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.72/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The regulated institution is not in compliance with all minimum capital requirements applicable to the institution as determined on the basis of the institution's most recent report of condition or report of examination or inspection;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.72/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The regulated institution is in troubled condition; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.72/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The Board determines, in connection with its review of a capital restoration plan required under section 38 of the Federal Deposit Insurance Act or subpart B of the Board's Regulation H, or otherwise, that such notice is appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.72/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Prior notice by individual.</heading>
<content> The prior notice required by paragraph (a) of this section may be provided by an individual seeking election to the board of directors of a regulated institution.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.73">
<num value="225.73" style="-uslm-sgm:SECTNO">§ 225.73 </num>
<heading style="-uslm-sgm:SUBJECT">Procedures for filing, processing, and acting on notices; standards for disapproval; waiver of notice.</heading>
<paragraph identifier="/us/cfr/t12/s225.73/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Filing notice—</heading>
<paragraph identifier="/us/cfr/t12/s225.73/a/1" class="inline">
<num value="1">(1) </num>
<heading>Content.</heading>
<chapeau> The notice required in <ref href="/us/cfr/t12/s225.72">§ 225.72</ref> shall be filed with the appropriate Reserve Bank and shall contain:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.73/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The information required by paragraph 6(A) of the Change in Bank Control Act (<ref href="/us/usc/t12/s1817/j/6/A">12 U.S.C. 1817(j)(6)(A)</ref>) as may be prescribed in the designated Board form;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Additional information consistent with the Federal Financial Institutions Examination Council's Joint Statement of Guidelines on Conducting Background Checks and Change in Control Investigations, as set forth in the designated Board form; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Such other information as may be required by the Board or Reserve Bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Modification.</heading>
<content> The Reserve Bank may modify or accept other information in place of the requirements of <ref href="/us/cfr/t12/s225.73/a/1">§ 225.73(a)(1)</ref> for a notice filed under this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Acceptance and processing of notice.</heading>
<content> The 30-day notice period specified in <ref href="/us/cfr/t12/s225.72">§ 225.72</ref> shall begin on the date all information required to be submitted by the notificant pursuant to <ref href="/us/cfr/t12/s225.73/a/1">§ 225.73(a)(1)</ref> is received by the appropriate Reserve Bank. The Reserve Bank shall notify the regulated institution or individual submitting the notice of the date on which all required information is received and the notice is accepted for processing, and of the date on which the 30-day notice period will expire. The Board or Reserve Bank may extend the 30-day notice period for an additional period of not more than 60 days by notifying the regulated institution or individual filing the notice that the period has been extended and stating the reason for not processing the notice within the 30-day notice period.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Commencement of service—</heading>
<paragraph identifier="/us/cfr/t12/s225.73/b/1" class="inline">
<num value="1">(1) </num>
<heading>At expiration of period.</heading>
<content> A proposed director or senior executive officer may begin service after the end of the 30-day period and any extension as provided under paragraph (a)(3) of this section, unless the Board or Reserve Bank disapproves the notice before the end of the period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Prior to expiration of period.</heading>
<content> A proposed director or senior executive officer may begin service before the end of the 30-day period and any extension as provided under paragraph (a)(3) of this section, if the Board or the Reserve Bank notifies in writing the regulated institution or individual submitting the notice of the Board's or Reserve Bank's intention not to disapprove the notice.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Notice of disapproval.</heading>
<content> The Board or Reserve Bank shall disapprove a notice under <ref href="/us/cfr/t12/s225.72">§ 225.72</ref> if the Board or Reserve Bank finds that the competence, experience, character, or integrity of the individual with respect to whom the notice is submitted indicates that it would not be in the best interests of the depositors of the regulated institution or in the best interests of the public to permit the individual to be employed by, or associated with, the regulated institution. The notice of disapproval shall contain a statement of the basis for disapproval and shall be <?page num="207"?>sent to the regulated institution and the disapproved individual.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Appeal of a notice of disapproval.</heading>
<paragraph identifier="/us/cfr/t12/s225.73/d/1" class="inline">
<num value="1"> (1)</num>
<content> A disapproved individual or a regulated institution that has submitted a notice that is disapproved under this section may appeal the disapproval to the Board within 15 days of the effective date of the notice of disapproval. An appeal shall be in writing and explain the reasons for the appeal and include all facts, documents, and arguments that the appealing party wishes to be considered in the appeal, and state whether the appealing party is requesting an informal hearing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Written notice of the final decision of the Board shall be sent to the appealing party within 60 days of the receipt of an appeal, unless the appealing party's request for an informal hearing is granted.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The disapproved individual may not serve as a director or senior executive officer of the state member bank or bank holding company while the appeal is pending.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Informal hearing.</heading>
<paragraph identifier="/us/cfr/t12/s225.73/e/1" class="inline">
<num value="1"> (1)</num>
<content> An individual or regulated institution whose notice under this section has been disapproved may request an informal hearing on the notice. A request for an informal hearing shall be in writing and shall be submitted within 15 days of a notice of disapproval. The Board may, in its sole discretion, order an informal hearing if the Board finds that oral argument is appropriate or necessary to resolve disputes regarding material issues of fact.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An informal hearing shall be held within 30 days of a request, if granted, unless the requesting party agrees to a later date.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Written notice of the final decision of the Board shall be given to the individual and the regulated institution within 60 days of the conclusion of any informal hearing ordered by the Board, unless the requesting party agrees to a later date.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Waiver of notice—</heading>
<paragraph identifier="/us/cfr/t12/s225.73/f/1" class="inline">
<num value="1">(1) </num>
<heading>Waiver requests.</heading>
<chapeau> The Board or Reserve Bank may permit an individual to serve as a senior executive officer or director before the notice required under this subpart is provided, if the Board or Reserve Bank finds that:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.73/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Delay would threaten the safety or soundness of the regulated institution or a bank controlled by a bank holding company;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Delay would not be in the public interest; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/f/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Other extraordinary circumstances exist that justify waiver of prior notice.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Automatic waiver.</heading>
<chapeau> An individual may serve as a director upon election to the board of directors of a regulated institution before the notice required under this subpart is provided if the individual:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.73/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Is not proposed by the management of the regulated institution;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is elected as a new member of the board of directors at a meeting of the regulated institution; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/f/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Provides to the appropriate Reserve Bank all the information required in <ref href="/us/cfr/t12/s225.73/a">§ 225.73(a)</ref> within two (2) business days after the individual's election.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.73/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Effect on disapproval authority.</heading>
<content> A waiver shall not affect the authority of the Board or Reserve Bank to disapprove a notice within 30 days after a waiver is granted under paragraph (f)(1) of this section or the election of an individual who has filed a notice and is serving pursuant to an automatic waiver under paragraph (f)(2) of this section.
</content>
</paragraph>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spI">
<num value="I" style="-uslm-sgm:HED">Subpart I—</num>
<heading style="-uslm-sgm:HED">Financial Holding Companies</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/66/415">66 FR 415</ref>, <date date="2001-01-03">Jan. 3, 2001</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.81">
<num value="225.81" style="-uslm-sgm:SECTNO">§ 225.81</num>
<heading style="-uslm-sgm:SUBJECT">What is a financial holding company?</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.81/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definition.</heading>
<content> A financial holding company is a bank holding company that meets the requirements of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.81/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Requirements to be a financial holding company.</heading>
<chapeau> In order to be a financial holding company: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.81/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> All depository institutions controlled by the bank holding company must be and remain well capitalized; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.81/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> All depository institutions controlled by the bank holding company must be and remain well managed; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.81/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The bank holding company must have made an effective election to become a financial holding company.
<?page num="208"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.81/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Requirements for foreign banks that are or are owned by bank holding companies—</heading>
<paragraph identifier="/us/cfr/t12/s225.81/c/1" class="inline">
<num value="1">(1) </num>
<heading>Foreign banks with U.S. branches or agencies that also own U.S. banks.</heading>
<content> A foreign bank that is a bank holding company and that operates a branch or agency or owns or controls a commercial lending company in the United States must comply with the requirements of this section, <ref href="/us/cfr/t12/s225.82">§ 225.82</ref>, and <ref href="/us/cfr/t12/s225.90">§§ 225.90</ref> through 225.92 in order to be a financial holding company. After it becomes a financial holding company, a foreign bank described in this paragraph will be subject to the provisions of <ref href="/us/cfr/t12/s225.83">§§ 225.83</ref>, 225.84, 225.93, and 225.94.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.81/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Bank holding companies that own foreign banks with U.S. branches or agencies.</heading>
<content> A bank holding company that owns a foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States must comply with the requirements of this section, <ref href="/us/cfr/t12/s225.82">§ 225.82</ref>, and <ref href="/us/cfr/t12/s225.90">§§ 225.90</ref> through 225.92 in order to be a financial holding company. After it becomes a financial holding company, a bank holding company described in this paragraph will be subject to the provisions of <ref href="/us/cfr/t12/s225.83">§§ 225.83</ref>, 225.84, 225.93, and 225.94.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.82">
<num value="225.82" style="-uslm-sgm:SECTNO">§ 225.82 </num>
<heading style="-uslm-sgm:SUBJECT">How does a bank holding company elect to become a financial holding company? </heading>
<paragraph identifier="/us/cfr/t12/s225.82/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Filing requirement.</heading>
<content> A bank holding company may elect to become a financial holding company by filing a written declaration with the appropriate Reserve Bank. A declaration by a bank holding company is considered to be filed on the date that all information required by paragraph (b) of this section is received by the appropriate Reserve Bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Contents of declaration.</heading>
<chapeau> To be deemed complete, a declaration must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.82/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> State that the bank holding company elects to be a financial holding company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provide the name and head office address of the bank holding company and of each depository institution controlled by the bank holding company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Certify that each depository institution controlled by the bank holding company is well capitalized as of the date the bank holding company submits its declaration; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Provide the capital ratios as of the close of the previous quarter for all relevant capital measures, as defined in section 38 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1831o">12 U.S.C. 1831o</ref>), for each depository institution controlled by the company on the date the company submits its declaration; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Certify that each depository institution controlled by the company is well managed as of the date the company submits its declaration. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Effectiveness of election.</heading>
<chapeau> An election by a bank holding company to become a financial holding company shall not be effective if, during the period provided in paragraph (e) of this section, the Board finds that, as of the date the declaration was filed with the appropriate Reserve Bank: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.82/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Any insured depository institution controlled by the bank holding company (except an institution excluded under paragraph (d) of this section) has not achieved at least a rating of “satisfactory record of meeting community credit needs” under the Community Reinvestment Act at the institution's most recent examination; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any depository institution controlled by the bank holding company is not both well capitalized and well managed. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Consideration of the CRA performance of a recently acquired insured depository institution.</heading>
<chapeau> Except as provided in paragraph (f) of this section, an insured depository institution will be excluded for purposes of the review of the Community Reinvestment Act rating provisions of paragraph (c)(1) of this section if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.82/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The bank holding company acquired the insured depository institution during the 12-month period preceding the filing of an election under paragraph (a) of this section; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The bank holding company has submitted an affirmative plan to the appropriate Federal banking agency for the institution to take actions necessary for the institution to achieve at least a rating of “satisfactory record of meeting community credit needs” under the Community Reinvestment Act at the next examination of the institution; and
<?page num="209"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The appropriate Federal banking agency for the institution has accepted the plan described in paragraph (d)(2) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Effective date of election—</heading>
<paragraph identifier="/us/cfr/t12/s225.82/e/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> An election filed by a bank holding company under paragraph (a) of this section is effective on the 31st calendar day after the date that a complete declaration was filed with the appropriate Reserve Bank, unless the Board notifies the bank holding company prior to that time that the election is ineffective. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Earlier notification that an election is effective.</heading>
<content> The Board or the appropriate Reserve Bank may notify a bank holding company that its election to become a financial holding company is effective prior to the 31st day after the date that a complete declaration was filed with the appropriate Reserve Bank. Such a notification must be in writing. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Requests to become a financial holding company submitted as part of an application to become a bank holding company—</heading>
<paragraph identifier="/us/cfr/t12/s225.82/f/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A company that is not a bank holding company and has applied for the Board's approval to become a bank holding company under section 3(a)(1) of the BHC Act (<ref href="/us/usc/t12/s1842/a/1">12 U.S.C. 1842(a)(1)</ref>) may as part of that application submit a request to become a financial holding company.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Contents of request.</heading>
<chapeau> A request to become a financial holding company submitted as part of an application to become a bank holding company must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.82/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> State that the company seeks to become a financial holding company on consummation of its proposal to become a bank holding company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Certify that each depository institution that would be controlled by the company on consummation of its proposal to become a bank holding company will be both well capitalized and well managed as of the date the company consummates the proposal. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Request becomes a declaration and an effective election on date of consummation of bank holding company proposal.</heading>
<chapeau> A complete request submitted by a company under this paragraph (f) becomes a complete declaration by a bank holding company for purposes of section 4(l) of the BHC Act (<ref href="/us/usc/t12/s1843/l">12 U.S.C. 1843(l)</ref>) and becomes an effective election for purposes of <ref href="/us/cfr/t12/s225.81/b">§ 225.81(b)</ref> on the date that the company lawfully consummates its proposal under section 3 of the BHC Act (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>), unless the Board notifies the company at any time prior to consummation of the proposal and that: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.82/f/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any depository institution that would be controlled by the company on consummation of the proposal will not be both well capitalized and well managed on the date of consummation; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/f/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any insured depository institution that would be controlled by the company on consummation of the proposal has not achieved at least a rating of “satisfactory record of meeting community credit needs” under the Community Reinvestment Act at the institution's most recent examination.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Limited exclusion for recently acquired institutions not available.</heading>
<content> Unless the Board determines otherwise, an insured depository institution that is controlled or would be controlled by the company as part of its proposal to become a bank holding company may not be excluded for purposes of evaluating the Community Reinvestment Act criterion described in this paragraph or in paragraph (d) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.82/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Board's authority to exercise supervisory authority over a financial holding company.</heading>
<content> An effective election to become a financial holding company does not in any way limit the Board's statutory authority under the BHC Act, the Federal Deposit Insurance Act, or any other relevant Federal statute to take appropriate action, including imposing supervisory limitations, restrictions, or prohibitions on the activities and acquisitions of a bank holding company that has elected to become a financial holding company, or enforcing compliance with applicable law.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.83">
<num value="225.83" style="-uslm-sgm:SECTNO">§ 225.83 </num>
<heading style="-uslm-sgm:SUBJECT">What are the consequences of failing to continue to meet applicable capital and management requirements? </heading>
<paragraph identifier="/us/cfr/t12/s225.83/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Notice by the Board.</heading>
<content> If the Board finds that a financial holding company controls any depository institution that is not well capitalized or well managed, the Board will notify the company in writing that it is not in <?page num="210"?>compliance with the applicable requirement(s) for a financial holding company and identify the area(s) of noncompliance. The Board may provide this notice at any time before or after receiving notice from the financial holding company under paragraph (b) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Notification by a financial holding company required—</heading>
<paragraph identifier="/us/cfr/t12/s225.83/b/1" class="inline">
<num value="1">(1) </num>
<heading>Notice to Board.</heading>
<content> A financial holding company must notify the Board in writing within 15 calendar days of becoming aware that any depository institution controlled by the company has ceased to be well capitalized or well managed. This notification must identify the depository institution involved and the area(s) of noncompliance.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Triggering events for notice to the Board—</heading>
<paragraph identifier="/us/cfr/t12/s225.83/b/2/i" class="inline">
<num value="i">(i) </num>
<heading>Well capitalized.</heading>
<content> A company becomes aware that a depository institution it controls is no longer well capitalized upon the occurrence of any material event that would change the category assigned to the institution for purposes of section 38 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1831o">12 U.S.C. 1831o</ref>). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s6.3/b">12 CFR 6.3(b)</ref>–(c), 208.42(b)–(c), and 325.102(b)–(c).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Well managed.</heading>
<content> A company becomes aware that a depository institution it controls is no longer well managed at the time the depository institution receives written notice from the appropriate Federal or state banking agency that either its composite rating or its rating for management is not at least satisfactory. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Execution of agreement acceptable to the Board—</heading>
<paragraph identifier="/us/cfr/t12/s225.83/c/1" class="inline">
<num value="1">(1) </num>
<heading>Agreement required; time period.</heading>
<content> Within 45 days after receiving a notice from the Board under paragraph (a) of this section, the company must execute an agreement acceptable to the Board to comply with all applicable capital and management requirements. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Extension of time for executing agreement.</heading>
<content> Upon request by a company, the Board may extend the 45-day period under paragraph (c)(1) of this section if the Board determines that granting additional time is appropriate under the circumstances. A request by a company for additional time must include an explanation of why an extension is necessary.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Agreement requirements.</heading>
<chapeau> An agreement required by paragraph (c)(1) of this section to correct a capital or management deficiency must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.83/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Explain the specific actions that the company will take to correct all areas of noncompliance; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provide a schedule within which each action will be taken; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/c/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Provide any other information that the Board may require; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/c/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Be acceptable to the Board. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Limitations during period of noncompliance—</heading>
<chapeau>Until the Board determines that a company has corrected the conditions described in a notice under paragraph (a) of this section: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.83/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The Board may impose any limitations or conditions on the conduct or activities of the company or any of its affiliates as the Board finds to be appropriate and consistent with the purposes of the BHC Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The company and its affiliates may not commence any additional activity or acquire control or shares of any company under section 4(k) of the BHC Act without prior approval from the Board. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Consequences of failure to correct conditions within 180 days—</heading>
<paragraph identifier="/us/cfr/t12/s225.83/e/1" class="inline">
<num value="1">(1) </num>
<heading>Divestiture of depository institutions.</heading>
<content> If a company does not correct the conditions described in a notice under paragraph (a) of this section within 180 days of receipt of the notice or such additional time as the Board may permit, the Board may order the company to divest ownership or control of any depository institution owned or controlled by the company. Such divestiture must be done in accordance with the terms and conditions established by the Board. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Alternative method of complying with a divestiture order.</heading>
<content> A company may comply with an order issued under paragraph (e)(1) of this section by ceasing to engage (both directly and through any subsidiary that is not a depository institution or a subsidiary of a depository institution) in any activity that may be conducted only under section 4(k), (n), or (o) of the BHC Act (<ref href="/us/usc/t12/s1843/k">12 U.S.C. 1843(k)</ref>, (n), or (o)). The termination of activities must be completed within the time period referred to in paragraph (e)(1) of this section and in accordance with the terms and conditions acceptable to the Board.
<?page num="211"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.83/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Consultation with other agencies.</heading>
<content> In taking any action under this section, the Board will consult with the relevant Federal and state regulatory authorities.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.84">
<num value="225.84" style="-uslm-sgm:SECTNO">§ 225.84 </num>
<heading style="-uslm-sgm:SUBJECT">What are the consequences of failing to maintain a satisfactory or better rating under the Community Reinvestment Act at all insured depository institution subsidiaries? </heading>
<paragraph identifier="/us/cfr/t12/s225.84/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Limitations on activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.84/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Upon receiving a notice regarding performance under the Community Reinvestment Act in accordance with paragraph (a)(2) of this section, a financial holding company may not: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.84/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Commence any additional activity under section 4(k) or 4(n) of the BHC Act (<ref href="/us/usc/t12/s1843/k">12 U.S.C. 1843(k)</ref> or (n)); or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.84/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Directly or indirectly acquire control, including all or substantially all of the assets, of a company engaged in any activity under section 4(k) or 4(n) of the BHC Act (<ref href="/us/usc/t12/s1843/k">12 U.S.C. 1843(k)</ref> or (n)). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.84/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notification.</heading>
<content> A financial holding company receives notice for purposes of this paragraph at the time that the appropriate Federal banking agency for any insured depository institution controlled by the company or the Board provides notice to the institution or company that the institution has received a rating of “needs to improve record of meeting community credit needs” or “substantial noncompliance in meeting community credit needs” in the institution's most recent examination under the Community Reinvestment Act. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.84/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exceptions for certain activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.84/b/1" class="inline">
<num value="1">(1) </num>
<heading>Continuation of investment activities.</heading>
<chapeau> The prohibition in paragraph (a) of this section does not prevent a financial holding company from continuing to make investments in the ordinary course of conducting merchant banking activities under section 4(k)(4)(H) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>) or insurance company investment activities under section 4(k)(4)(I) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/I">12 U.S.C. 1843(k)(4)(I)</ref>)if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.84/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The financial holding company lawfully was a financial holding company and commenced the merchant banking activity under section 4(k)(4)(H) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>) or the insurance company investment activity under section 4(k)(4)(I) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/I">12 U.S.C. 1843(k)(4)(I)</ref>) prior to the time that an insured depository institution controlled by the financial holding company received a rating below “satisfactory record of meeting community credit needs” under the Community Reinvestment Act; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.84/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The Board has not, in the exercise of its supervisory authority, advised the financial holding company that these activities must be restricted. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.84/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Activities that are closely related to banking.</heading>
<content> The prohibition in paragraph (a) of this section does not prevent a financial holding company from commencing any additional activity or acquiring control of a company engaged in any activity under section 4(c) of the BHC Act (<ref href="/us/usc/t12/s1843/c">12 U.S.C. 1843(c)</ref>), if the company complies with the notice, approval, and other requirements of that section and section 4(j) of the BHC Act (<ref href="/us/usc/t12/s1843/j">12 U.S.C. 1843(j)</ref>). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.84/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Duration of prohibitions.</heading>
<content> The prohibitions described in paragraph (a) of this section shall continue in effect until such time as each insured depository institution controlled by the financial holding company has achieved at least a rating of “satisfactory record of meeting community credit needs” under the Community Reinvestment Act at the most recent examination of the institution.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.85">
<num value="225.85" style="-uslm-sgm:SECTNO">§ 225.85 </num>
<heading style="-uslm-sgm:SUBJECT">Is notice to or approval from the Board required prior to engaging in a financial activity? </heading>
<paragraph identifier="/us/cfr/t12/s225.85/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>No prior approval required generally—</heading>
<paragraph identifier="/us/cfr/t12/s225.85/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A financial holding company and any subsidiary (other than a depository institution or subsidiary of a depository institution) of the financial holding company may engage in any activity listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref>, or acquire shares or control of a company engaged exclusively in activities listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref>, without providing prior notice to or obtaining prior approval from the Board unless required under paragraph (c) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.85/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Acquisitions by a financial holding company of a company engaged in other permissible activities.</heading>
<content> In addition to the activities listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref>, a company acquired or to be acquired by a financial holding company under paragraph <?page num="212"?>(a)(1) of this section may engage in activities otherwise permissible for a financial holding company under this part in accordance with any applicable notice, approval, or other requirement. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.85/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Acquisition by a financial holding company of a company engaged in limited nonfinancial activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.85/a/3/i" class="inline">
<num value="i">(i) </num>
<heading>Mixed acquisitions generally permitted.</heading>
<chapeau> A financial holding company may under this subpart acquire more than 5 percent of the outstanding shares of any class of voting securities or control of a company that is not engaged exclusively in activities that are financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) of the BHC Act (<ref href="/us/usc/t12/s1843/c">12 U.S.C. 1843(c)</ref>) if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.85/a/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The company to be acquired is substantially engaged in activities that are financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) of the BHC Act (<ref href="/us/usc/t12/s1843/c">12 U.S.C. 1843(c)</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.85/a/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The financial holding company complies with the notice requirements of <ref href="/us/cfr/t12/s225.87">§ 225.87</ref>, if applicable; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.85/a/3/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The company conforms, terminates, or divests, within 2 years of the date the financial holding company acquires shares or control of the company, all activities that are not financial in nature, incidental to a financial activity, or otherwise permissible for the financial holding company under section 4(c) (<ref href="/us/usc/t12/s1843/c">12 U.S.C. 1843(c)</ref>)of the BHC Act. </content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.85/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Definition of “substantially engaged.”</heading>
<content> Unless the Board determines otherwise, a company will be considered to be “substantially engaged” in activities permissible for a financial holding company for purposes of paragraph (a)(3)(A) of this section if at least 85 percent of the company's consolidated total annual gross revenues is derived from and at least 85 percent of the company's consolidated total assets is attributable to the conduct of activities that are financial in nature, incidental to a financial activity, or otherwise permissible for a financial holding company under section 4(c) of the BHC Act (<ref href="/us/usc/t12/s1843/c">12 U.S.C. 1843(c)</ref>). </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.85/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Locations in which a financial holding company may conduct financial activities.</heading>
<content> A financial holding company may conduct any activity listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref> at any location in the United States or at any location outside of the United States subject to the laws of the jurisdiction in which the activity is conducted. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.85/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Circumstances under which prior notice to the Board is required—</heading>
<paragraph identifier="/us/cfr/t12/s225.85/c/1" class="inline">
<num value="1">(1) </num>
<heading>Acquisition of more than 5 percent of the shares of a savings association.</heading>
<content> A financial holding company must obtain Board approval in accordance with section 4(j) of the BHC Act (<ref href="/us/usc/t12/s1843/j">12 U.S.C. 1843(j)</ref>) and either <ref href="/us/cfr/t12/s225.14">§ 225.14</ref> or <ref href="/us/cfr/t12/s225.24">§ 225.24</ref>, as appropriate, prior to acquiring control or more than 5 percent of the outstanding shares of any class of voting securities of a savings association or of a company that owns, operates, or controls a savings association. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.85/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Supervisory actions.</heading>
<content> The Board may, if appropriate in the exercise of its supervisory or other authority, including under <ref href="/us/cfr/t12/s225.82/g">§ 225.82(g)</ref> or <ref href="/us/cfr/t12/s225.83/d">§ 225.83(d)</ref> or other relevant authority, require a financial holding company to provide notice to or obtain approval from the Board prior to engaging in any activity or acquiring shares or control of any company.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.86">
<num value="225.86" style="-uslm-sgm:SECTNO">§ 225.86 </num>
<heading style="-uslm-sgm:SUBJECT">What activities are permissible for any financial holding company?</heading>
<chapeau style="-uslm-sgm:P">The following activities are financial in nature or incidental to a financial activity: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Activities determined to be closely related to banking.</heading>
<paragraph identifier="/us/cfr/t12/s225.86/a/1" class="inline">
<num value="1"> (1)</num>
<content> Any activity that the Board had determined by regulation prior to <date date="1999-11-12">November 12, 1999</date>, to be so closely related to banking as to be a proper incident thereto, subject to the terms and conditions contained in this part, unless modified by the Board. These activities are listed in <ref href="/us/cfr/t12/s225.28">§ 225.28</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Any activity that the Board had determined by an order that was in effect on <date date="1999-11-12">November 12, 1999</date>, to be so closely related to banking as to be a proper incident thereto, subject to the terms and conditions contained in this part and those in the authorizing orders. These activities are: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Providing administrative and other services to mutual funds (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Societe Generale,</inline> 84 Federal Reserve Bulletin 680 (1998));
<?page num="213"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Owning shares of a securities exchange (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">J.P. Morgan &amp; Co, Inc., and UBS AG,</inline> 86 Federal Reserve Bulletin 61 (2000)); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Acting as a certification authority for digital signatures and authenticating the identity of persons conducting financial and nonfinancial transactions (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bayerische Hypo- und Vereinsbank AG, et al.,</inline> 86 Federal Reserve Bulletin 56 (2000)); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/a/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Providing employment histories to third parties for use in making credit decisions and to depository institutions and their affiliates for use in the ordinary course of business (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Norwest Corporation,</inline> 81 Federal Reserve Bulletin 732 (1995)); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/a/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Check cashing and wire transmission services (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Midland Bank, PLC,</inline> 76 Federal Reserve Bulletin 860 (1990) (check cashing); <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Norwest Corporation,</inline> 81 Federal Reserve Bulletin 1130 (1995) (money transmission)); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/a/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> In connection with offering banking services, providing notary public services, selling postage stamps and postage-paid envelopes, providing vehicle registration services, and selling public transportation tickets and tokens (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Popular, Inc.,</inline> 84 Federal Reserve Bulletin 481 (1998)); and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/a/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Real estate title abstracting (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">The First National Company,</inline> 81 Federal Reserve Bulletin 805 (1995)). </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Activities determined to be usual in connection with the transaction of banking abroad.</heading>
<chapeau> Any activity that the Board had determined by regulation in effect on <date date="1999-11-11">November 11, 1999</date>, to be usual in connection with the transaction of banking or other financial operations abroad (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> <ref href="/us/cfr/t12/s211.5/d">§ 211.5(d)</ref> of this chapter), subject to the terms and conditions in part 211 and Board interpretations in effect on that date regarding the scope and conduct of the activity. In addition to the activities listed in paragraphs (a) and (c) of this section, these activities are: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Providing management consulting services, including to any person with respect to nonfinancial matters, so long as the management consulting services are advisory and do not allow the financial holding company to control the person to which the services are provided; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Operating a travel agency in connection with financial services offered by the financial holding company or others; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> Organizing, sponsoring, and managing a mutual fund, so long as: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The fund does not exercise managerial control over the entities in which the fund invests; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The financial holding company reduces its ownership in the fund, if any, to less than 25 percent of the equity of the fund within one year of sponsoring the fund or such additional period as the Board permits. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Activities permitted under section 4(k)(4) of the BHC Act</heading>
<content> (<ref href="/us/usc/t12/s1843/k/4">12 U.S.C. 1843(k)(4)</ref>). Any activity defined to be financial in nature under sections 4(k)(4)(A) through (E), (H) and (I) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/A">12 U.S.C. 1843(k)(4)(A)</ref> through (E), (H) and (I)). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Activities determined to be financial in nature or incidental to financial activities by the Board—</heading>
<paragraph identifier="/us/cfr/t12/s225.86/d/1" class="inline">
<num value="1">(1) </num>
<heading>Acting as a finder—</heading>
<chapeau>Acting as a finder in bringing together one or more buyers and sellers of any product or service for transactions that the parties themselves negotiate and consummate. </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>What is the scope of finder activities?</heading>
<chapeau> Acting as a finder includes providing any or all of the following services through any means—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Identifying potential parties, making inquiries as to interest, introducing and referring potential parties to each other, and arranging contacts between and meetings of interested parties; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Conveying between interested parties expressions of interest, bids, offers, orders and confirmations relating to a transaction; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Transmitting information concerning products and services to potential parties in connection with the activities described in paragraphs (d)(1)(i)(A) and (B) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>What are some examples of finder services?</heading>
<chapeau> The following are examples of the services that may be provided by a finder when done in accordance with paragraphs (d)(1)(iii) and (iv) of this section. These examples are not exclusive. </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Hosting an electronic marketplace on the financial holding company's Internet web site by providing <?page num="214"?>hypertext or similar links to the web sites of third party buyers or sellers. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> Hosting on the financial holding company's servers the Internet web site of—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/ii/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A buyer (or seller) that provides information concerning the buyer (or seller) and the products or services it seeks to buy (or sell) and allows sellers (or buyers) to submit expressions of interest, bids, offers, orders and confirmations relating to such products or services; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/ii/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A government or government agency that provides information concerning the services or benefits made available by the government or government agency, assists persons in completing applications to receive such services or benefits from the government or agency, and allows persons to transmit their applications for services or benefits to the government or agency. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Operating an Internet web site that allows multiple buyers and sellers to exchange information concerning the products and services that they are willing to purchase or sell, locate potential counterparties for transactions, aggregate orders for goods or services with those made by other parties, and enter into transactions between themselves. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Operating a telephone call center that provides permissible finder services. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>What limitations are applicable to a financial holding company acting as a finder?</heading>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/A" class="inline">
<num value="A"> (A)</num>
<content> A finder may act only as an intermediary between a buyer and a seller. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> A finder may not bind any buyer or seller to the terms of a specific transaction or negotiate the terms of a specific transaction on behalf of a buyer or seller, except that a finder may—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Arrange for buyers to receive preferred terms from sellers so long as the terms are not negotiated as part of any individual transaction, are provided generally to customers or broad categories of customers, and are made available by the seller (and not by the financial holding company); and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Establish rules of general applicability governing the use and operation of the finder service, including rules that—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/B/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Govern the submission of bids and offers by buyers and sellers that use the finder service and the circumstances under which the finder service will match bids and offers submitted by buyers and sellers; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/B/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Govern the manner in which buyers and sellers may bind themselves to the terms of a specific transaction. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<chapeau> A finder may not—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/C/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Take title to or acquire or hold an ownership interest in any product or service offered or sold through the finder service; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/C/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provide distribution services for physical products or services offered or sold through the finder service; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/C/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Own or operate any real or personal property that is used for the purpose of manufacturing, storing, transporting, or assembling physical products offered or sold by third parties; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/C/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Own or operate any real or personal property that serves as a physical location for the physical purchase, sale or distribution of products or services offered or sold by third parties. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> A finder may not engage in any activity that would require the company to register or obtain a license as a real estate agent or broker under applicable law. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/d/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>What disclosures are required?</heading>
<content> A finder must distinguish the products and services offered by the financial holding company from those offered by a third party through the finder service. </content>
</paragraph>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s225.86/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> [Reserved] </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Activities permitted under section 4(k)(5) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/5">12 U.S.C. 1843(k)(5)</ref>).</heading>
<paragraph identifier="/us/cfr/t12/s225.86/e/1" class="inline">
<num value="1"> (1)</num>
<chapeau> The following types of activities are financial in nature or incidental to a financial activity when conducted pursuant to a determination by the Board under paragraph (e)(2) of this section: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Providing any device or other instrumentality for transferring money or other financial assets; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Arranging, effecting, or facilitating financial transactions for the account of third parties.
<?page num="215"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Review of specific activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.86/e/2/i" class="inline">
<num value="i">(i) </num>
<heading>Is a specific request required?</heading>
<content> A financial holding company that wishes to engage on the basis of paragraph (e)(1) of this section in an activity that is not otherwise permissible for a financial holding company must obtain a determination from the Board that the activity is permitted under paragraph (e)(1). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Consultation with the Secretary of the Treasury.</heading>
<content> After receiving a request under this section, the Board will provide the Secretary of the Treasury with a copy of the request and consult with the Secretary in accordance with section 4(k)(2)(A) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/2/A">12 U.S.C. 1843(k)(2)(A)</ref>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Board action on requests.</heading>
<content> After consultation with the Secretary, the Board will promptly make a written determination regarding whether the specific activity described in the request is included in an activity category listed in paragraph (e)(1) of this section and is therefore either financial in nature or incidental to a financial activity. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>What factors will the Board consider?</heading>
<content> In evaluating a request made under this section, the Board will take into account the factors listed in section 4(k)(3) of the BHC Act (<ref href="/us/usc/t12/s1843/k/3">12 U.S.C. 1843(k)(3)</ref>) that it must consider when determining whether an activity is financial in nature or incidental to a financial activity. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>What information must the request contain?</heading>
<chapeau> Any request by a financial holding company under this section must be in writing and must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.86/e/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Identify and define the activity for which the determination is sought, specifically describing what the activity would involve and how the activity would be conducted; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.86/e/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provide information supporting the requested determination, including information regarding how the proposed activity falls into one of the categories listed in paragraph (e)(1) of this section, and any other information required by the Board concerning the proposed activity.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/66/415">66 FR 415</ref>, <date date="2001-01-03">Jan. 3, 2001</date>, as amended at <ref href="/us/fr/66/19081">66 FR 19081</ref>, <date date="2001-04-13" role="amended">Apr. 13, 2001</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.87">
<num value="225.87" style="-uslm-sgm:SECTNO">§ 225.87 </num>
<heading style="-uslm-sgm:SUBJECT">Is notice to the Board required after engaging in a financial activity? </heading>
<paragraph identifier="/us/cfr/t12/s225.87/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Post-transaction notice generally required to engage in a financial activity.</heading>
<content> A financial holding company that commences an activity or acquires shares of a company engaged in an activity listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref> must notify the appropriate Reserve Bank in writing within 30 calendar days after commencing the activity or consummating the acquisition by using the appropriate form. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.87/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Cases in which notice to the Board is not required—</heading>
<paragraph identifier="/us/cfr/t12/s225.87/b/1" class="inline">
<num value="1">(1) </num>
<heading>Acquisitions that do not involve control of a company.</heading>
<content> A notice under paragraph (a) of this section is not required in connection with the acquisition of shares of a company if, following the acquisition, the financial holding company does not control the company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.87/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>No additional notice required to engage</heading>
<content>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">de novo</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in an activity for which a financial holding company already has provided notice.</inline> After a financial holding company provides the appropriate Reserve Bank with notice that the company is engaged in an activity listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref>, a financial holding company may, unless otherwise notified by the Board, commence the activity <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">de novo</inline> through any subsidiary that the financial holding company is authorized to control without providing additional notice under paragraph (a) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.87/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Conduct of certain investment activities.</heading>
<content> Unless required by paragraph (b)(4) of this section, a financial holding company is not required to provide notice under paragraph (a) of this section of any individual acquisition of shares of a company as part of the conduct by a financial holding company of securities underwriting, dealing, or market making activities as described in section 4(k)(4)(E) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/E">12 U.S.C. 1843(k)(4)(E)</ref>), merchant banking activities conducted pursuant to section 4(k)(4)(H) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>), or insurance company investment activities conducted pursuant to section 4(k)(4)(I) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/I">12 U.S.C. 1843(k)(4)(I)</ref>), if the financial holding company previously has notified the Board under paragraph (a) of this section that the company has commenced the relevant securities, <?page num="216"?>merchant banking, or insurance company investment activities, as relevant. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.87/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Notice of large merchant banking or insurance company investments.</heading>
<chapeau> Notwithstanding paragraph (b)(1) or (b)(3) of this section, a financial holding company must provide notice under paragraph (a) of the section if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.87/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> As part of a merchant banking activity conducted under section 4(k)(4)(H) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>), the financial holding company acquires more than 5 percent of the shares, assets, or ownership interests of any company at a total cost that exceeds the lesser of 5 percent of the financial holding company's Tier 1 capital or $200 million; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.87/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> As part of an insurance company investment activity conducted under section 4(k)(4)(I) of the BHC Act (<ref href="/us/usc/t12/s1843/k/4/I">12 U.S.C. 1843(k)(4)(I)</ref>), the financial holding company acquires more than 5 percent of the shares, assets, or ownership interests of any company at a total cost that exceeds the lesser of 5 percent of the financial holding company's Tier 1 capital or $200 million; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.87/b/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The Board in the exercise of its supervisory authority notifies the financial holding company that a notice is necessary.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.88">
<num value="225.88" style="-uslm-sgm:SECTNO">§ 225.88 </num>
<heading style="-uslm-sgm:SUBJECT">How to request the Board to determine that an activity is financial in nature or incidental to a financial activity? </heading>
<paragraph identifier="/us/cfr/t12/s225.88/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Requests regarding activities that may be financial in nature or incidental to a financial activity.</heading>
<content> A financial holding company or other interested party may request a determination from the Board that an activity not listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref> is financial in nature or incidental to a financial activity. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Required information.</heading>
<chapeau> A request submitted under this section must be in writing and must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.88/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Identify and define the activity for which the determination is sought, specifically describing what the activity would involve and how the activity would be conducted; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Explain in detail why the activity should be considered financial in nature or incidental to a financial activity; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Provide information supporting the requested determination and any other information required by the Board concerning the proposed activity. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Board procedures for reviewing requests—</heading>
<paragraph identifier="/us/cfr/t12/s225.88/c/1" class="inline">
<num value="1">(1) </num>
<heading>Consultation with the Secretary of the Treasury.</heading>
<content> Upon receipt of the request, the Board will provide the Secretary of the Treasury a copy of the request and consult with the Secretary in accordance with section 4(k)(2)(A) of the BHC Act (<ref href="/us/usc/t12/s1843/k/2/A">12 U.S.C. 1843(k)(2)(A)</ref>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Public notice.</heading>
<content> The Board may, as appropriate and after consultation with the Secretary, publish a description of the proposal in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> with a request for public comment. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Board action.</heading>
<content> The Board will endeavor to make a decision on any request filed under paragraph (a) of this section within 60 calendar days following the completion of both the consultative process described in paragraph (c)(1) of this section and the public comment period, if any. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Advisory opinions regarding scope of financial activities—</heading>
<paragraph identifier="/us/cfr/t12/s225.88/e/1" class="inline">
<num value="1">(1) </num>
<heading>Written request.</heading>
<chapeau> A financial holding company or other interested party may request an advisory opinion from the Board about whether a specific proposed activity falls within the scope of an activity listed in <ref href="/us/cfr/t12/s225.86">§ 225.86</ref> as financial in nature or incidental to a financial activity. The request must be submitted in writing and must contain: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.88/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A detailed description of the particular activity in which the company proposes to engage or the product or service the company proposes to provide; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> An explanation supporting an interpretation regarding the scope of the permissible financial activity; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Any additional information requested by the Board regarding the activity. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.88/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Board response.</heading>
<content> The Board will provide an advisory opinion within 45 calendar days of receiving a complete written request under paragraph (e)(1) of this section.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.89">
<num value="225.89" style="-uslm-sgm:SECTNO">§ 225.89 </num>
<heading style="-uslm-sgm:SUBJECT">How to request approval to engage in an activity that is complementary to a financial activity? </heading>
<paragraph identifier="/us/cfr/t12/s225.89/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Prior Board approval is required.</heading>
<chapeau> A financial holding company that seeks <?page num="217"?>to engage in or acquire more than 5 percent of the outstanding shares of any class of voting securities of a company engaged in an activity that the financial holding company believes is complementary to a financial activity must obtain prior approval from the Board in accordance with section 4(j) of the BHC Act (<ref href="/us/usc/t12/s1843/j">12 U.S.C. 1843(j)</ref>). The notice must be in writing and must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.89/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Identify and define the proposed complementary activity, specifically describing what the activity would involve and how the activity would be conducted; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Identify the financial activity for which the proposed activity would be complementary and provide detailed information sufficient to support a finding that the proposed activity should be considered complementary to the identified financial activity; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Describe the scope and relative size of the proposed activity, as measured by the percentage of the projected financial holding company revenues expected to be derived from and assets associated with conducting the activity; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Discuss the risks that conducting the activity may reasonably be expected to pose to the safety and soundness of the subsidiary depository institutions of the financial holding company and to the financial system generally; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Describe the potential adverse effects, including potential conflicts of interest, decreased or unfair competition, or other risks, that conducting the activity could raise, and explain the measures the financial holding company proposes to take to address those potential effects; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/a/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Describe the potential benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that the proposal reasonably can be expected to produce; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/a/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Provide any information about the financial and managerial resources of the financial holding company and any other information requested by the Board. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Factors for consideration by the Board.</heading>
<chapeau> In evaluating a notice to engage in a complementary activity, the Board must consider whether: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.89/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The proposed activity is complementary to a financial activity; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The proposed activity would pose a substantial risk to the safety or soundness of depository institutions or the financial system generally; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The proposal could be expected to produce benefits to the public that outweigh possible adverse effects. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.89/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Board action.</heading>
<content> The Board will inform the financial holding company in writing of the Board's determination regarding the proposed activity within the period described in section 4(j) of the BHC Act (<ref href="/us/usc/t12/s1843/j">12 U.S.C. 1843(j)</ref>).
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.90">
<num value="225.90" style="-uslm-sgm:SECTNO">§ 225.90 </num>
<heading style="-uslm-sgm:SUBJECT">What are the requirements for a foreign bank to be treated as a financial holding company? </heading>
<paragraph identifier="/us/cfr/t12/s225.90/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Foreign banks as financial holding companies.</heading>
<chapeau> A foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States, and any company that owns or controls such a foreign bank, will be treated as a financial holding company if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.90/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The foreign bank, any other foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, and any U.S. depository institution subsidiary that is owned or controlled by the foreign bank or company, is and remains well capitalized and well managed; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The foreign bank, and any company that owns or controls the foreign bank, has made an effective election to be treated as a financial holding company under this subpart. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Standards for “well capitalized.”</heading>
<chapeau> A foreign bank will be considered “well capitalized” if either: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.90/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<paragraph identifier="/us/cfr/t12/s225.90/b/1/i" class="inline">
<num value="i">(i)</num>
<content> Its home country supervisor, as defined in <ref href="/us/cfr/t12/s211.21">§ 211.21</ref> of the Board's Regulation K (<ref href="/us/cfr/t12/s211.21">12 CFR 211.21</ref>), has adopted risk-based capital standards consistent with the Capital Accord of the Basel Committee on Banking Supervision (Basel Accord); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The foreign bank maintains a Tier 1 capital to total risk-based assets ratio of 6 percent and a total capital to total risk-based assets ratio of 10 percent, as calculated under its home country standard; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The foreign bank's capital is comparable to the capital required for a U.S. bank owned by a financial holding company; or
<?page num="218"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The foreign bank has obtained a determination from the Board under <ref href="/us/cfr/t12/s225.91/c">§ 225.91(c)</ref> that the foreign bank's capital is otherwise comparable to the capital that would be required of a U.S. bank owned by a financial holding company. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Standards for “well managed.”</heading>
<chapeau> A foreign bank will be considered “well managed” if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.90/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The foreign bank has received at least a satisfactory composite rating of its U.S. branch, agency, and commercial lending company operations at its most recent assessment; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The home country supervisor of the foreign bank consents to the foreign bank expanding its activities in the United States to include activities permissible for a financial holding company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.90/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The management of the foreign bank meets standards comparable to those required of a U.S. bank owned by a financial holding company.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.91">
<num value="225.91" style="-uslm-sgm:SECTNO">§ 225.91 </num>
<heading style="-uslm-sgm:SUBJECT">How may a foreign bank elect to be treated as a financial holding company? </heading>
<paragraph identifier="/us/cfr/t12/s225.91/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Filing requirement.</heading>
<content> A foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States, or a company that owns or controls such a foreign bank, may elect to be treated as a financial holding company by filing a written declaration with the appropriate Reserve Bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.91/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Contents of declaration.</heading>
<chapeau> The declaration must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.91/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> State that the foreign bank or the company elects to be treated as a financial holding company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.91/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provide the risk-based capital ratios and amount of Tier 1 capital and total assets of the foreign bank, and of each foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, as of the close of the most recent quarter and as of the close of the most recent audited reporting period; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.91/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Certify that the foreign bank, and each foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, meets the standards of well capitalized set out in <ref href="/us/cfr/t12/s225.90/b/1/i">§ 225.90(b)(1)(i)</ref> and (ii) or <ref href="/us/cfr/t12/s225.90/b/2">§ 225.90(b)(2)</ref> as of the date the foreign bank or company files its election; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.91/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Certify that the foreign bank, and each foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, is well managed as defined in <ref href="/us/cfr/t12/s225.90/c/1">§ 225.90(c)(1)</ref> as of the date the foreign bank or company files its election; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.91/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Certify that all U.S. depository institution subsidiaries of the foreign bank or company are well capitalized and well managed as of the date the foreign bank or company files its election; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.91/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Provide the capital ratios for all relevant capital measures (as defined in section 38 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1831/o">12 U.S.C. 1831(o)</ref>)) as of the close of the previous quarter for each U.S. depository institution subsidiary of the foreign bank or company. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.91/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Pre-clearance process.</heading>
<content> Before filing an election to be treated as a financial holding company, a foreign bank or company may file a request for review of its qualifications to be treated as a financial holding company. The Board will endeavor to make a determination on such requests within 30 days of receipt. A foreign bank that has not been found, or that is chartered in a country where no bank from that country has been found, by the Board under the Bank Holding Company Act or the International Banking Act to be subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisor is required to use this process.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.92">
<num value="225.92" style="-uslm-sgm:SECTNO">§ 225.92 </num>
<heading style="-uslm-sgm:SUBJECT">How does an election by a foreign bank become effective? </heading>
<paragraph identifier="/us/cfr/t12/s225.92/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<chapeau> An election described in <ref href="/us/cfr/t12/s225.91">§ 225.91</ref> is effective on the 31st day after the date that an election was received by the appropriate Federal Reserve Bank, unless the Board notifies the foreign bank or company prior to that time that: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.92/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The election is ineffective; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The period is extended with the consent of the foreign bank or company making the election.
<?page num="219"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Earlier notification that an election is effective.</heading>
<content> The Board or the appropriate Federal Reserve Bank may notify a foreign bank or company that its election to be treated as a financial holding company is effective prior to the 31st day after the election was filed with the appropriate Federal Reserve Bank. Such notification must be in writing. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Under what circumstances will the Board find an election to be ineffective?</heading>
<chapeau> An election to be treated as a financial holding company shall not be effective if, during the period provided in paragraph (a) of this section, the Board finds that: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.92/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The foreign bank certificant, or any foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States and is controlled by a foreign bank or company certificant, is not both well capitalized and well managed; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any U.S. insured depository institution subsidiary of the foreign bank or company (except an institution excluded under paragraph (d) of this section) or any U.S. branch of a foreign bank that is insured by the Federal Deposit Insurance Corporation has not achieved at least a rating of “satisfactory record of meeting community needs” under the Community Reinvestment Act at the institution's most recent examination; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Any U.S. depository institution subsidiary of the foreign bank or company is not both well capitalized and well managed; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The Board does not have sufficient information to assess whether the foreign bank or company making the election meets the requirements of this subpart. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>How is CRA performance of recently acquired insured depository institutions considered?</heading>
<content> An insured depository institution will be excluded for purposes of the review of CRA ratings described in paragraph (c)(2) of this section consistent with the provisions of <ref href="/us/cfr/t12/s225.82/d">§ 225.82(d)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Factors used in the Board's determination regarding comparability of capital and management—</heading>
<paragraph identifier="/us/cfr/t12/s225.92/e/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> In determining whether a foreign bank is well capitalized and well managed in accordance with comparable capital and management standards, the Board will give due regard to national treatment and equality of competitive opportunity. In this regard, the Board may take into account the foreign bank's composition of capital, Tier 1 capital to total assets leverage ratio, accounting standards, long-term debt ratings, reliance on government support to meet capital requirements, the foreign bank's anti-money laundering procedures, whether the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis, and other factors that may affect analysis of capital and management. The Board will consult with the home country supervisor for the foreign bank as appropriate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Assessment of consolidated supervision.</heading>
<chapeau> A foreign bank that is not subject to comprehensive supervision on a consolidated basis by its home country authorities may not be considered well capitalized and well managed unless: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.92/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The home country has made significant progress in establishing arrangements for comprehensive supervision on a consolidated basis; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.92/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The foreign bank is in strong financial condition as demonstrated, for example, by capital levels that significantly exceed the minimum levels that are required for a well capitalized determination and strong asset quality.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.93">
<num value="225.93" style="-uslm-sgm:SECTNO">§ 225.93 </num>
<heading style="-uslm-sgm:SUBJECT">What are the consequences of a foreign bank failing to continue to meet applicable capital and management requirements? </heading>
<paragraph identifier="/us/cfr/t12/s225.93/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Notice by the Board.</heading>
<content> If a foreign bank or company has made an effective election to be treated as a financial holding company under this subpart and the Board finds that the foreign bank, any foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, or any U.S. depository institution subsidiary controlled by the foreign bank or company, ceases to be well capitalized or well managed, the Board will notify the foreign bank and company, if any, in writing that it is not in compliance with the applicable requirement(s) for a financial holding company and identify the areas of noncompliance.
<?page num="220"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Notification by a financial holding company required—</heading>
<paragraph identifier="/us/cfr/t12/s225.93/b/1" class="inline">
<num value="1">(1) </num>
<heading>Notice to Board.</heading>
<content> Promptly upon becoming aware that the foreign bank, any foreign bank that maintains a U.S. branch, agency, or commercial lending company and is controlled by the foreign bank or company, or any U.S. depository institution subsidiary of the foreign bank or company, has ceased to be well capitalized or well managed, the foreign bank and company, if any, must notify the Board and identify the area of noncompliance. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Triggering events for notice to the Board—</heading>
<paragraph identifier="/us/cfr/t12/s225.93/b/2/i" class="inline">
<num value="i">(i) </num>
<heading>Well capitalized.</heading>
<content> A foreign bank becomes aware that it is no longer well capitalized at the time that the foreign bank or company is required to file a report of condition (or similar supervisory report) with its home country supervisor or the appropriate Federal Reserve Bank that indicates that the foreign bank no longer meets the well capitalized standards. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Well managed.</heading>
<content> A foreign bank becomes aware that it is no longer well managed at the time that the foreign bank receives written notice from the appropriate Federal Reserve Bank that the composite rating of its U.S. branch, agency, and commercial lending company operations is not at least satisfactory. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Execution of agreement acceptable to the Board—</heading>
<paragraph identifier="/us/cfr/t12/s225.93/c/1" class="inline">
<num value="1">(1) </num>
<heading>Agreement required; time period.</heading>
<content> Within 45 days after receiving a notice under paragraph (a) of this section, the foreign bank or company must execute an agreement acceptable to the Board to comply with all applicable capital and management requirements. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Extension of time for executing agreement.</heading>
<content> Upon request by the foreign bank or company, the Board may extend the 45-day period under paragraph (c)(1) of this section if the Board determines that granting additional time is appropriate under the circumstances. A request by a foreign bank or company for additional time must include an explanation of why an extension is necessary. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Agreement requirements.</heading>
<chapeau> An agreement required by paragraph (c)(1) of this section to correct a capital or management deficiency must: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.93/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Explain the specific actions that the foreign bank or company will take to correct all areas of noncompliance; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provide a schedule within which each action will be taken; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/c/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Provide any other information that the Board may require; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/c/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Be acceptable to the Board. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Limitations during period of noncompliance—</heading>
<chapeau>Until the Board determines that a foreign bank or company has corrected the conditions described in a notice under paragraph (a) of this section: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.93/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The Board may impose any limitations or conditions on the conduct or the U.S. activities of the foreign bank or company or any of its affiliates as the Board finds to be appropriate and consistent with the purposes of the Bank Holding Company Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The foreign bank or company and its affiliates may not commence any additional activity in the United States or acquire control or shares of any company under section 4(k) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k">12 U.S.C. 1843(k)</ref>) without prior approval from the Board. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Consequences of failure to correct conditions within 180 days—</heading>
<paragraph identifier="/us/cfr/t12/s225.93/e/1" class="inline">
<num value="1">(1) </num>
<heading>Termination of Offices and Divestiture.</heading>
<content> If a foreign bank or company does not correct the conditions described in a notice under paragraph (a) of this section within 180 days of receipt of the notice or such additional time as the Board may permit, the Board may order the foreign bank or company to terminate the foreign bank's U.S. branches and agencies and divest any commercial lending companies owned or controlled by the foreign bank or company. Such divestiture must be done in accordance with the terms and conditions established by the Board. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Alternative method of complying with a divestiture order.</heading>
<content> A foreign bank or company may comply with an order issued under paragraph (e)(1) of this section by ceasing to engage (both directly and through any subsidiary that is not a depository institution or a subsidiary of a depository institution) in any activity that may be conducted only under section 4(k), (n), or (o) of the BHC Act (<ref href="/us/usc/t12/s1843/k">12 U.S.C. 1843(k)</ref>, (n) and (o)). The termination of activities must be completed within the time period <?page num="221"?>referred to in paragraph (e)(1) of this section and subject to terms and conditions acceptable to the Board. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.93/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Consultation with Other Agencies.</heading>
<content> In taking any action under this section, the Board will consult with the relevant Federal and state regulatory authorities and the appropriate home country supervisor(s) of the foreign bank.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.94">
<num value="225.94" style="-uslm-sgm:SECTNO">§ 225.94</num>
<heading style="-uslm-sgm:SUBJECT">What are the consequences of an insured branch or depository institution failing to maintain a satisfactory or better rating under the Community Reinvestment Act? </heading>
<paragraph identifier="/us/cfr/t12/s225.94/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Insured branch as an “insured depository institution.”</heading>
<content> A U.S. branch of a foreign bank that is insured by the Federal Deposit Insurance Corporation shall be treated as an “insured depository institution” for purposes of <ref href="/us/cfr/t12/s225.84">§ 225.84</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.94/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Applicability.</heading>
<content> The provisions of <ref href="/us/cfr/t12/s225.84">§ 225.84</ref>, with the modifications contained in this section, shall apply to a foreign bank that operates an insured branch referred to in paragraph (a) of this section or an insured depository institution in the United States, and any company that owns or controls such a foreign bank, that has made an effective election under <ref href="/us/cfr/t12/s225.92">§ 225.92</ref> in the same manner and to the same extent as they apply to a financial holding company.
</content>
</paragraph>
</section>
<level style="-uslm-sgm:SUBJGRP">
<heading style="-uslm-sgm:HED">Interpretations
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.101">
<num value="225.101" style="-uslm-sgm:SECTNO">§ 225.101</num>
<heading style="-uslm-sgm:SUBJECT">Bank holding company's subsidiary banks owning shares of nonbanking companies. </heading>
<paragraph identifier="/us/cfr/t12/s225.101/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board's opinion has been requested on the following related matters under the Bank Holding Company Act of 1956. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.101/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The question is raised as to whether shares in a nonbanking company which were acquired by a banking subsidiary of the bank holding company many years ago when their acquisition was lawful and are now held as investments, and which do not include more than 5 percent of the outstanding voting securities of such nonbanking company and do not have a value greater than 5 percent of the value of the bank holding company's total assets, are exempted from the divestment requirements of the Act by the provisions of section 4(c)(5) of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.101/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> In the Board's opinion, this exemption is as applicable to such shares when held by a banking subsidiary of a bank holding company as when held directly by the bank holding company itself. While the exemption specifically refers only to shares held or acquired by the bank holding company, the prohibition of the Act against retention of nonbanking interests applies to indirect as well as direct ownership of shares of a nonbanking company, and, in the absence of a clear mandate to the contrary, any exception to this prohibition should be given equal breadth with the prohibition. Any other interpretation would lead to unwarranted results. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.101/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Although certain of the other exemptions in section 4(c) of the Act specifically refer to shares held or acquired by banking subsidiaries, an analysis of those exemptions suggests that such specific reference to banking subsidiaries was for the purpose of excluding nonbanking subsidiaries from such exemptions, rather than for the purpose of providing an inclusionary emphasis on banking subsidiaries. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.101/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> It should be noted that the Board's view as to this question should not be interpreted as meaning that each banking subsidiary could own up to 5 percent of the stock of the same nonbanking organization. In the Board's opinion the limitations set forth in section 4(c)(5) apply to the aggregate amount of stock held in a particular organization by the bank holding company itself and by all of its subsidiaries. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.101/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Secondly, question is raised as to whether shares in a nonbanking company acquired in satisfaction of debts previously contracted (d.p.c.) by a banking subsidiary of the bank holding company may be retained if such shares meet the conditions contained in section 4(c)(5) as to value and amount, notwithstanding the requirement of section 4(c)(2) that shares acquired d.p.c. be disposed of within two years after the date of their acquisition or the date of the Act, whichever is later. In the Board's opinion, the 5 percent exemption provided by section 4(c)(5) covers any shares, including <?page num="222"?>shares acquired d.p.c., that meet the conditions set forth in that exemption, and, consequently, d.p.c. shares held by a banking subsidiary of a bank holding company which meet such conditions are not subject to the two-year disposition requirement prescribed by section 4(c)(2), although any such shares would, of course, continue to be subject to such requirement for disposition as may be prescribed by provisions of any applicable banking laws or by the appropriate bank supervisory authorities. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.101/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> Finally, question is raised as to whether shares held by banking subsidiaries of the bank holding company in companies holding bank premises of such subsidiaries are exempted from the divestment requirements by section 4(c)(1) of the Act. It is the Board's view that section 4(c)(1), exempting shares owned or acquired by a bank holding company in any company engaged solely in holding or operating properties used wholly or substantially by any subsidiary bank, is to be read and interpreted, like section 4(c)(5), as applying to shares owned indirectly by a bank holding company through a banking subsidiary as well as to shares held directly by the bank holding company. A contrary interpretation would impair the right that member banks controlled by bank holding companies would otherwise have to invest, subject to the limitations of section 24A of the Federal Reserve Act, in stock of companies holding their bank premises; and such a result was not, in the Board's opinion, intended by the Bank Holding Company Act. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/21/10472">21 FR 10472</ref>, <date date="1956-12-29">Dec. 29, 1956</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.102">
<num value="225.102" style="-uslm-sgm:SECTNO">§ 225.102</num>
<heading style="-uslm-sgm:SUBJECT">Bank holding company indirectly owning nonbanking company through subsidiaries. </heading>
<paragraph identifier="/us/cfr/t12/s225.102/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors has been requested for an opinion regarding the exemptions contained in section 4(c)(5) of the Bank Holding Company Act of 1956. It is stated that Y Company is an investment company which is not a bank holding company and which is not engaged in any business other than investing in securities, which securities do not include more than 5 per centum of the outstanding voting securities of any company and do not include any asset having a value greater than 5 per centum of the value of the total assets of X Corporation, a bank holding company. It is stated that direct ownership by X Corporation of voting shares of Y Company would be exempt by reason of section 4(c)(5) from the prohibition of section 4 of the Act against ownership by bank holding companies of nonbanking assets. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.102/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It was asked whether it makes any difference that the shares of Y Company are not owned directly by X Corporation but instead are owned through Subsidiaries A and B. X Corporation owns all the voting shares of Subsidiary A, which owns one-half of the voting shares of Subsidiary B. Subsidiaries A and B each own one-third of the voting shares of Y Company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.102/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Section 4(c)(5) is divided into two parts. The first part exempts the ownership of securities of nonbanking companies when the securities do not include more than 5 percent of the voting securities of the nonbanking company and do not have a value greater than 5 percent of the value of the total assets of the bank holding company. The second part exempts the ownership of securities of an investment company which is not a bank holding company and is not engaged in any business other than investing in securities, provided the securities held by the investment company meet the 5 percent tests mentioned above. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.102/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content>
<p> In <ref href="/us/cfr/t12/s225.101">§ 225.101</ref>, the Board expressed the opinion that the first exemption in section 4(c)(5): </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">* * * is as applicable to such shares when held by a banking subsidiary of a bank holding company as when held directly by the bank holding company itself. While the exemption specifically refers only to shares held or acquired by the bank holding company, the prohibition of the Act against retention of nonbanking interests applies to indirect as well as direct ownership of shares of a nonbanking company, and, in the absence of a clear mandate to the contrary, any exception to this prohibition should be given equal breadth with the prohibition. Any other interpretation would lead to unwarranted results.</p>
</note>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.102/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The Board is of the view that the principles stated in that opinion are also applicable to the second exemption in section 4(c)(5), and that they apply whether or not the subsidiary <?page num="223"?>owning the shares is a banking subsidiary. Accordingly, on the basis of the facts presented, the Board is of the opinion that the second exemption in section 4(c)(5) applies to the indirect ownership by X Corporation of shares of Y Company through Subsidiaries A and B. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/22/2533">22 FR 2533</ref>, <date date="1957-04-13">Apr. 13, 1957</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.103">
<num value="225.103" style="-uslm-sgm:SECTNO">§ 225.103</num>
<heading style="-uslm-sgm:SUBJECT">Bank holding company acquiring stock by dividends, stock splits or exercise of rights. </heading>
<paragraph identifier="/us/cfr/t12/s225.103/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors has been asked whether a bank holding company may receive bank stock dividends or participate in bank stock splits without the Board's prior approval, and whether such a company may exercise, without the Board's prior approval, rights to subscribe to new stock issued by banks in which the holding company already owns stock. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.103/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Neither a stock dividend nor a stock split results in any change in a stockholder's proportional interest in the issuing company or any increase in the assets of that company. Such a transaction would have no effect upon the extent of a holding company's control of the bank involved; and none of the five factors required by the Bank Holding Company Act to be considered by the Board in approving a stock acquisition would seem to have any application. In view of the objectives and purposes of the act, the word “acquire” would not seem reasonably to include transactions of this kind. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.103/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> On the other hand, the exercise by a bank holding company of the right to subscribe to an issue of additional stock of a bank could result in an increase in the holding company's proportional interest in the bank. The holding company would voluntarily pay additional funds for the extra shares and would “acquire” the additional stock even under a narrow meaning of that term. Moreover, the exercise of such rights would cause the assets of the issuing company to be increased and in a sense, therefore, the “size or extent” of the bank holding company system would be expanded. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.103/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In the circumstances, it is the Board's opinion that receipt of bank stock by means of a stock dividend or stock split, assuming no change in the class of stock, does not require the Board's prior approval under the act, but that purchase of bank stock by a bank holding company through the exercise of rights does require the Board's prior approval, unless one of the exceptions set forth in section 3(a) is applicable. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/22/7461">22 FR 7461</ref>, <date date="1957-09-19">Sept. 19, 1957</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.104">
<num value="225.104" style="-uslm-sgm:SECTNO">§ 225.104</num>
<heading style="-uslm-sgm:SUBJECT">“Services” under section 4(c)(1) of Bank Holding Company Act. </heading>
<paragraph identifier="/us/cfr/t12/s225.104/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Section 4(c)(1) of the Bank Holding Company Act, among other things, exempts from the nonbanking divestment requirements of section 4(a) of the Act shares of a company engaged “solely in the business of furnishing services to or performing services for” its bank holding company or subsidiary banks thereof. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.104/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> The Board of Governors has had occasion to express opinions as to whether this section of law applies to the following two sets of facts: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.104/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> In the first case, Corporation X, a nonbanking subsidiary of a bank holding company (Holding Company A), was engaged in the business of purchasing installment paper suitable for investment by banking subsidiaries of Holding Company A. All installment paper purchased by Corporation X was sold by it to a bank which is a subsidiary of Holding Company A, without recourse, at a price equal to the cost of the installment paper to Corporation X, and with compensation to the latter based on the earnings from such paper remaining after certain reserves, expenses and charges. The subsidiary bank sold participations in such installment paper to the other affiliated banks of Holding Company A which desired to participate. Purchases by Corporation X consisted mainly of paper insured under title I of the National Housing Act and, in addition, Corporation X purchased time payment contracts covering sales of appliances by dealers under contractual arrangements with utilities, as well as paper covering home improvements which was not insured. Pursuant to certain service agreements, Corporation X <?page num="224"?>made all collections, enforced guaranties, filed claims under title I insurance and performed other services for the affiliated banks. Also Corporation X rendered to banking subsidiaries of Holding Company A various accounting, statistical and advisory services such as payroll, life insurance and budget loan installment account. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.104/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In the second case, Corporation Y, a nonbanking subsidiary of a bank holding company (Holding Company B, which was also a bank), solicited business on behalf of Holding Company B from dealers, throughout several adjoining or contiguous States, who made time sales and desired to convert their time sales paper into cash; but Corporation Y made no loans or purchases of sales contracts and did not discount or advance money for time sales obligations. Corporation Y investigated credit standings of purchasers obligated on time sale contracts to be acquired by Holding Company B, Corporation Y received from dealers the papers offered by them and inspected such papers to see that they were in order, and transmitted to Holding Company B for its determination to purchase, including, in some cases, issuance of drafts in favor of dealers in order to facilitate their prompt receipt of payment for installment paper purchased by Holding Company B. Corporation Y made collections of delinquent paper or delinquent installments, which sometimes involved repossession and resale of the automobile or other property which secured the paper. Also, upon request of purchasers obligated on paper held by Holding Company B, Corporation Y transmitted installment payments to Holding Company B. Holding Company B reimbursed Corporation Y for its actual costs and expenses in performing the services mentioned above, including the salaries and wages of all Corporation Y officers and employees. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.104/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> While the term “services” is sometimes used in a broad and general sense, the legislative history of the Bank Holding Company Act indicates that in section 4(c)(1) the word was meant to be somewhat more limited in its application. An early version of the bill specifically exempted companies engaged in serving the bank holding company and its subsidiary banks in “auditing, appraising, investment counseling”. The statute as finally enacted does not expressly mention any specific type of servicing activity for exemption. In recommending the change, the Senate Banking and Currency Committee stated that the types of services contemplated are “in the fields of advertising, public relations, developing new business, organizations, operations, preparing tax returns, personnel, and many others”, which indicates that latitude should be given to the range of activities contemplated by this section beyond those specifically set forth in the early draft of the bill. (84th Cong., 2d Sess., Senate Report 1095, Part 2, p. 3.) It nevertheless seems evident that Congress intended such services to be types of activities generally comparable to those mentioned above from the early bill (“auditing, appraising, investment counseling”) and in the excerpt from the Committee Report on the later bill (“advertising, public relations, developing new business, organization, operations, preparing tax returns, personnel, and many others”). This legislative history and the context in which the term “services” is used in section 4(c)(1) seem to suggest that the term was in general intended to refer to servicing operations which a bank could carry on itself, but which the bank or its holding company chooses to have done through another organization. Moreover, the report of the Senate Banking and Currency Committee indicated that the types of servicing permitted under section 4(c)(1) are to be distinguished from activities of a “financial, fiduciary, or insurance nature”, such as those which might be considered for possible exemption under section 4(c)(6) of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.104/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> With respect to the first set of facts, the Board expressed the opinion that certain of the activities of Corporation X, such as the accounting, statistical and advisory services referred to above, may be within the range of servicing activities contemplated by section 4(c)(1), but that this would not appear to be the case with the main activity of Corporation X, which was the purchase of installment paper and the resale of such <?page num="225"?>paper at cost, without recourse, to banking subsidiaries of Holding Company A. This latter and basic activity of Corporation X appeared to involve essentially a financial relationship between it and the banking subsidiaries of Holding Company A and appeared beyond the category of servicing exemptions contemplated by section 4(c)(1) of the Act. Accordingly, it was the Board's view that Corporation X could not be regarded as qualifying under section 4 (c)(1) as a company engaged “solely in the business of furnishing services to or performing services for” Holding Company A or subsidiary banks thereof. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.104/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> With respect to the second set of facts, the Board expressed the opinion that some of the activities engaged in by Corporation Y were clearly within the range of servicing activities contemplated by section 4(c)(1). There was some question as to whether or not some of the other activities of Corporation Y mentioned above could meet the test, but on balance, it seemed that all such activities probably were activities in which Holding Company B, which as already indicated was a bank, could itself engage, at the present locations of Corporation Y, without being engaged in the operation of bank branches at those locations. In the circumstances, while the question was not free from doubt, the Board expressed the opinion that the activities of Corporation Y were those of a company engaged “solely in the business of furnishing services to or performing services for” Holding Company B within the meaning of section 4(c)(1) of the Act, and that, accordingly, the control by Holding Company B of shares in Corporation Y was exempted under that section. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/23/2675">23 FR 2675</ref>, <date date="1958-05-23">May 23, 1958</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.107">
<num value="225.107" style="-uslm-sgm:SECTNO">§ 225.107</num>
<heading style="-uslm-sgm:SUBJECT">Acquisition of stock in small business investment company. </heading>
<paragraph identifier="/us/cfr/t12/s225.107/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> A registered bank holding company requested an opinion by the Board of Governors with respect to whether that company and its banking subsidiaries may acquire stock in a small business investment company organized pursuant to the Small Business Investment Act of 1958. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.107/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It is understood that the bank holding company and its subsidiary banks propose to organize and subscribe for stock in a small business investment company which would be chartered pursuant to the Small Business Investment Act of 1958 which provides for long-term credit and equity financing for small business concerns. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.107/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content>
<p> Section 302(b) of the Small Business Investment Act authorizes national banks, as well as other member banks and nonmember insured banks to the extent permitted by applicable State law, to invest capital in small business investment companies not exceeding one percent of the capital and surplus of such banks. Section 4(c)(4) of the Bank Holding Company Act exempts from the prohibitions of section 4 of the Act “shares which are of the kinds and amounts eligible for investment by National banking associations under the provisions of section 5136 of the Revised Statutes”. Section 5136 of the Revised Statutes (paragraph “Seventh”) in turn provides, in part, as follows: </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:FP">Except as hereinafter provided or otherwise permitted by law nothing herein contained shall authorize the purchase by the association for its own account of any shares of stock of any corporation.</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP">Since the shares of a small business investment company are of a kind and amount expressly made eligible for investment by a national bank under the Small Business Investment Act of 1958, it follows, therefore, that the ownership or control of such shares by a bank holding company would be exempt from the prohibitions of section 4 of the Bank Holding Company Act by virtue of the provisions of section 4(c)(4) of that Act. Accordingly, the ownership or control of such shares by the bank holding company would be exempt from the prohibitions of section 4 of the Bank Holding Company Act. </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.107/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> An additional question is presented, however, as to whether section 6 of the Bank Holding Company Act prohibits banking subsidiaries of the bank holding company from purchasing stock in a small business investment company where the latter is a “subsidiary” under that Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.107/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Section 6(a)(1) of the Act makes it unlawful for a bank to invest any of its <?page num="226"?>funds in the capital stock of any other subsidiary of the bank holding company. However, section 6(a)(1) was, in effect, amended by section 302(b) of the Small Business Investment Act (<ref href="/us/usc/t15/s682">15 U.S.C. 682</ref>) as amended by the Act of <date date="1960-06-11">June 11, 1960</date> (<ref href="/us/pl/86/502">Pub. L. 86–502</ref>) so as to nullify this prohibition when the “subsidiary” is a small business investment company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.107/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Accordingly, section 6 of the Bank Holding Company Act does not prohibit banking subsidiaries of the bank holding company from purchasing stock in a small business investment company organized pursuant to the Small Business Investment Act of 1958, where that company is or will be a subsidiary of the bank holding company. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/25/7485">25 FR 7485</ref>, <date date="1960-08-09">Aug. 9, 1960</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.109">
<num value="225.109" style="-uslm-sgm:SECTNO">§ 225.109</num>
<heading style="-uslm-sgm:SUBJECT">“Services” under section 4(c)(1) of Bank Holding Company Act. </heading>
<paragraph identifier="/us/cfr/t12/s225.109/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors has been requested by a bank holding company for an interpretation under section 4(c)(1) of the Bank Holding Company Act which, among other things, exempts from the nonbanking divestment requirements of section 4(a) of the Act, shares of a company engaged “solely in the business of furnishing services to or performing services for” its bank holding company or subsidiary banks thereof. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.109/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It is understood that a nonbanking subsidiary of the holding company engages in writing comprehensive automobile insurance (fire, theft, and collision) which is sold only to customers of a subsidiary bank of the holding company in connection with the bank's retail installment loans; that when payment is made on a loan secured by a lien on a motor vehicle, renewal policies are not issued by the insurance company; and that the insurance company receives the usual agency commissions on all comprehensive automobile insurance written for customers of the bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.109/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> It is also understood that the insurance company writes credit life insurance for the benefit of the bank and its installment-loan customers; that each insured debtor is covered for an amount equal to the unpaid balance of his note to the bank, not to exceed $5,000; that as the note is reduced by regular monthly payments, the amount of insurance is correspondingly reduced so that at all times the debtor is insured for the unpaid balance of his note; that each insurance contract provides for payment in full of the entire loan balance upon the death or permanent disability of the insured borrower; and that this credit life insurance is written only at the request of, and solely for, the bank's borrowing customers. It is further understood that the insurance company engages in no other activity. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.109/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> As indicated in <ref href="/us/cfr/t12/s225.104">§ 225.104</ref> (<ref href="/us/fr/23/2675">23 FR 2675</ref>), the term “services,” while sometimes used in a broad and general sense, appears to be somewhat more limited in its application in section 4(c)(1) of the Bank Holding Company Act. Unlike an early version of the Senate bill (S. 2577, before amendment), the act as finally enacted does not expressly mention any type of servicing activity for exemption. The legislative history of the Act, however, as indicated in the relevant portion of the record of the Senate Banking and Currency Committee on amended S. 2577 (84th Cong., 2d Sess., Senate Report 1095, Part 2, p. 3) makes it evident that Congress had in mind the exemption of services comparable to the types of activities mentioned expressly in the early Senate bill (“auditing, appraising, investment counseling”) and in the Committee Report on the later bill (“advertising, public relations, developing new business, organization, operations, preparing tax returns, personnel, and many others”). Furthermore, this Committee Report expressly stated that the provision of section 4(c)(1) with respect to “furnishing services to or performing services for” was not intended to supplant the exemption contained under section 4 (c)(6) of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.109/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The only activity of the insurance company (writing comprehensive automobile insurance and credit life insurance) appears to involve an insurance relationship between it and a banking subsidiary of the holding company which the legislative history clearly indicates does not come within the meaning of the phrase “furnishing <?page num="227"?>services to or performing services for” a bank holding company or its banking subsidiaries. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.109/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Accordingly, it is the Board's view that the insurance company could not be regarded as qualifying as a company engaged “solely in the business of furnishing services to or performing services for” the bank holding company or banks with respect to which the latter is a bank holding company. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/23/9017">23 FR 9017</ref>, <date date="1958-11-20">Nov. 20, 1958</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.111">
<num value="225.111" style="-uslm-sgm:SECTNO">§ 225.111</num>
<heading style="-uslm-sgm:SUBJECT">Limit on investment by bank holding company system in stock of small business investment companies. </heading>
<paragraph identifier="/us/cfr/t12/s225.111/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Under the provisions of section 4(c)(5) of the Bank Holding Company Act, as amended (<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>), a bank holding company may acquire shares of nonbank companies “which are of the kinds and amounts eligible for investment” by national banks. Pursuant to section 302(b) of the Small Business Investment Act of 1958 (<ref href="/us/usc/t15/s682/b">15 U.S.C. 682(b)</ref>), as amended by title II of the Small Business Act Amendments of 1967 (<ref href="/us/pl/90/104">Pub. L. 90–104</ref>, <ref href="/us/stat/81/268">81 Stat. 268</ref>, 270), a national bank may invest in stock of small business investment companies (SBICs) subject to certain restrictions. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.111/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> On the basis of the foregoing statutory provisions, it is the position of the Board that a bank holding company may acquire direct or indirect ownership or control of stock of an SBIC subject to the following limits: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.111/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> The total direct and indirect investments of a bank holding company in stock of SBICs may not exceed: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.111/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> With respect to all stock of SBICs owned or controlled directly or indirectly by a subsidiary bank, 5 percent of that bank's capital and surplus; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.111/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> With respect to all stock of SBICs owned directly by a bank holding company that is a bank, 5 percent of that bank's capital and surplus; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.111/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> With respect to all stock of SBICs otherwise owned or controlled directly or indirectly by a bank holding company, 5 percent of its proportionate interest in the capital and surplus of each subsidiary bank (that is, the holding company's percentage of that bank's stock times that bank's capital and surplus) less that bank's investment in stock of SBICs; and </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.111/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A bank holding company may not acquire direct or indirect ownership or control of 50 percent or more of the shares of any class of equity securities of an SBIC that have actual or potential voting rights. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.111/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> A bank holding company or a bank subsidiary that acquired direct or indirect ownership or control of 50 percent or more of any such class of equity securities prior to <date date="1968-01-09">January 9, 1968</date>, is not required to divest to a level below 50 percent. A bank that acquired 50 percent or more prior to <date date="1968-01-09">January 9, 1968</date>, may become a subsidiary in a holding company system without any necessity for divesting to a level below 50 percent: <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Provided,</inline> That such action does not result in the bank holding company acquiring control of a percentage greater than that controlled by such bank. </content>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(<ref href="/us/usc/t12/s248">12 U.S.C. 248</ref>. Interprets <ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>, <ref href="/us/usc/t15/s682">15 U.S.C. 682</ref>)</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/33/6967">33 FR 6967</ref>, <date date="1968-05-09">May 9, 1968</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.112">
<num value="225.112" style="-uslm-sgm:SECTNO">§ 225.112</num>
<heading style="-uslm-sgm:SUBJECT">Indirect control of small business concern through convertible debentures held by small business investment company. </heading>
<paragraph identifier="/us/cfr/t12/s225.112/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> A question has been raised concerning the applicability of provisions of the Bank Holding Company Act of 1956 to the acquisition by a bank holding company of stock of a small business investment company (“SBIC”) organized pursuant to the Small Business Investment Act of 1958 (“SBI Act”). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.112/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> As indicated in the interpretation of the Board (<ref href="/us/cfr/t12/s225.107">§ 225.107</ref>) published at <ref href="/us/fr/23/7813">23 FR 7813</ref>, it is the Board's opinion that, since stock of an SBIC is eligible for purchase by national banks and since section 4(c)(4) of the Holding Company Act exempts stock eligible for investment by national banks from the prohibitions of section 4 of that Act, a bank holding company may lawfully acquire stock in such an SBIC. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.112/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> However, section 304 of the SBI Act provides that debentures of a small business concern purchased by a small business investment company may be converted at the option of such company into stock of the small business concern. The question therefore arises <?page num="228"?>as to whether, in the event of such conversion, the parent bank holding company would be regarded as having acquired “direct or indirect ownership or control” of stock of the small business concern in violation of section 4(a) of the Holding Company Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.112/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The Small Business Investment Act clearly contemplates that one of the primary purposes of that Act was to enable SBICs to provide needed equity capital to small business concerns through the purchase of debentures convertible into stock. Thus, to the extent that a stockholder in an SBIC might acquire indirect control of stock of a small business concern, such control appears to be a natural and contemplated incident of ownership of stock of the SBIC. The Office of the Comptroller of the Currency has informally indicated concurrence with this interpretation insofar as it affects investments by national banks in stock of an SBIC. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.112/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Since the exception as to stock eligible for investment by national banks contained in section 4(c)(4) of the Holding Company Act was apparently intended to permit a bank holding company to acquire any stock that would be eligible for purchase by a national bank, it is the Board's view that section 4(a)(1) of the Act does not prohibit a bank holding company from acquiring stock of an SBIC, even though ownership of such stock may result in the acquisition of indirect ownership or control of stock of a small business concern which would not itself be eligible for purchase directly by a national bank or a bank holding company. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/24/1584">24 FR 1584</ref>, <date date="1959-03-04">Mar. 4, 1959</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.113">
<num value="225.113" style="-uslm-sgm:SECTNO">§ 225.113</num>
<heading style="-uslm-sgm:SUBJECT">Services under section 4(a) of Bank Holding Company Act. </heading>
<paragraph identifier="/us/cfr/t12/s225.113/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors has been requested for an opinion as to whether the performance of certain functions by a bank holding company for four banks of which it owns less than 25 percent of the voting shares is in violation of section 4(a) of the Bank Holding Company Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It is claimed that the holding company is engaged in “managing” four nonsubsidiary banks, for which services it receives “management fees.” Specifically, the company engages in the following activities for the four nonsubsidiary banks: (1) Establishment and supervision of loaning policies; (2) direction of the purchase and sale of investment securities; (3) selection and training of officer personnel; (4) establishment and enforcement of operating policies; and (5) general supervision over all policies and practices. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The question raised is whether these activities are prohibited by section 4(a)(2) of the Bank Holding Company Act, which permits a bank holding company to engage in only three categories of business: (1) Banking; (2) managing or controlling banks; and (3) furnishing services to or performing services for any bank of which the holding company owns or controls 25 percent or more of the voting shares. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Clearly, the activities of the company with respect to the four nonsubsidiary banks do not constitute “banking.” With respect to the business of “managing or controlling” banks, it is the Board's view that such business, within the purview of section 4(a)(2), is essentially the exercise of a broad governing influence of the sort usually exercised by bank stockholders, as distinguished from direct or active participation in the establishment or carrying out of particular policies or operations. The latter kinds of activities fall within the third category of businesses in which a bank holding company is permitted to engage. In the Board's view, the activities enumerated above fall in substantial part within that third category. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Section 4(a)(2), like all other sections of the Holding Company Act, must be interpreted in the light of all of its provisions, as well as in the light of other sections of the Act. The expression “managing * * * banks,” if it could be taken by itself, might appear to include activities of the sort enumerated. However, such an interpretation of those words would virtually nullify the last portion of section 4(a)(2), which permits a holding company to furnish services to or perform services for “any bank of which it owns or controls 25 per centum or more of the voting shares.”
<?page num="229"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Since Congress explicitly authorized the performance of services for banks that are at least 25 percent owned by a holding company, it obviously intended that the holding company should not perform services for banks in which it owns less than 25 percent of the voting shares. However, if the second category—“managing or controlling banks”—were interpreted to permit the holding company to perform services for any bank, including a bank in which it held less than 25 percent of the stock (or no stock whatsoever), the last clause of section 4(a)(2) would be meaningless. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> It is principally for this reason—that is, to give effective meaning to the final clause of section 4(a)(2)—that the Board interprets “managing or controlling banks” in that provision as referring to the exercise of a stockholder's management or control of banks, rather than direct and active participation in their operations. To repeat, such active participation in operations falls within the third category (“furnishing services to or performing services for any bank”) and consequently may be engaged in only with respect to banks in which the holding company “owns or controls 25 per centum or more of the voting shares.” </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> Accordingly, it is the Board's conclusion that, in performing the services enumerated, the bank holding company is “furnishing services to or performing services for” the four banks referred to. Under the Act such furnishing or performing of services is permissible only if the holding company owns or controls 25 percent of the voting shares of each bank receiving such services, and, since the company owns less than 25 percent of the voting shares of these banks, it follows that these activities are prohibited by section 4(a)(2). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.113/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> While this conclusion is required, in the Board's opinion, by the language of the statute, it may be noted further that any other conclusion would make it possible for bank holding company or any other corporation, through arrangements for the “managing” of banks in the manner here involved, to acquire effective control of banks without acquiring bank stocks and thus to evade the underlying objectives of section 3 of the Act. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/25/281">25 FR 281</ref>, <date date="1960-01-14">Jan. 14, 1960</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.115">
<num value="225.115" style="-uslm-sgm:SECTNO">§ 225.115</num>
<heading style="-uslm-sgm:SUBJECT">Applicability of Bank Service Corporation Act in certain bank holding company situations. </heading>
<paragraph identifier="/us/cfr/t12/s225.115/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Questions have been presented to the Board of Governors regarding the applicability of the recently enacted Bank Service Corporation Act (<ref href="/us/pl/87/856">Pub. L. 87–856</ref>, approved <date date="1962-10-23">October 23, 1962</date>) in cases involving service corporations that are subsidiaries of bank holding companies under the Bank Holding Company Act of 1956. In addition to being charged with the administration of the latter Act, the Board is named in the Bank Service Corporation Act as the Federal supervisory agency with respect to the performance of bank services for State member banks. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Holding company-owned corporation serving only subsidiary banks.</heading>
<paragraph identifier="/us/cfr/t12/s225.115/b/1" class="inline">
<num value="1"> (1)</num>
<content> One question is whether the Bank Service Corporation Act is applicable in the case of a corporation, wholly owned by a bank holding company, which is engaged in performing “bank services”, as defined in section 1(b) of the Act, exclusively for subsidiary banks of the holding company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Except as noted below with respect to section 5 thereof, the Bank Service Corporation Act is not applicable in this case. This is true because none of the stock of the corporation performing the services is owned by any bank and the corporation, therefore, is not a “bank service corporation” as defined in section 1(c) of the Act. A corporation cannot meet that definition unless part of its stock is owned by two or more banks. The situation clearly is unaffected by section 2(b) of the Act which permits a corporation that fell within the definition initially to continue to function as a bank service corporation although subsequently only one of the banks remains as a stockholder in the corporation. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> However, although it is not a bank service corporation, the corporation in question and each of the banks for which it performs bank services are subject to section 5 of the Bank Service Corporation Act. That section, which <?page num="230"?>requires the furnishing of certain assurances to the appropriate Federal supervisory agency in connection with the performance of bank services for a bank, is applicable whether such services are performed by a bank service corporation or by others. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Section 4(a)(1) of the Bank Holding Company Act prohibits the acquisition by a bank holding company of “direct or indirect ownership or control” of shares of a nonbanking company, subject to certain exceptions. Section 4(c)(1) of the Act exempts from section 4(a)(1) shares of a company engaged “solely in the business of furnishing services to or performing services for” its bank holding company or subsidiary banks thereof. Assuming that the bank services performed by the corporation in question are “services” of the kinds contemplated by section 4(c)(1) of the Bank Holding Company Act (as would be true, for example, of the electronic data processing of deposit accounts), the holding company's ownership of the corporation's shares in the situation described above clearly is permissible under that section of the Act. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Bank service corporation owned by holding company subsidiaries and serving also other banks.</heading>
<paragraph identifier="/us/cfr/t12/s225.115/c/1" class="inline">
<num value="1"> (1)</num>
<content> The other question concerns the applicability of the Bank Service Corporation Act and the Bank Holding Company Act in the case of a corporation, all the stock of which is owned either by a bank holding company and its subsidiary banks together or by the subsidiary banks alone, which is engaged in performing “bank services”, as defined in section 1(b) of the Bank Service Corporation Act, for the subsidiary banks and for other banks, as well. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In contrast to the situation under paragraph (b) of this section, the corporation in this case is a “bank service corporation” within the meaning of section 1(c) of the Bank Service Corporation Act because of the ownership by each of the subsidiary banks of a part of the corporation's stock. This stock ownership is one of the important facts differentiating this case from the first one. Being a bank service corporation, the corporation in question is subject to section 3 of the Act concerning applications to bank service corporations by competitive banks for bank services, and to section 4 forbidding a bank service corporation from engaging in any activity other than the performance of bank services for banks. Section 5, mentioned previously and relating to “assurances”, also is applicable in this case. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The other important difference between this case and the situation in paragraph (b) of this section is that here the bank service corporation performs services for nonsubsidiary banks, as well as for subsidiary banks. This is permissible because section 2(a) of the Bank Service Corporation Act, which authorizes any two or more banks to invest limited amounts in a bank service corporation, removes all limitations and prohibitions of Federal law exclusively relating to banks that otherwise would prevent any such investment. From the legislative history of section 2(a), it is clear that section 6 of the Bank Holding Company Act is among the limitations and prohibitions so removed. But for such removal, section 6(a)(1) of that Act would make it unlawful for any of the subsidiary banks of the bank holding company in question to own stock in the bank service corporation subsidiary of the holding company, as the exemption in section 6(b)(1) would not apply because of the servicing by the bank service corporation of nonsubsidiary banks. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Because the bank service corporation referred to in the question is serving banks other than the subsidiary banks, the bank holding company is not exempt under section 4(c)(1) of the Bank Holding Company Act from the prohibition of acquisition of nonbanking interests in section 4(a)(1) of that Act. The bank holding company, however, is entitled to the benefit of the exemption in section 4(c)(4) of the Act. That section exempts from section 4(a) “shares which are of the kinds and amounts eligible for investment by National banking associations under the provisions of section 5136 of the Revised Statutes”. Section 5136 provides, in part, that: “Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by the association for its own account of any shares of <?page num="231"?>stock of any corporation.” As the provisions of section 2(a) of the Bank Service Corporation Act and its legislative history make it clear that shares of a bank service corporation are of a kind eligible for investment by national banks under section 5136, it follows that the direct or indirect ownership on control of such shares by a bank holding company are permissible within the amount limitation discussed in paragraph (d) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Limit on investment by bank holding company system in stock of bank service corporation.</heading>
<paragraph identifier="/us/cfr/t12/s225.115/d/1" class="inline">
<num value="1"> (1)</num>
<content> In the situation presented by paragraph (c) the bank holding company clearly owns or controls, directly or indirectly, all of the stock of the bank service corporation. The remaining question, therefore, is whether the total direct and indirect investment of the bank holding company in the bank service corporation exceeds the amount permissible under the Bank Holding Company Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The effect of sections 4(a)(1) and 4(c)(4) of the Bank Holding Company Act is to limit the amount of shares of a bank service corporation that a bank holding company may own or control, directly or indirectly, to the amount eligible for investment by a national bank, as previously indicated. Under section 2(a) of the Bank Service Corporation Act, the amount of shares of a bank service corporation eligible for investment by a national bank may not exceed “10 per centum [of the bank's] * * * paid-in and unimpaired capital and unimpaired surplus”. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The Board's view is that this aspect of the matter should be determined in accordance with the principles set forth in <ref href="/us/cfr/t12/s225.111">§ 225.111</ref>, as revised (<ref href="/us/fr/27/12671">27 FR 12671</ref>), involving the application of sections 4(a)(1) and 4(c)(4) of the Bank Holding Company Act in the light of section 302(b) of the Small Business Investment Act limiting the amount eligible for investment by a national bank in the shares of a small business investment company to two percent of the bank's “capital and surplus”. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.115/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Except for the differences in the percentage figures, the investment limitation in section 302(b) of the Small Business Investment Act is essentially the same as the investment limitation in section 2(a) of the Bank Service Corporation Act since, as an accounting matter and for the purposes under consideration, “capital and surplus” may be regarded as equivalent in meaning to “paid-in and unimpaired capital and unimpaired surplus.” Accordingly, the maximum permissible investment by a bank holding company system in the stock of a bank service corporation should be determined in accordance with the formula prescribed in <ref href="/us/cfr/t12/s222.111">§ 222.111</ref>. </content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/27/12918">27 FR 12918</ref>, <date date="1962-12-29">Dec. 29, 1962</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.118">
<num value="225.118" style="-uslm-sgm:SECTNO">§ 225.118</num>
<heading style="-uslm-sgm:SUBJECT">Computer services for customers of subsidiary banks. </heading>
<paragraph identifier="/us/cfr/t12/s225.118/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The question has been presented to the Board of Governors whether a wholly-owned nonbanking subsidiary (“service company”) of a bank holding company, which is now exempt from the prohibitions of section 4 of the Bank Holding Company Act of 1956 (“the Act”) because its sole business is the providing of services for the holding company and the latter's subsidiary banks, would lose its exempt status if it should provide data processing services for customers of the subsidiary banks. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.118/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The Board understood from the facts presented that the service company owns a computer which it utilizes to furnish data processing services for the subsidiary banks of its parent holding company. Customers of these banks have requested that the banks provide for them computerized billing, accounting, and financial records maintenance services. The banks wish to utilize the computer services of the service company in providing these and other services of a similar nature. It is proposed that, in each instance where a subsidiary bank undertakes to provide such services, the bank will enter into a contract directly with the customer and then arrange to have the service company perform the services for it, the bank. In no case will the service company provide services for anyone other than its affiliated banks. Moreover, it will not hold itself out as, nor will its parent corporation or affiliated banks represent it to be, authorized or willing to provide services for others. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.118/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Section 4(c)(1) of the Act permits a holding company to own shares in <?page num="232"?>“any company engaged solely * * * in the business of furnishing services to or performing services for such holding company and banks with respect to which it is a bank holding company * * *.” The Board has ruled heretofore that the term “services” as used in section 4(c)(1) is to be read as relating to those services (excluding “closely related” activities of “a financial, fiduciary, or insurance nature” within the meaning of section 4(c)(6)) which a bank itself can provide for its customers (<ref href="/us/cfr/t12/s225.104">§ 225.104</ref>). A determination as to whether a particular service may legitimately be rendered or performed by a bank for its customers must be made in the light of applicable Federal or State statutory or regulatory provisions. In the case of a State-chartered bank, the laws of the State in which the bank operates, together with any interpretations thereunder rendered by appropriate bank authorities, would govern the right of the bank to provide a particular service. In the case of a national bank, a similar determination would require reference to provisions of Federal law relating to the establishment and operation of national banks, as well as to pertinent rulings or interpretations promulgated thereunder. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.118/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Accordingly, on the assumption that all of the services to be performed are of the kinds that the holding company's subsidiary banks may render for their customers under applicable Federal or State law, the Board concluded that the rendition of such services by the service company for its affiliated banks would not adversely affect its exempt status under section 4(c)(1) of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.118/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> In arriving at the above conclusion, the Board emphasized that its views were premised explicitly upon the facts presented to it, and particularly its understanding that banks are permitted, under applicable Federal or State law to provide the proposed computer services. The Board emphasized also that in respect to the service company's operations, there continues in effect the requirement under section 4(c)(1) that the service company engage solely in the business of furnishing services to or performing services for the bank holding company and its subsidiary banks. The Board added that any substantial change in the facts that had been presented might require re-examination of the service company's status under section 4(c)(1). </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/29/12361">29 FR 12361</ref>, <date date="1964-08-28">Aug. 28, 1964</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.121">
<num value="225.121" style="-uslm-sgm:SECTNO">§ 225.121</num>
<heading style="-uslm-sgm:SUBJECT">Acquisition of Edge corporation affiliate by State member banks of registered bank holding company. </heading>
<paragraph identifier="/us/cfr/t12/s225.121/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board has been asked whether it is permissible for the commercial banking affiliates of a bank holding company registered under the Bank Holding Company Act of 1956, as amended, to acquire and hold the shares of the holding company's Edge corporation subsidiary organized under section 25(a) of the Federal Reserve Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.121/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Section 9 of the Bank Holding Company Act amendments of 1966 (<ref href="/us/pl/89/485">Pub. L. 89–485</ref>, approved <date date="1966-07-01">July 1, 1966</date>) repealed section 6 of the Bank Holding Company Act of 1956. That rendered obsolete the Board's interpretation of section 6 that was published in the March 1966 Federal Reserve Bulletin, page 339 (<ref href="/us/cfr/t12/s225.120">§ 225.120</ref>). Thus, so far as Federal Banking law applicable to State member banks is concerned, the answer to the foregoing question depends on the provisions of section 23A of the Federal Reserve Act, as amended by the 1966 amendments to the Bank Holding Company Act. By its specific terms, the provisions of section 23A do not apply to an affiliate organized under section 25(a) of the Federal Reserve Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.121/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Accordingly, the Board concludes that, except for such restrictions as may exist under applicable State law, it would be legally permissible by virtue of paragraph 20 of section 9 of the Federal Reserve Act for any or all of the State member banks that are affiliates of a registered bank holding company to acquire and hold shares of the Edge corporation subsidiary of the bank holding company within the amount limitation in the last sentence of paragraph 12 of section 25(a) of the Federal Reserve Act. </content>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(<ref href="/us/usc/t12/s24">12 U.S.C. 24</ref>, 248, 335, 371c, 611, 618)</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/31/10263">31 FR 10263</ref>, <date date="1966-07-29">July 29, 1966</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.122"><?page num="233"?>
<num value="225.122" style="-uslm-sgm:SECTNO">§ 225.122</num>
<heading style="-uslm-sgm:SUBJECT">Bank holding company ownership of mortgage companies. </heading>
<paragraph identifier="/us/cfr/t12/s225.122/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board of Governors recently considered whether a bank holding may acquire, either directly or through a subsidiary, the stock of a so-called “mortgage company” that would be operated on the following basis: The company would solicit mortgage loans on behalf of a bank in the holding company system, assemble credit information, make property inspections and appraisals, and secure title information. The company would also participate in the preparation of applications for mortgage loans, which it would submit, together with recommendations with respect to action thereon, to the bank, which alone would decide whether to make any or all of the loans requested. The company would in addition solicit investors to purchase mortgage loans from the bank and would seek to have such investors contract with the bank for the servicing of such loans. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.122/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Under section 4 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>), a bank holding company is generally prohibited from acquiring “direct or indirect ownership” of stock of nonbanking corporations. The two exceptions principally involved in the question presented are with respect to (1) stock that is eligible for investment by a national bank (section 4(c)(5) of the Act) and (2) shares of a company “furnishing services to or performing services for such bank holding company or its banking subsidiaries” (section 4(c)(1)(C) of the Act). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.122/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The Board has previously indicated its view that a national bank is forbidden by the so-called “stock-purchase prohibition” of paragraph “Seventh” of section 5136 of the Revised Statutes (<ref href="/us/usc/t12/s24">12 U.S.C. 24</ref>) to purchase “for its own account * * * any shares of stock of any corporation” except (1) to the extent permitted by specific provisions of Federal law or (2) as comprised within the concept of “such incidental powers as shall be necessary to carry on the business of banking” referred to in the first sentence of said paragraph “Seventh”. There is no specific statutory provision authorizing a national bank to purchase stock in a mortgage company, and in the Board's view such purchase may not properly be regarded as authorized under the “incidental powers” clause. (See 1966 Federal Reserve Bulletin 1151; <ref href="/us/cfr/t12/s208.119">12 CFR 208.119</ref>.) Accordingly, a bank holding company may not acquire stock in a mortgage company on the basis of the section 4(c)(5) exemption. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.122/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> However, the Board does not believe that such conclusion prejudices consideration of the question whether such a company is within the section 4(c)(1)(C) “servicing exemption”. The basic purpose of section 4 of the Act is to confine a bank holding company's activities to the management and control of banks. In determining whether an activity in which a bank could itself engage is within the servicing exemption, the question is simply whether such activity may appropriately be considered as “furnishing services to or performing services for” a bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.122/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> As indicated in the Board's interpretation published in the 1958 Federal Reserve Bulletin at page 431 (<ref href="/us/cfr/t12/s225.104">12 CFR 225.104</ref>), the legislative history of the servicing exemption indicates that it includes the following activities: “auditing, appraising, investment counseling” and “advertising, public relations, developing new business, organization, operations, preparing tax returns, and personnel”. The legislative history further indicates that some other activities also are within the scope of the exemption. However, the types of servicing permitted under such exemption must be distinguished from activities of a “financial fiduciary, or insurance nature”, such as those that might be considered for possible exemption under section 4(c)(8) of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.122/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content>
<p> In considering the interrelation of these exemptions in the light of the purpose of the prohibition against bank holding company interests in nonbanking organizations, the Board has concluded that the appropriate test for determining whether a mortgage company may be considered as within the servicing exemption is whether the company will perform as principal any banking activities—such as receiving deposits, paying checks, extending credit, conducting a trust department, and the like. In other words, if the mortgage company is to act merely as <?page num="234"?>an adjunct to a bank for the purpose of facilitating the banks operations, the company may appropriately be considered as within the scope of the servicing exemption. <ref id="fnd3e14664" idref="fnd3e14669" style="-uslm-sgm:SU">1</ref>
</p>
<footnote id="fnd3e14669" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e14664" style="-uslm-sgm:SU">1</ref> Insofar as the 1958 interpretation referred to above suggested that the branch banking laws are an appropriate general test for determining the scope of the servicing exemption, such interpretation is hereby modified. In view of the different purposes to be served by the branch banking laws and by section 4 of the Bank Holding Company Act, the Board has concluded that basing determinations under the latter solely on the basis of determinations under the former is inappropriate.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.122/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> On this basis the Board concluded that, insofar as the Bank Holding Company Act is concerned, a bank holding company may acquire, either directly or through a subsidiary, the stock of a mortgage company whose functions are as described in the question presented. On the other hand, in the Board's view, a bank holding company may not acquire, on the basis of the servicing exemption, a mortgage company whose functions include such activities as extending credit for its own account, arranging interim financing, entering into mortgage service contracts on a fee basis, or otherwise performing functions other than solely on behalf of a bank. </content>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(<ref href="/us/usc/t12/s248">12 U.S.C. 248</ref>)</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/32/15004">32 FR 15004</ref>, <date date="1967-10-03">Oct. 3, 1967</date>, as amended at <ref href="/us/fr/35/19662">35 FR 19662</ref>, <date date="1970-12-29" role="amended">Dec. 29, 1970</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.123">
<num value="225.123" style="-uslm-sgm:SECTNO">§ 225.123</num>
<heading style="-uslm-sgm:SUBJECT">Activities closely related to banking. </heading>
<paragraph identifier="/us/cfr/t12/s225.123/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Effective <date date="1971-06-15">June 15, 1971</date>, the Board of Governors has amended <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref> of Regulation Y to implement its regulatory authority under section 4(c)(8) of the Bank Holding Company Act. In some respects activities determined by the Board to be closely related to banking are described in general terms that will require interpretation from time to time. The Board's views on some questions that have arisen are set forth below. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Section 225.4(a) states that a company whose ownership by a bank holding company is authorized on the basis of that section may engage solely in specified activities. That limitation refers only to activities the authority for which depends on section 4(c)(8) of the Act. It does not prevent a holding company from establishing one subsidiary to engage, for example, in activities specified in <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref> and also in activities that fall within the scope of section 4(c)(1)(C) of the Act—the “servicing” exemption. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> The amendments to <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref> do not apply to restrict the activities of a company previously approved by the Board on the basis of section 4(c)(8) of the Act. Activities of a company authorized on the basis of section 4(c)(8) either before the 1970 Amendments or pursuant to the amended <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref> may be shifted in a corporate reorganization to another company within the holding company system without complying with the procedures of <ref href="/us/cfr/t12/s225.4/b">§ 225.4(b)</ref>, as long as all the activities of such company are permissible under one of the exemptions in section 4 of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Under the procedures in <ref href="/us/cfr/t12/s225.4/a/c">§ 225.4(a)(c)</ref>, a holding company that wishes to change the location at which it engages in activities authorized pursuant to <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref> must publish notice in a newspaper of general circulation in the community to be served. The Board does not regard minor changes in location as within the coverage of that requirement. A move from one site to another within a 1-mile radius would constitute such a minor change if the new site is in the same State. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<chapeau> Data processing. In providing packaged data processing and transmission services for banking, financial and economic data for installation on the premises of the customer, as authorized by <ref href="/us/cfr/t12/s225.4/a/8/ii">§ 225.4(a)(8)(ii)</ref>, a bank holding company should limit its activities to providing facilities that perform banking functions, such as check collection, or other similar functions for customers that are depository or other similar institutions, such as mortgage companies. In addition, the Board regards the following as incidental activities necessary to carry on the permissible activities in this area:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.123/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Providing excess capacity, not limited to the processing or transmission of banking, financial or economic data on data processing or transmission equipment or facilities used in connection with permissible <?page num="235"?>data processing and data transmission activities, where:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.123/e/1/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Equipment is not purchased solely for the purpose of creating excess capacity;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/e/1/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Hardware is not offered in connection therewith; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/e/1/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Facilities for the use of the excess capacity do not include the provision of any software, other than systems software (including language), network communications support, and the operating personnel and documentation necessary for the maintenance and use of these facilities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Providing by-products of permissible data processing and data transmission activities, where not designed, or appreciably enhanced, for the purpose of marketability.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.123/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> Furnishing any data processing service upon request of a customer if such data processing service is not otherwise reasonably available in the relevant market area; and</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">In order to eliminate or reduce to an insignificant degree any possibility of unfair competition where services, facilities, by-products or excess capacity are provided by a bank holding company's nonbank subsidiary or related entity, the entity providing the services, facilities, by-products and/or excess capacity should have separate books and financial statements, and should provide these books and statements to any new or renewal customer requesting financial data. Consolidated or other financial statements of the bank holding company should not be provided unless specifically requested by the customer.</p>
</content>
</paragraph>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(Interprets and applies <ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref> (c)(8))</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/36/10778">36 FR 10778</ref>, <date date="1971-06-03">June 3, 1971</date>, as amended at <ref href="/us/fr/36/11806">36 FR 11806</ref>, <date date="1971-06-19" role="amended">June 19, 1971</date>. Redesignated at <ref href="/us/fr/36/21666">36 FR 21666</ref>, <date date="1971-11-12" role="redesignated">Nov. 12, 1971</date> and amended at <ref href="/us/fr/40/13477">40 FR 13477</ref>, <date date="1975-03-27" role="amended">Mar. 27, 1975</date>; <ref href="/us/fr/47/37372">47 FR 37372</ref>, <date date="1982-08-26" role="amended">Aug. 26, 1982</date>; <ref href="/us/fr/52/45161">52 FR 45161</ref>, <date date="1987-11-25" role="amended">Nov. 25, 1987</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.124">
<num value="225.124" style="-uslm-sgm:SECTNO">§ 225.124</num>
<heading style="-uslm-sgm:SUBJECT">Foreign bank holding companies. </heading>
<paragraph identifier="/us/cfr/t12/s225.124/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Effective <date date="1971-12-01">December 1, 1971</date>, the Board of Governors has added a new <ref href="/us/cfr/t12/s225.4/g">§ 225.4(g)</ref> to Regulation Y implementing its authority under section 4(c)(9) of the Bank Holding Company Act. The Board's views on some questions that have arisen in connection with the meaning of terms used in <ref href="/us/cfr/t12/s225.4/g">§ 225.4(g)</ref> are set forth in paragraphs (b) through (g) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> The term “activities” refers to nonbanking activities and does not include the banking activities that foreign banks conduct in the United States through branches or agencies licensed under the banking laws of any State of the United States or the District of Columbia. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<chapeau> A company (including a bank holding company) will not be deemed to be engaged in “activities” in the United States merely because it exports (or imports) products to (or from) the United States, or furnishes services or finances goods or services in the United States, from locations outside the United States. A company is engaged in “activities” in the United States if it owns, leases, maintains, operates, or controls any of the following types of facilities in the United States: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.124/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A factory, </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A wholesale distributor or purchasing agency, </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A distribution center, </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A retail sales or service outlet, </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> A network of franchised dealers, </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/c/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> A financing agency, or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/c/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content>
<p> Similar facility for the manufacture, distribution, purchasing, furnishing, or financing of goods or services locally in the United States.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">A company will not be considered to be engaged in “activities” in the United States if its products are sold to independent importers, or are distributed through independent warehouses, that are not controlled or franchised by it. </p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In the Board's opinion, section 4 (a)(1) of the Bank Holding Company Act applies to ownership or control of shares of stock as an investment and does not apply to ownership or control of shares of stock in the capacity of an underwriter or dealer in securities. Underwriting or dealing in shares of stock are nonbanking activities prohibited to bank holding companies by section 4(a)(2) of the Act, unless otherwise exempted. Under <ref href="/us/cfr/t12/s225.4/g">§ 225.4(g)</ref> of Regulation Y, foreign bank holding companies are exempt from the prohibitions of section 4 of the Act with respect to their activities outside the United States; thus foreign bank holding companies may underwrite or deal in shares of stock (including shares of United <?page num="236"?>States issuers) to be distributed outside the United States, provided that shares so acquired are disposed of within a reasonable time. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> A foreign bank holding company does not “indirectly” own voting shares by reason of the ownership or control of such voting shares by any company in which it has a noncontrolling interest. A foreign bank holding company may, however, “indirectly” control such voting shares if its noncontrolling interest in such company is accompanied by other arrangements that, in the Board's judgment, result in control of such shares by the bank holding company. The Board has made one exception to this general approach. A foreign bank holding company will be considered to indirectly own or control voting shares of a bank if that bank holding company acquires more than 5 percent of any class of voting shares of another bank holding company. A bank holding company may make such an acquisition only with prior approval of the Board. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> A company is “indirectly” engaged in activities in the United States if any of its subsidiaries (whether or not incorporated under the laws of this country) is engaged in such activities. A company is not “indirectly” engaged in activities in the United States by reason of a noncontrolling interest in a company engaged in such activities. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.124/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> Under the foregoing rules, a foreign bank holding company may have a noncontrolling interest in a foreign company that has a U.S. subsidiary (but is not engaged in the securities business in the United States) if more than half of the foreign company's consolidated assets and revenues are located and derived outside the United States. For the purpose of such determination, the assets and revenues of the United States subsidiary would be counted among the consolidated assets and revenues of the foreign company to the extent required or permitted by generally accepted accounting principles in the United States. The foreign bank holding company would not, however, be permitted to “indirectly” control voting shares of the said U.S. subsidiary, as might be the case if there are other arrangements accompanying its noncontrolling interest in the foreign parent company that, in the Board's judgment, result in control of such shares by the bank holding company. </content>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(Interprets and applies <ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref> (a) (1), (2), and (c)(9))</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/36/21808">36 FR 21808</ref>, <date date="1971-11-16">Nov. 16, 1971</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.125">
<num value="225.125" style="-uslm-sgm:SECTNO">§ 225.125</num>
<heading style="-uslm-sgm:SUBJECT">Investment adviser activities. </heading>
<paragraph identifier="/us/cfr/t12/s225.125/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Effective <date date="1972-02-01">February 1, 1972</date>, the Board of Governors amended <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref> of Regulation Y to add “serving as investment adviser, as defined in section 2(a)(20) of the Investment Company Act of 1940, to an investment company registered under that Act” to the list of activities it has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. During the course of the Board's consideration of this amendment several questions arose as to the scope of such activity, particularly in view of certain restrictions imposed by sections 16, 20, 21, and 32 of the Banking Act of 1933 (<ref href="/us/usc/t12/s24">12 U.S.C. 24</ref>, 377, 378, 78) (sometimes referred to hereinafter as the “Glass-Steagall Act provisions”) and the U.S. Supreme Court's decision in Investment Company Institute v. Camp, 401 U.S. 617 (1971). The Board's views with respect to some of these questions are set forth below. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It is clear from the legislative history of the Bank Holding Company Act Amendments of 1970 (<ref href="/us/stat/84/1760">84 Stat. 1760</ref>) that the Glass-Steagall Act provisions were not intended to be affected thereby. Accordingly, the Board regards the Glass-Steagall Act provisions and the Board's prior interpretations thereof as applicable to a holding company's activities as an investment adviser. Consistently with the spirit and purpose of the Glass-Steagall Act, this interpretation applies to all bank holding companies registered under the Bank Holding Company Act irrespective of whether they have subsidiaries that are member banks. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Under <ref href="/us/cfr/t12/s225.4/a/5">§ 225.4(a)(5)</ref>, as amended, bank holding companies (which term, as used herein, includes both their bank and nonbank subsidiaries) may, in accordance with the provisions of <ref href="/us/cfr/t12/s225.4">§ 225.4</ref> (b), act as investment advisers to various types of investment companies, <?page num="237"?>such as “open-end” investment companies (commonly referred to as “mutual funds”) and “closed-end” investment companies. Briefly, a mutual fund is an investment company which, typically, is continuously engaged in the issuance of its shares and stands ready at any time to redeem the securities as to which it is the issuer; a closed-end investment company typically does not issue shares after its initial organization except at infrequent intervals and does not stand ready to redeem its shares. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The Board intends that a bank holding company may exercise all functions that are permitted to be exercised by an “investment adviser” under the Investment Company Act of 1940, except to the extent limited by the Glass-Steagall Act provisions, as described, in part, hereinafter. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> The Board recognizes that presently most mutual funds are organized, sponsored and managed by investment advisers with which they are affiliated and that their securities are distributed to the public by such affiliated investment advisers, or subsidiaries or affiliates thereof. However, the Board believes that (1) The Glass-Steagall Act provisions do not permit a bank holding company to perform all such functions, and (2) It is not necessary for a bank holding company to perform all such functions in order to engage effectively in the described activity. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> In the Board's opinion, the Glass-Steagall Act provisions, as interpreted by the U.S. Supreme Court, forbid a bank holding company to sponsor, organize, or control a mutual fund. However, the Board does not believe that such restrictions apply to closed-end investment companies as long as such companies are not primarily or frequently engaged in the issuance, sale, and distribution of securities. A bank holding company should not act as investment adviser to an investment company that has a name similar to the name of the holding company or any of its subsidiary banks, unless the prospectus of the investment company contains the disclosures required in paragraph (h) of this section. In no case should a bank holding company act as investment adviser to an investment company that has either the same name as the name of the holding company or any of its subsidiary banks, or a name that contains the word “bank.”</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> In view of the potential conflicts of interests that may exist, a bank holding company and its bank and nonbank subsidiaries should not purchase in their sole discretion, in a fiduciary capacity (including as managing agent), securities of any investment company for which the bank holding company acts as investment adviser unless, the purchase is specifically authorized by the terms of the instrument creating the fiduciary relationship, by court order, or by the law of the jurisdiction under which the trust is administered.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> Under section 20 of the Glass-Steagall Act, a member bank is prohibited from being affiliated with a company that directly, or through a subsidiary, engages principally in the issue, flotation, underwriting, public sale, or distribution of securities. A bank holding company or its nonbank subsidiary may not engage, directly or indirectly, in the underwriting, public sale or distribution of securities of any investment company for which the holding company or any nonbank subsidiary provides investment advice except in compliance with the terms of section 20, and only after obtaining the Board's approval under section 4 of the Bank Holding Company Act and subject to the limitations and disclosures required by the Board in those cases. The Board has determined, however, that the conduct of securities brokerage activities by a bank holding company or its nonbank subsidiaries, when conducted individually or in combination with investment advisory activities, is not deemed to be the underwriting, public sale, or distribution of securities prohibited by the Glass-Steagall Act, and the U.S. Supreme Court has upheld that determination. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See Securities Industry Ass'n</inline> v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board of Governors,</inline> 468 U.S. 207 (1984); <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see also Securities Industry Ass'n</inline> v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board of Governors,</inline> 821 F.2d 810 (D.C. Cir. 1987), <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">cert. denied,</inline> 484 U.S. 1005 (1988). Accordingly, the Board believes that a bank holding company or any of its nonbank subsidiaries that has been authorized by the <?page num="238"?>Board under the Bank Holding Company Act to conduct securities brokerage activities (either separately or in combination with investment advisory activities) may act as agent, upon the order and for the account of customers of the holding company or its nonbank subsidiary, to purchase or sell shares of an investment company for which the bank holding company or any of its subsidiaries acts as an investment adviser. In addition, a bank holding company or any of its nonbank subsidiaries that has been authorized by the Board under the Bank Holding Company Act to provide investment advice to third parties generally (either separately or in combination with securities brokerage services) may provide investment advice to customers with respect to the purchase or sale of shares of an investment company for which the holding company or any of its subsidiaries acts as an investment adviser. In the event that a bank holding company or any of its nonbank subsidiaries provides brokerage or investment advisory services (either separately or in combination) to customers in the situations described above, at the time the service is provided the bank holding company should instruct its officers and employees to caution customers to read the prospectus of the investment company before investing and must advise customers in writing that the investment company's shares are not insured by the Federal Deposit Insurance Corporation, and are not deposits, obligations of, or endorsed or guaranteed in any way by, any bank, unless that happens to be the case. The holding company or nonbank subsidiary must also disclose in writing to the customer the role of the company or affiliate as adviser to the investment company. These disclosures may be made orally so long as written disclosure is provided to the customer immediately thereafter. To the extent that a bank owned by a bank holding company engages in providing advisory or brokerage services to bank customers in connection with an investment company advised by the bank holding company or a nonbank affiliate, but is not required by the bank's primary regulator to make disclosures comparable to the disclosures required to be made by bank holding companies providing such services, the bank holding company should require its subsidiary bank to make the disclosures required in this paragraph to be made by a bank holding company that provides such advisory or brokerage services.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.125/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Acting in such capacities as registrar, transfer agent, or custodian for an investment company is not a selling activity and is permitted under <ref href="/us/cfr/t12/s225.4/a/4">§ 225.4(a)(4)</ref> of Regulation Y. However, in view of potential conflicts of interests, a bank holding company which acts both as custodian and investment adviser for an investment company should exercise care to maintain at a minimal level demand deposit accounts of the investment company which are placed with a bank affiliate and should not invest cash funds of the investment company in time deposit accounts (including certificates of deposit) of any bank affiliate. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/37/1464">37 FR 1464</ref>, <date date="1972-01-29">Jan. 29, 1972</date>, as amended by Reg. Y, <ref href="/us/fr/57/30391">57 FR 30391</ref>, <date date="1992-07-09" role="amended">July 9, 1992</date>; <ref href="/us/fr/61/45875">61 FR 45875</ref>, <date date="1996-08-30" role="amended">Aug. 30, 1996</date>; Reg. Y, <ref href="/us/fr/62/9343">62 FR 9343</ref>, <date date="1997-02-28" role="amended">Feb. 28, 1997</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.126">
<num value="225.126" style="-uslm-sgm:SECTNO">§ 225.126</num>
<heading style="-uslm-sgm:SUBJECT">Activities not closely related to banking. </heading>
<chapeau style="-uslm-sgm:P">Pursuant to section 4(c)(8) of the Bank Holding Company Act and <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref> of Regulation Y, the Board of Governors has determined that the following activities are not so closely related to banking or managing or controlling banks as to be a proper incident thereto: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.126/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Insurance premium funding—that is, the combined sale of mutual funds and insurance. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.126/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Underwriting life insurance that is not sold in connection with a credit transaction by a bank holding company, or a subsidiary thereof. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.126/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Real estate brokerage (see 1972 Fed. Res. Bulletin 428). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.126/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Land development (see 1972 Fed. Res. Bulletin 429). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.126/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Real estate syndication. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.126/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> Management consulting (see 1972 Fed. Res. Bulletin 571). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.126/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> Property management (see 1972 Fed. Res. Bulletin 652).</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/37/20329">37 FR 20329</ref>, <date date="1972-09-29">Sept. 29, 1972</date>; <ref href="/us/fr/37/21938">37 FR 21938</ref>, <date date="1972-10-17">Oct. 17, 1972</date>, as amended at <ref href="/us/fr/54/37302">54 FR 37302</ref>, <date date="1989-09-08" role="amended">Sept. 8, 1989</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.127"><?page num="239"?>
<num value="225.127" style="-uslm-sgm:SECTNO">§ 225.127</num>
<heading style="-uslm-sgm:SUBJECT">Investment in corporations or projects designed primarily to promote community welfare. </heading>
<paragraph identifier="/us/cfr/t12/s225.127/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Under <ref href="/us/cfr/t12/s225.25/b/6">§ 225.25(b)(6)</ref> of Regulation Y, a bank holding company may, in accordance with the provisions of <ref href="/us/cfr/t12/s225.23">§ 225.23</ref>, engage in “making equity and debt investments in corporations or projects designed primarily to promote community welfare, such as the economic rehabilitation and development of low-income areas.” The Board included that activity among those the Board has determined to be so closely related to banking or managing or controlling banks as be a proper incident thereto, in order to permit bank holding companies to fulfill their civic responsibilities. As indicated hereinafter in this interpretation, the Board intends <ref href="/us/cfr/t12/s225.25/b/6">§ 225.25(b)(6)</ref> to enable bank holding companies to take an active role in the quest for solutions to the Nation's social problems. Although the interpretation primarily focuses on low- and moderate-income housing, it is not intended to limit projects under <ref href="/us/cfr/t12/s225.25/b/6">§ 225.25(b)(6)</ref> to that area. Other investments primarily designed to promote community welfare are considered permissible, but have not been defined in order to provide bank holding companies flexibility in approaching community problems. For example, bank holding companies may utilize this flexibility to provide new and creative approaches to the promotion of employment opportunities for low-income persons. Bank holding companies possess a unique combination of financial and managerial resources making them particularly suited for a meaningful and substantial role in remedying our social ills. Section 225.25(b)(6) is intended to provide an opportunity for them to assume such a role. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Under the authority of <ref href="/us/cfr/t12/s225.25/b/6">§ 225.25(b)(6)</ref>, a bank holding company may invest in community development corporations established pursuant to Federal or State law. A bank holding company may also participate in other civic projects, such as a municipal parking facility sponsored by a local civic organization as a means to promote greater public use of the community's facilities. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Within the category of permissible investments under <ref href="/us/cfr/t12/s225.25/b/6">§ 225.25(b)(6)</ref> are investments in projects to construct or rehabilitate multifamily low- or moderate-income housing with respect to which a mortgage is insured under section 221(d)(3), 221(d)(4), or 236 of the National Housing Act (<ref href="/us/usc/t12/s1701">12 U.S.C. 1701</ref>) and investments in projects to construct or rehabilitate low- or moderate-income housing which is financed or assisted by direct loan, tax abatement, or insurance under provisions of State or local law, similar to the aforementioned Federal programs, provided that, with respect to all such projects the owner is, by statute, regulation, or regulatory authority, limited as to the rate of return on his investment in the project, as to rentals or occupancy charges for units in the project, and in such other respects as would be a “limited dividend corporation” (as defined by the Secretary of Housing and Urban Development). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Investments in other projects that may be considered to be designed primarily to promote community welfare include but are not limited to: (1) Projects for the construction or rehabilitation of housing for the benefit of persons of low- or moderate-income, (2) projects for the construction or rehabilitation of ancillary local commercial facilities necessary to provide goods or services principally to persons residing in low- or moderate-income housing, and (3) projects designed explicitly to create improved job opportunities for low- or moderate-income groups (for example, minority equity investments, on a temporary basis, in small or medium-sized locally-controlled businesses in low-income urban or other economically depressed areas). In the case of de novo projects, the copy of the notice with respect to such other projects which is to be furnished to Reserve Banks in accordance with the provisions of <ref href="/us/cfr/t12/s225.23">§ 225.23</ref> should be accompanied by a memorandum which demonstrates that such projects meet the objectives of <ref href="/us/cfr/t12/s225.25/b/6">§ 225.25(b)(6)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> Investments in corporations or projects organized to build or rehabilitate high-income housing, or commercial, office, or industrial facilities that are not designed explicitly to create improved job opportunities for low-income persons shall be presumed not to <?page num="240"?>be designed primarily to promote community welfare, unless there is substantial evidence to the contrary, even though to some extent the investment may benefit the community. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<chapeau> Section 6 of the Depository Institutions Disaster Relief Act of 1992 permits state member banks (<ref href="/us/usc/t12/s338a">12 U.S.C. 338a</ref>) and national banks (<ref href="/us/usc/t12/s24">12 U.S.C. 24</ref> (Eleventh)) to invest in the stock of community development corporations that are designed primarily to promote the public welfare of low- and moderate-income communities and persons in the areas of housing, services and employment. The Board and the Office of the Comptroller of the Currency have adopted rules that permit state member banks and national banks to make certain investments without prior approval. The Board believes that these rules are consistent with the Board's interpretation of, and decisions regarding, the scope of community welfare activities permissible for bank holding companies. Accordingly, approval received by a bank holding company to conduct activities designed to promote the community welfare under section 4(c)(8) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/c/8">12 U.S.C. 1843(c)(8)</ref>) and <ref href="/us/cfr/t12/s225.25/b/6">§ 225.25(b)(6)</ref> of the Board's Regulation Y (<ref href="/us/cfr/t12/s225.25/b/6">12 CFR 225.25(b)(6)</ref>) includes approval to engage, either directly or through a subsidiary, in the following activities, up to five percent of the bank holding company's total consolidated capital stock and surplus, without additional Board or Reserve Bank approval: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.127/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Invest in and provide financing to a corporation or project or class of corporations or projects that the Board previously has determined is a public welfare project pursuant to paragraph 23 of section 9 of the Federal Reserve Act (<ref href="/us/usc/t12/s338a">12 U.S.C. 338a</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Invest in and provide financing to a corporation or project that the Office of the Comptroller of the Currency previously has determined, by order or regulation, is a public welfare investment pursuant to section 5136 of the Revised Statutes (<ref href="/us/usc/t12/s24">12 U.S.C. 24</ref> (Eleventh)); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Invest in and provide financing to a community development financial institution pursuant to section 103(5) of the Community Development Banking and Financial Institutions Act of 1994 (<ref href="/us/usc/t12/s4702/5">12 U.S.C. 4702(5)</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Invest in, provide financing to, develop, rehabilitate, manage, sell, and rent residential property if a majority of the units will be occupied by low- and moderate-income persons or if the property is a “qualified low-income building” as defined in section 42(c)(2) of the Internal Revenue Code (<ref href="/us/usc/t26/s42/c/2">26 U.S.C. 42(c)(2)</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Invest in, provide financing to, develop, rehabilitate, manage, sell, and rent nonresidential real property or other assets located in a low- or moderate-income area provided the property is used primarily for low- and moderate-income persons; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Invest in and provide financing to one or more small businesses located in a low- or moderate-income area to stimulate economic development; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Invest in, provide financing to, develop, and otherwise assist job training or placement facilities or programs designed primarily for low- and moderate-income persons; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> Invest in and provide financing to an entity located in a low- or moderate-income area if that entity creates long-term employment opportunities, a majority of which (based on full time equivalent positions) will be held by low- and moderate-income persons; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/f/9" style="-uslm-sgm:P">
<num value="9">(9)</num>
<content> Provide technical assistance, credit counseling, research, and program development assistance to low- and moderate-income persons, small businesses, or nonprofit corporations to help achieve community development. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> For purposes of paragraph (f) of this section, low- and moderate-income persons or areas means individuals and communities whose incomes do not exceed 80 percent of the median income of the area involved, as determined by the U.S. Department of Housing and Urban Development. Small businesses are businesses that are smaller than the maximum size eligibility standards established by the Small Business Administration (SBA) for the Small Business Investment Company and Development Company Programs or the SBA section 7A loan program; and specifically include those businesses that are <?page num="241"?>majority-owned by members of minority groups or by women. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.127/h" style="-uslm-sgm:P">
<num value="h">(h)</num>
<content> For purposes of paragraph (f) of this section, five percent of the total consolidated capital stock and surplus of a bank holding company includes its total investment in projects described in paragraph (f) of this section, when aggregated with similar types of investments made by depository institutions controlled by the bank holding company. The term total consolidated capital stock and surplus of the bank holding company means total equity capital and the allowance for loan and lease losses. For bank holding companies that file the FR Y–9C (Consolidated Financial Statements for Bank Holding Companies), these items are readily ascertained from Schedule HC—Consolidated Balance Sheet (total equity capital (line 27h) and allowance for loan and lease losses (line 4b)). For bank holding companies filing the FR Y-SP (Parent Company Only Financial Statements for Small Bank Holding Companies), an approximation of these items is ascertained from the Balance Sheet (total equity capital (line 16e)) and allowance for loan and lease losses (line 3b)) and from the Report of Condition for Insured Banks (Schedule RC—Balance Sheet (line 4b)). </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/37/11316">37 FR 11316</ref>, <date date="1972-06-07">June 7, 1972</date>; <ref href="/us/fr/37/13336">37 FR 13336</ref>, <date date="1972-07-07">July 7, 1972</date>, as amended at Reg. Y, <ref href="/us/fr/59/63713">59 FR 63713</ref>, <date date="1994-12-09" role="amended">Dec. 9, 1994</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.129">
<num value="225.129" style="-uslm-sgm:SECTNO">§ 225.129</num>
<heading style="-uslm-sgm:SUBJECT">Activities closely related to banking. </heading>
<content>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Courier activities.</inline> The Board's amendment of <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref>, which adds courier services to the list of closely related activities is intended to permit holding companies to transport time critical materials of limited intrinsic value of the types utilized by banks and bank-related firms in performing their business activities. Such transportation activities are of particular importance in the check clearing process of the banking system, but are also important to the performance of other activities, including the processing of financially-related economic data. The authority is not intended to permit holding companies to engage generally in the provision of transportation services. </p>
<p style="-uslm-sgm:P">During the course of the Board's proceedings pertaining to courier services, objections were made that courier activities were not a proper incident to banking because of the possibility that holding companies would or had engaged in unfair competitive practices. The Board believes that adherence to the following principles will eliminate or reduce to an insignificant degree any possibility of unfair competition: </p>
<p style="-uslm-sgm:P">a. A holding company courier subsidiary established under section 4(c)(8) should be a separate, independent corporate entity, not merely a servicing arm of a bank. </p>
<p style="-uslm-sgm:P">b. As such, the subsidiary should exist as a separate, profit-oriented operation and should not be subsidized by the holding company system. </p>
<p style="-uslm-sgm:P">c. Services performed should be explicitly priced, and shall not be paid for indirectly, for example, on the basis of deposits maintained at or loan arrangements with affiliated banks. </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">Accordingly, entry of holding companies into courier activities on the basis of section 4(c)(8) will be conditioned as follows: </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">The courier subsidiary shall perform services on an explicit fee basis and shall be structured as an individual profit center designed to be operated on a profitable basis.</inline> The Board may regard operating losses sustained over an extended period as being inconsistent with continued authority to engage in courier activities. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Courier services performed on behalf of an affiliate's customer</inline> (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">such as the carriage of incoming cash letters</inline>) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">shall be paid for by the customer. Such payments shall not be made indirectly, for example, on the basis of imputed earnings on deposits maintained at or of loan arrangements with subsidiaries of the holding company.</inline> Concern has also been expressed that bank-affiliated courier services will be utilized to gain a competitive advantage over firms competing with other holding company affiliates. To reduce the possibility that courier affiliates might be so employed, the Board will impose the following third condition: </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">The courier subsidiary shall, when requested by any bank or any data processing firm providing financially-related data processing services which firm competes with a banking or data processing</inline>
<?page num="242"?>subsidiary of Applicant, furnish comparable service at comparable rates, unless compliance with such request would be beyond the courier subsidiary's practical capacity. In this regard, the courier subsidiary should make known to the public its minimum rate schedule for services and its general pricing policies thereto. The courier subsidiary is also expected to maintain for a reasonable period of time (not less than two years) each request denied with the reasons for such denial. </p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/38/32126">38 FR 32126</ref>, <date date="1973-11-21">Nov. 21, 1973</date>, as amended at <ref href="/us/fr/40/36309">40 FR 36309</ref>, <date date="1975-08-20" role="amended">Aug. 20, 1975</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.130">
<num value="225.130" style="-uslm-sgm:SECTNO">§ 225.130</num>
<heading style="-uslm-sgm:SUBJECT">Issuance and sale of short-term debt obligations by bank holding companies. </heading>
<content>
<p style="-uslm-sgm:P">For text of interpretation, see <ref href="/us/cfr/t12/s250.221">§ 250.221</ref> of this chapter. </p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/38/35231">38 FR 35231</ref>, <date date="1973-12-26">Dec. 26, 1973</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.131">
<num value="225.131" style="-uslm-sgm:SECTNO">§ 225.131</num>
<heading style="-uslm-sgm:SUBJECT">Activities closely related to banking. </heading>
<paragraph identifier="/us/cfr/t12/s225.131/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Bank management consulting advice.</heading>
<content> The Board's amendment of <ref href="/us/cfr/t12/s225.4/a">§ 225.4(a)</ref>, which adds bank management consulting advice to the list of closely related activities, described in general terms the nature of such activity. This interpretation is intended to explain in greater detail certain of the terms in the amendment. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.131/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> It is expected that bank management consulting advice would include, but not be limited to, advice concerning: Bank operations, systems and procedures; computer operations and mechanization; implementation of electronic funds transfer systems; site planning and evaluation; bank mergers and the establishment of new branches; operation and management of a trust department; international banking; foreign exchange transactions; purchasing policies and practices; cost analysis, capital adequacy and planning; auditing; accounting procedures; tax planning; investment advice (as authorized in <ref href="/us/cfr/t12/s225.4/a/5">§ 225.4(a)(5)</ref>); credit policies and administration, including credit documentation, evaluation, and debt collection; product development, including specialized lending provisions; marketing operations, including research, market development and advertising programs; personnel operations, including recruiting, training, evaluation and compensation; and security measures and procedures. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.131/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> In permitting bank holding companies to provide management consulting advice to nonaffiliated “banks”, the Board intends such advice to be given only to an institution that both accepts deposits that the depositor has a legal right to withdraw on demand and engages in the business of making commercial loans. It is also intended that such management consulting advice may be provided to the “operations subsidiaries” of a bank, since such subsidiaries perform functions that a bank is empowered to perform directly at locations at which the bank is authorized to engage in business (<ref href="/us/cfr/t12/s250.141">§ 250.141</ref> of this chapter). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.131/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> Although a bank holding company providing management consulting advice is prohibited by the regulation from owning or controlling, directly or indirectly, any equity securities in a client bank, this limitation does not apply to shares of a client bank acquired, directly or indirectly, as a result of a default on a debt previously contracted. This limitation is also inapplicable to shares of a client bank acquired by a bank holding company, directly or indirectly, in a fiduciary capacity: <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Provided,</inline> That the bank holding company or its subsidiary does not have sole discretionary authority to vote such shares or shares held with sole voting rights constitute not more than five percent of the outstanding voting shares of a client bank. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/39/8318">39 FR 8318</ref>, <date date="1974-03-05">Mar. 5, 1974</date>; <ref href="/us/fr/39/21120">39 FR 21120</ref>, <date date="1974-06-19">June 19, 1974</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.132">
<num value="225.132" style="-uslm-sgm:SECTNO">§ 225.132</num>
<heading style="-uslm-sgm:SUBJECT">Acquisition of assets. </heading>
<paragraph identifier="/us/cfr/t12/s225.132/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> From time to time questions have arisen as to whether and under what circumstances a bank holding company engaged in nonbank activities, directly or indirectly through a subsidiary, pursuant to section 4(c)(8) of the Bank Holding Company Act of 1956, as amended (<ref href="/us/usc/t12/s1843/c/3">12 U.S.C. 1843(c)(3)</ref>), may acquire the assets and employees of another company, without first obtaining Board approval pursuant to section 4(c) (8) and the Board's Regulation Y (<ref href="/us/cfr/t12/s225.4/b">12 CFR 225.4(b)</ref>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.132/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content>
<p> In determining whether Board approval is required in connection with <?page num="243"?>the acquisition of assets, it is necessary to determine (a) whether the acquisition is made in the ordinary course of business <ref id="fnd3e14963" idref="fnd3e14973" style="-uslm-sgm:SU">1</ref> or (b) whether it constitutes the acquisition, in whole or in part, of a going concern. <ref id="fnd3e14967" idref="fnd3e14978" style="-uslm-sgm:SU">2</ref>
</p>
<footnote id="fnd3e14973" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e14963" style="-uslm-sgm:SU">1</ref> Section 225.4(c)(3) of the Board's Regulation Y (<ref href="/us/cfr/t12/s225.4/c/3">12 CFR 225.4(c)(3)</ref>) generally prohibits a bank holding company or its subsidiary engaged in activities pursuant to authority of section 4(c)(8) of the Act from being a party to any merger “or acquisition of assets other than in the ordinary course of business” without prior Board approval.</p>
</content>
</footnote>
<footnote id="fnd3e14978" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e14967" style="-uslm-sgm:SU">2</ref> In accordance with the provisions of section 4(c)(8) of the Act and <ref href="/us/cfr/t12/s225.4/b">§ 225.4(b)</ref> of Regulation Y, the acquisition of a going concern requires prior Board approval.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.132/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<chapeau> The following examples illustrate transactions where prior Board approval will generally be required: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.132/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The transaction involves the acquisition of all or substantially all of the assets of a company, or a subsidiary, division, department or office thereof. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.132/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The transaction involves the acquisition of less than “substantially all” of the assets of a company, or a subsidiary, division, department or office thereof, the operations of which are being terminated or substantially discontinued by the seller, but such asset acquisition is significant in relation to the size of the same line of nonbank activity of the holding company (e.g., consumer finance mortgage banking, data processing). For purposes of this interpretation, an acquisition would generally be presumed to be significant if the book value of the nonbank assets being acquired exceeds 50 percent of the book value of the nonbank assets of the holding company or nonbank subsidiary comprising the same line of activity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.132/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The transaction involves the acquisition of assets for resale and the sale of such assets is not a normal business activity of the acquiring holding company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.132/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The transaction involves the acquisition of the assets of a company, or a subsidiary, division, department or office thereof, and a major purpose of the transaction is to hire some of the seller's principal employees who are expert, skilled and experienced in the business of the company being acquired. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.132/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> In some cases it may be difficult, due to the wide variety of circumstances involving possible acquisition of assets, to determine whether such acquisitions require prior Board approval. Bank holding companies are encouraged to contact their local Reserve Bank for guidance where doubt exists as to whether such an acquisition is in the ordinary course of business or an acquisition, in whole or in part, of a going concern. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/39/35128">39 FR 35128</ref>, <date date="1974-09-30">Sept. 30, 1974</date>, as amended at Reg. Y, <ref href="/us/fr/57/28779">57 FR 28779</ref>, <date date="1992-06-29" role="amended">June 29, 1992</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.133">
<num value="225.133" style="-uslm-sgm:SECTNO">§ 225.133</num>
<heading style="-uslm-sgm:SUBJECT">Computation of amount invested in foreign corporations under general consent procedures. </heading>
<content>
<p style="-uslm-sgm:P">For text of this interpretation, see <ref href="/us/cfr/t12/s211.111">§ 211.111</ref> of this subchapter.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/40/43199">40 FR 43199</ref>, <date date="1975-09-19">Sept. 19, 1975</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.134">
<num value="225.134" style="-uslm-sgm:SECTNO">§ 225.134</num>
<heading style="-uslm-sgm:SUBJECT">Escrow arrangements involving bank stock resulting in a violation of the Bank Holding Company Act. </heading>
<paragraph identifier="/us/cfr/t12/s225.134/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> In connection with a recent application to become a bank holding company, the Board considered a situation in which shares of a bank were acquired and then placed in escrow by the applicant prior to the Board's approval of the application. The facts indicated that the applicant company had incurred debt for the purpose of acquiring bank shares and immediately after the purchase the shares were transferred to an unaffiliated escrow agent with instructions to retain possession of the shares pending Board action on the company's application to become a bank holding company. The escrow agreement provided that, if the application were approved by the Board, the escrow agent was to return the shares to the applicant company; and, if the application were denied, the escrow agent was to deliver the shares to the applicant company's shareholders upon their assumption of debt originally incurred by the applicant in the acquisition of the bank shares. In addition, the escrow agreement provided that, while the shares were held in escrow, the applicant could not exercise voting or any other ownership rights with respect to those shares.
<?page num="244"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.134/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> On the basis of the above facts, the Board concluded that the company had violated the prior approval provisions of section 3 of the Bank Holding Company Act (“Act”) at the time that it made the initial acquisition of bank shares and that, for purposes of the Act, the company continued to control those shares in violation of the Act. In view of these findings, individuals and bank holding companies should not enter into escrow arrangements of the type described herein, or any similar arrangement, without securing the prior approval of the Board, since such action could constitute a violation of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.134/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> While the above represents the Board's conclusion with respect to the particular escrow arrangement involved in the proposal presented, the Board does not believe that the use of an escrow arrangement would always result in a violation of the Act. For example, it appears that a transaction whereby bank shares are placed in escrow pending Board action on an application would not involve a violation of the Act so long as title to such shares remains with the seller during the pendency of the application; there are no other indicia that the applicant controls the shares held in escrow; and, in the event of a Board denial of the application, the escrow agreement provides that the shares would be returned to the seller. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/41/9859">41 FR 9859</ref>, <date date="1976-03-08">Mar. 8, 1976</date>, as amended at <ref href="/us/fr/41/12009">41 FR 12009</ref>, <date date="1976-03-23" role="amended">Mar. 23, 1976</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.136">
<num value="225.136" style="-uslm-sgm:SECTNO">§ 225.136</num>
<heading style="-uslm-sgm:SUBJECT">Utilization of foreign subsidiaries to sell long-term debt obligations in foreign markets and to transfer the proceeds to their United States parent(s) for domestic purposes. </heading>
<content>
<p style="-uslm-sgm:P">For text of this interpretation, see <ref href="/us/cfr/t12/s211.112">§ 211.112</ref> of this subchapter.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/42/752">42 FR 752</ref>, <date date="1977-01-04">Jan. 4, 1977</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.137">
<num value="225.137" style="-uslm-sgm:SECTNO">§ 225.137</num>
<heading style="-uslm-sgm:SUBJECT">Acquisitions of shares pursuant to section 4(c)(6) of the Bank Holding Company Act. </heading>
<paragraph identifier="/us/cfr/t12/s225.137/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content>
<p> The Board has received a request for an interpretation of section 4(c)(6) of the Bank Holding Company Act (“Act”) <ref id="fnd3e15035" idref="fnd3e15041" style="-uslm-sgm:SU">1</ref> in connection with a proposal under which a number of bank holding companies would purchase interests in an insurance company to be formed for the purpose of underwriting or reinsuring credit life and credit accident and health insurance sold in connection with extensions of credit by the stockholder bank holding companies and their affiliates. </p>
<footnote id="fnd3e15041" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15035" style="-uslm-sgm:SU">1</ref> It should be noted that every Board Order granting approval under section 4(c)(8) of the Act contains the following paragraph: </p>
<p style="-uslm-sgm:P">“This determination is subject . . . to the Board's authority to require such modification or termination of the activities of a holding company or any of its subsidiaries as the Board finds necessary to assure compliance with the provisions and purposes of the Act and the Board's regulations and orders issued thereunder, or to prevent evasion thereof.” </p>
<p style="-uslm-sgm:P">The Board believes that, even apart from this Interpretation, this language preserves the authority of the Board to require the revisions contemplated in this Interpretation.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.137/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Each participating holding company would own no more than 5 percent of the outstanding voting shares of the company. However, the investment of each holding company would be represented by a separate class of voting security, so that each stockholder would own 100 percent of its respective class. The participating companies would execute a formal “Agreement Among Stockholders” under which each would agree to use its best efforts at all times to direct or recommend to customers and clients the placement of their life, accident and health insurance directly or indirectly with the company. Such credit-related insurance placed with the company would be identified in the records of the company as having been originated by the respective stockholder. A separate capital account would be maintained for each stockholder consisting of the original capital contribution increased or decreased from time to time by the net profit or loss resulting from the insurance business attributable to each stockholder. Thus, each stockholder would receive a return on its investment based upon the claims experience and profitability of the insurance business that it had itself generated. Dividends declared by the board of directors of the company would be payable <?page num="245"?>to each stockholder only out of the earned surplus reflected in the respective stockholder's capital account. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.137/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> It has been requested that the Board issue an interpretation that section 4(c)(6) of the Act provides an exemption under which participating bank holding companies may acquire such interests in the company without prior approval of the Board. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.137/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<chapeau> On the basis of a careful review of the documents submitted, in light of the purposes and provisions of the Act, the Board has concluded that section 4(c)(6) of the Act is inapplicable to this proposal and that a bank holding company must obtain the approval of the Board before participating in such a proposal in the manner described. The Board's conclusion is based upon the following considerations: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.137/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content>
<p> Section 2(a)(2)(A) of the Act provides that a company is deemed to have control over a second company if it owns or controls “25 per centum or more of any class of voting securities” of the second company. In the case presented, the stock interest of each participant would be evidenced by a different class of stock and each would accordingly, own 100 percent of a class of voting securities of the company. Thus, each of the stockholders would be deemed to “control” the company and prior Board approval would be required for each stockholder's acquisition of stock in the company.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">The Board believes that this application of section 2(a)(2)(A) of the Act is particularly appropriate on the facts presented here. The company is, in practical effect, a conglomeration of separate business ventures each owned 100 percent by a stockholder the value of whose economic interest in the company is determined by reference to the profits and losses attributable to its respective class of stock. Furthermore, it is the Board's opinion that this application of section 2(a)(2)(A) is not inconsistent with section 4(c)(6). Even assuming that section (4)(c)(6) is intended to refer to all outstanding voting shares, and not merely the outstanding shares of a particular class of securities, section 4(c)(6) must be viewed as permitting ownership of 5 percent of a company's voting stock only when that ownership does not constitute “control” as otherwise defined in the Act. For example, it is entirely possible that a company could exercise a controlling influence over the management and policies of a second company, and thus “control” that company under the Act's definitions, even though it held less than 5 percent of the voting stock of the second company. To view section 4(c)(6) as an unqualified exemption for holdings of less than 5 percent would thus create a serious gap in the coverage of the Act. </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.137/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The Board believes that section 4(c)(6) should properly be interpreted as creating an exemption from the general prohibitions in section 4 on ownership of stock in nonbank companies only for passive investments amounting to not more than 5 percent of a company's outstanding stock, and that the exemption was not intended to allow a group of holding companies, through concerted action, to engage in an activity as entrepreneurs. Section 4 of the Act, of course, prohibits not only owning stock in nonbank companies, but engaging in activities other than banking or those activities permitted by the Board under section 4(c)(8) as being closely related to banking. Thus, if a holding company may be deemed to be engaging in an activity through the medium of a company in which it owns less than 5 percent of the voting stock it may nevertheless require Board approval, despite the section 4(c)(6) exemption. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.137/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> To accept the argument that section 4(c)(6) is an unqualified grant of permission to a bank holding company to own 5 percent of the shares of any nonbanking company irrespective of the nature or extent of the holding company's participation in the affairs of the nonbanking company would, in the Board's view, create the potential for serious and widespread evasion of the Act's controls over nonbanking activities. Such a construction would allow a group of 20 bank holding companies—or even a single bank holding company and one or more nonbank companies—to engage in entrepreneurial joint ventures in businesses prohibited to bank holding companies, a result the Board believes to be contrary to the intent of Congress.
<?page num="246"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.137/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> In this proposal, each of the participating stockholders must be viewed as engaging in the business of insurance underwriting. Each stockholder would agree to channel to the company the insurance business it generates, and the value of the interest of each stockholder would be determined by reference to the profitability of the business generated by that stockholder itself. There is no sharing or pooling among stockholders of underwriting risks assumed by the company, and profit or loss from investments is allocated on the basis of each bank holding company's allocable underwriting profit or loss. The interest of each stockholder is thus clearly that of an entrepreneur rather than that of an investor. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.137/g" style="-uslm-sgm:P">
<num value="g">(g)</num>
<content> Accordingly, on the basis of the factual situation before the Board, and for the reasons summarized above, the Board has concluded that section 4(c)(6) of the Act cannot be interpreted to exempt the ownership of 5 percent of the voting stock of a company under the circumstances described, and that a bank holding company wishing to become a stockholder in a company under this proposal would be required to obtain the Board's approval to do so.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/42/1263">42 FR 1263</ref>, <date date="1977-01-06">Jan. 6, 1977</date>; <ref href="/us/fr/42/2951">42 FR 2951</ref>, <date date="1977-01-14">Jan. 14, 1977</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.138">
<num value="225.138" style="-uslm-sgm:SECTNO">§ 225.138</num>
<heading style="-uslm-sgm:SUBJECT">Statement of policy concerning divestitures by bank holding companies. </heading>
<paragraph identifier="/us/cfr/t12/s225.138/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> From time to time the Board of Governors receives requests from companies subject to the Bank Holding Company Act, or other laws administered by the Board, to extend time periods specified either by statute or by Board order for the divestiture of assets held or activities engaged in by such companies. Such divestiture requirements may arise in a number of ways. For example, divestiture may be ordered by the Board in connection with an acquisition found to have been made in violation of law. In other cases the divestiture may be pursuant to a statutory requirement imposed at the time and amendment to the Act was adopted, or it may be required as a result of a foreclosure upon collateral held by the company or a bank subsidiary in connection with a debt previously contracted in good faith. Certain divestiture periods may be extended in the discretion of the Board, but in other cases the Board may be without statutory authority, or may have only limited authority, to extend a specified divestiture period. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.138/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> In the past, divestitures have taken many different forms, and the Board has followed a variety of procedures in enforcing divestiture requirements. Because divestitures may occur under widely disparate factual circumstances, and because such forced dispositions may have the potential for causing a serious adverse economic impact upon the divesting company, the Board believes it is important to maintain a large measure of flexibility in dealing with divestitures. For these reasons, there can be no fixed rule as to the type of divestiture that will be appropriate in all situations. For example, where divestiture has been ordered to terminate a control relationship created or maintained in violation of the Act, it may be necessary to impose conditions that will assure that the unlawful relationship has been fully terminated and that it will not arise in the future. In other circumstances, however, less stringent conditions may be appropriate. </chapeau>
<paragraph identifier="/us/cfr/t12/s225.138/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Avoidance of delays in divestitures.</heading>
<content> Where a specific time period has been fixed for accomplishing divestiture, the affected company should endeavor and should be encouraged to complete the divestiture as early as possible during the specific period. There will generally be substantial advantages to divesting companies in taking steps to plan for and accomplish divestitures well before the end of the divestiture period. For example, delays may impair the ability of the company to realize full value for the divested assets, for as the end of the divestiture period approaches the “forced sale” aspect of the divestiture may lead potential buyers to withhold firm offers and to bargain for lower prices. In addition, because some prospective purchasers may themselves require regulatory approval to acquire the divested property, delay by the divesting company may—by leaving insufficient time to obtain <?page num="247"?>such approvals—have the effect of narrowing the range of prospective purchases. Thus, delay in planning for divestiture may increase the likelihood that the company will seek an extension of the time for divestiture if difficulty is encountered in securing a purchaser, and in certain situations, of course, the Board may be without statutory authority to grant extensions. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.138/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Submissions and approval of divestiture plans.</heading>
<content> When a divestiture requirement is imposed, the company affected should generally be asked to submit a divestiture plan promptly for review and approval by the Reserve Bank or the Board. Such a requirement may be imposed pursuant to the Board's authority under section 5(b) of the Bank Holding Company Act to issue such orders as may be necessary to enable the Board to administer and carry out the purposes of the Act and prevent evasions thereof. A divestiture plan should be as specific as possible, and should indicate the manner in which divestiture will be accomplished—for example, by a bulk sale of the assets to a third party, by “spinoff” or distribution of shares to the shareholders of the divesting company, or by termination of prohibited activities. In addition, the plan should specify the steps the company expects to take in effecting the divestiture and assuring its completeness, and should indicate the time schedule for taking such steps. In appropriate circumstances, the divestiture plan should make provision for assuring that “controlling influence” relationships, such as management or financial interlocks, will not continue to exist. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.138/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Periodic progress reports.</heading>
<content> A company subject to a divestiture requirement should generally be required to submit regular periodic reports detailing the steps it has taken to effect divestiture. Such a requirement may be imposed pursuant to the Board's authority under section 5(b) of the Bank Holding Company Act, referred to above, as well as its authority under section 5(c) of the Act to require reports for the purpose of keeping the Board informed as to whether the Act and Board regulations and order thereunder are being complied with. Reports should set forth in detail such matters as the identities of potential buyers who have been approached by the company, the dates of discussions with potential buyers and the identities of the individuals involved in such discussions, the terms of any offers received, and the reasons for rejecting any offers. In addition, the reports should indicate whether the company has employed brokers, investment bankers or others to assist in the divestiture, or its reasons for not doing so, and should describe other efforts by the company to seek out possible purchasers. The purpose of requiring such reports is to insure that substantial and good faith efforts being made by the company to satisfy its divestiture obligations. The frequency of such reports may vary depending upon the nature of the divestiture and the period specified for divestiture. However, such reports should generally not be required less frequently than every three months, and may in appropriate cases be required on a monthly or even more frequent basis. Progress reports as well as divestiture plans should be afforded confidential treatment. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.138/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Extensions of divestiture periods.</heading>
<content> Certain divestiture periods—such as <date date="1980-12-31">December 31, 1980</date> deadline for divestitures required by the 1970 Amendments to the Bank Holding Company Act—are not extendable. In such cases it is imperative that divestiture be accomplished in a timely manner. In certain other cases, the Board may have discretion to extend a statutorily prescribed divestiture period within specified limits. For example, under section 4(c)(2) of the Act the Board may extend for three one-year periods the two-year period in which a bank subsidiary of a holding company is otherwise required to divest shares acquired in satisfaction of a debt previously contracted in good faith. In such cases, however, when the permissible extensions expire the Board no longer has discretion to grant further extensions. In still other cases, where a divestiture period is prescribed by the Board, in the exercise of its regulatory judgment, the Board may have broader discretion to grant extensions. Where extensions of specified divestiture periods are permitted by law, extensions should not be granted except under <?page num="248"?>compelling circumstances. Neither unfavorable market conditions, nor the possibility that the company may incur some loss, should alone be viewed as constituting such circumstances—particularly if the company has failed to take earlier steps to accomplish a divestiture under more favorable circumstances. Normally, a request for an extension will not be considered unless the company has established that it has made substantial and continued good faith efforts to accomplish the divestiture within the prescribed period. Furthermore, requests for extensions of divestiture periods must be made sufficiently in advance of the expiration of the prescribed period both to enable the Board to consider the request in an orderly manner and to enable the company to effect a timely divestiture in the event the request for extension is denied. Companies subject to divestiture requirements should be aware that a failure to accomplish a divestiture within the prescribed period may in and of itself be viewed as a separate violation of the Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.138/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Use of trustees.</heading>
<content> In appropriate cases a company subject to a divestiture requirement may be required to place the assets subject to divestiture with an independent trustee under instructions to accomplish a sale by a specified date, by public auction if necessary. Such a trustee may be given the responsibility for exercising the voting rights with respect to shares being divested. The use of such a trustee may be particularly appropriate where the divestiture is intended to terminate a control relationship established or maintained in violation of law, or where the divesting company has demonstrated an inability or unwillingness to take timely steps to effect a divestiture. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.138/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Presumptions of control.</heading>
<content> Bank holding companies contemplating a divestiture should be mindful of section 2(g)(3) of the Bank Holding Company Act, which creates a presumption of continued control over the transferred assets where the transferee is indebted to the transferor, or where certain interlocks exist, as well as <ref href="/us/cfr/t12/s225.2">§ 225.2</ref> of Regulation Y, which sets forth certain additional control presumptions. Where one of these presumptions has arisen with respect to divested assets, the divestiture will not be considered as complete until the presumption has been overcome. It should be understood that the inquiry into the termination of control relationships is not limited by the statutory and regulatory presumptions of control, and that the Board may conclude that a control relationship still exists even though the presumptions do not apply. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.138/b/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Role of the Reserve Banks.</heading>
<content> The Reserve Banks have a responsibility for supervising and enforcing divestitures. Specifically, in coordination with Board staff they should review divestiture plans to assure that proposed divestitures will result in the termination of control relationships and will not create unsafe or unsound conditions in any bank or bank holding company; they should monitor periodic progress reports to assure that timely steps are being taken to effect divestitures; and they should prompt companies to take such steps when it appears that progress is not being made. Where Reserve Banks have delegated authority to extend divestiture periods, that authority should be exercised consistently with this policy statement.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/42/10969">42 FR 10969</ref>, <date date="1977-02-25">Feb. 25, 1977</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.139">
<num value="225.139" style="-uslm-sgm:SECTNO">§ 225.139</num>
<heading style="-uslm-sgm:SUBJECT">Presumption of continued control under section 2(g)(3) of the Bank Holding Company Act. </heading>
<paragraph identifier="/us/cfr/t12/s225.139/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content>
<p> Section 2(g)(3) of the Bank Holding Company Act (the “Act”) establishes a statutory presumption that where certain specified relationships exist between a transferor and transferee of shares, the transferor (if it is a bank holding company, or a company that would be such but for the transfer) continues to own or control indirectly the transferred shares. <ref id="fnd3e15131" idref="fnd3e15143" style="-uslm-sgm:SU">1</ref> This presumption arises by operation of law, as of the date of the transfer, without the need for any order or determination by the Board. Operation of the presumption may be terminated only by the issuance of a Board determination, <?page num="249"?>after opportunity for hearing, “that the transferor is not in fact capable of controlling the transferee.” <ref id="fnd3e15137" idref="fnd3e15148" style="-uslm-sgm:SU">2</ref>
</p>
<footnote id="fnd3e15143" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15131" style="-uslm-sgm:SU">1</ref> The presumption arises where the transferee “is indebted to the transferor, or has one or more officers, directors, trustees, or beneficiaries in common with or subject to control by the transferor.”</p>
</content>
</footnote>
<footnote id="fnd3e15148" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15137" style="-uslm-sgm:SU">2</ref> The Board has delegated to its General Counsel the authority to issue such determinations, <ref href="/us/cfr/t12/s265.2/b/1">12 CFR 265.2(b)(1)</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.139/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content>
<p> The purpose of section 2(g)(3) is to provide the Board an opportunity to assess the effectiveness of divestitures in certain situations in which there may be a risk that the divestiture will not result in the complete termination of a control relationship. By presuming control to continue as a matter of law, section 2(g)(3) operates to allow the effectiveness of the divestiture to be assessed before the divesting company is permitted to act on the assumption that the divestiture is complete. Thus, for example, if a holding company divests its banking interest under circumstances where the presumption of continued control arises, the divesting company must continue to consider itself bound by the Act until an appropriate order is entered by the Board dispelling the presumption. Section 2(g)(3) does not establish a substantive rule that invalidates transfers to which it applies, and in a great many cases the Board has acted favorably on applications to have the presumption dispelled. It merely provides a procedural opportunity for Board consideration of the effect of such transfers in advance of their being deemed effective. Whether or not the statutory presumption arises, the substantive test for assessing the effectiveness of a divestiture is the same—that is, the Board must be assured that all control relationships between the transferor and the transferred property have been terminated and will not be reestablished. <ref id="fnd3e15153" idref="fnd3e15159" style="-uslm-sgm:SU">3</ref>
</p>
<footnote id="fnd3e15159" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15153" style="-uslm-sgm:SU">3</ref> It should be noted, however, that the Board will require termination of any interlocking management relationships between the divesting company and the transferee or the divested company as a precondition of finding that a divestiture is complete. Similarly, the retention of an economic interest in the divested company that would create an incentive for the divesting company to attempt to influence the management of the divested company will preclude a finding that the divestiture is complete. (See the Board's Order in the matter of “International Bank”, 1977 Federal Reserve Bulletin 1106, 1113.)</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.139/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<chapeau> In the course of administering section 2(g)(3) the Board has had several occasions to consider the scope of that section. In addition, questions have been raised by and with the Board's staff as to coverage of the section. Accordingly, the Board believes it would be useful to set forth the following interpretations of section 2(g)(3): </chapeau>
<paragraph identifier="/us/cfr/t12/s225.139/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">transferor</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">transferee,</inline> as used in section 2(g)(3), include parents and subsidiaries of each. Thus, for example, where a transferee is indebted to a subsidiary of the transferor, or where a specified interlocking relationship exists between the transferor or transferee and a subsidiary of the other (or between subsidiaries of each), the presumption arises. Similarly, if a parent of the transferee is indebted to a parent of the transferor, the presumption arises. The presumption of continued control also arises where an interlock or debt relationship is retained between the divesting company and the company being divested, since the divested company will be or may be viewed as a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">subsidiary</inline> of the transferee or group of transferees. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.139/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> The terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">officers, directors,</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">trustees,</inline> as used in section 2(g)(3), include persons performing functions normally associated with such positions (including general partners in a partnership and limited partners having a right to participate in the management of the affairs of the partnership) as well as persons holding such positions in an advisory or honorary capacity. The presumption arises not only where the transferee or transferred company has an officer, director or trustee <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in common with</inline> the transferor, but where the transferee himself holds such a position with the transferor. <ref id="fnd3e15186" idref="fnd3e15208" style="-uslm-sgm:SU">4</ref> It should be noted that where a <?page num="250"?>transfer takes the form of a pro-rata distribution, or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">spin-off,</inline> of shares to a company's shareholders, officers and directors of the transferor company are likely to receive a portion of such shares. The presumption of continued control would, of course, attach to any shares transferred to officers and directors of the divesting company, whether by <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">spinoff</inline> or outright sale. However, the presumption will be of legal significance—and will thus require an application under section 2(g)(3)—only where the total number of shares subject to the presumption exceeds one of the applicable thresholds in the Act. For example, where officers and directors of a one-bank holding company receive in the aggregate 25 percent or more of the stock of a bank subsidiary being divested by the holding company, the holding company would be presumed to continue to control the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">divested</inline> bank. In such a case it would be necessary for the divesting company to demonstrate that it no longer controls either the divested bank or the officer/director transferees. However, if officers and directors were to receive in the aggregate less than 25 percent of the bank's stock (and no other shares were subject to the presumption), section 2(g)(3) would not have the legal effect of presuming continued control of the bank. <ref id="fnd3e15202" idref="fnd3e15222" style="-uslm-sgm:SU">5</ref> In the case of a divestiture of nonbank shares, an application under section 2(g)(3) would be required whenever officers and directors of the divesting company received in the aggregate more than 5 percent of the shares of the company being divested. </p>
<footnote id="fnd3e15208" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15186" style="-uslm-sgm:SU">4</ref> It has been suggested that the words <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in common with</inline> in section 2(g)(3) evidence an intent to make the presumption applicable only where the transferee is a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">company</inline> having an interlock with the transferor. Such an interpretation would, in the Board's view, create an unwarranted gap in the coverage of section 2(g)(3). Furthermore, because the presumption clearly arises where the transferee is an individual who is indebted to the <?page num=""?>transferor such an interpretation would result in an illogical internal inconsistency in the statute.</p>
</content>
</footnote>
<footnote id="fnd3e15222" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15202" style="-uslm-sgm:SU">5</ref> Of course, the fact that section 2(g)(3) would not operate to presume continued control would not necessarily mean that control had in fact been terminated if control could be exercised through other means.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.139/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Although section 2(g)(3) refers to transfers of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">shares</inline> it is not, in the Board's view, limited to disposition of corporate stock. General or limited partnership interests, for example, are included within the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">shares.</inline> Furthermore, the transfer of all or substantially all of the assets of a company, or the transfer of such a significant volume of assets that the transfer may in effect constitute the disposition of a separate activity of the company, is deemed by the Board to involve a transfer of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">shares</inline> of that company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.139/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">indebtedness</inline> giving rise to the presumption of continued control under section 2(g)(3) of the Act is not limited to debt incurred in connection with the transfer; it includes any debt outstanding at the time of transfer from the transferee to the transferor or its subsidiaries. However, the Board believes that not every kind of indebtedness was within the contemplation of the Congress when section 2(g)(3) was adopted. Routine business credit of limited amounts and loans for personal or household purposes are generally not the kinds of indebtedness that, standing alone, support a presumption that the creditor is able to control the debtor. Accordingly, the Board does not regard the presumption of section 2(g)(3) as applicable to the following categories of credit, provided the extensions of credit are not secured by the transferred property and are made in the ordinary course of business of the transferor (or its subsidiary) that is regularly engaged in the business of extending credit:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.139/c/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Consumer credit extended for personal or household use to an individual transferee; (ii) student loans made for the education of the individual transferee or a spouse or child of the transferee; (iii) a home mortgage loan made to an individual transferee for the purchase of a residence for the individual's personal use and secured by the residence; and (iv) loans made to companies (as defined in section 2(b) of the Act) in an aggregate amount not exceeding ten per cent of the total purchase price (or if not sold, the fair market value) of the transferred property. The amounts and terms of the preceding categories of credit should not differ substantially from similar credit extended in comparable circumstances to others who are not transferees. It should be understood that, while the statutory presumption in situations involving these categories of credit may not apply, the Board is not precluded in any case from examining the facts of a particular transfer and finding that <?page num="251"?>the divestiture of control was ineffective based on the facts of record.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.139/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content>
<p> Section 2(g)(3) provides that a Board determination that a transferor is not in fact capable of controlling a transferee shall be made after opportunity for hearing. It has been the Board's routine practice since 1966 to publish notice in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> of applications filed under section 2(g)(3) and to offer interested parties an opportunity for a hearing. Virtually without exception no comments have been submitted on such applications by parties other than the applicant and, with the exception of one case in which the request was later withdrawn, no hearings have been requested in such cases. Because the Board believes that the hearing provision in section 2(g)(3) was intended as a protection for applicants who are seeking to have the presumption overcome by a Board order, a hearing would not be of use where an application is to be granted. In light of the experience indicating that the publication of <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> notice of such applications has not served a useful purpose, the Board has decided to alter its procedures in such cases. In the future, <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> notice of section 2(g)(3) applications will be published only in cases in which the Board's General Counsel, acting under delegated authority, has determined not to grant such an application and has referred the matter to the Board for decision. <ref id="fnd3e15256" idref="fnd3e15261" style="-uslm-sgm:SU">6</ref>
</p>
<footnote id="fnd3e15261" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15256" style="-uslm-sgm:SU">6</ref> It should be noted that in the event a third party should take exception to a Board order under section 2(g)(3) finding that control has been terminated, any rights such party might have would not be prejudiced by the order. If such party brought facts to the Board's attention indicating that control had not been terminated the Board would have ample authority to revoke its order and take necessary remedial action. </p>
<p style="-uslm-sgm:P">Orders issued under section 2(g)(3) are published in the Federal Reserve “Bulletin.”</p>
</content>
</footnote>
</content>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(<ref href="/us/usc/t12/s1841">12 U.S.C. 1841</ref>, 1844)</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/43/6214">43 FR 6214</ref>, <date date="1978-02-14">Feb. 14, 1978</date>; <ref href="/us/fr/43/15147">43 FR 15147</ref>, <date date="1978-04-11">Apr. 11, 1978</date>; <ref href="/us/fr/43/15321">43 FR 15321</ref>, <date date="1978-04-12">Apr. 12, 1978</date>, as amended at <ref href="/us/fr/45/8280">45 FR 8280</ref>, <date date="1980-02-07" role="amended">Feb. 7, 1980</date>; <ref href="/us/fr/45/11125">45 FR 11125</ref>, <date date="1980-02-20" role="amended">Feb. 20, 1980</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.140">
<num value="225.140" style="-uslm-sgm:SECTNO">§ 225.140</num>
<heading style="-uslm-sgm:SUBJECT">Disposition of property acquired in satisfaction of debts previously contracted.</heading>
<paragraph identifier="/us/cfr/t12/s225.140/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> The Board recently considered the permissibility, under section 4 of the Bank Holding Company Act, of a subsidiary of a bank holding company acquiring and holding assets acquired in satisfaction of a debt previously contracted in good faith (a “dpc” acquisition). In the situation presented, a lending subsidiary of a bank holding company made a “dpc” acquisition of assets and transferred them to a wholly-owned subsidiary of the bank holding company for the purpose of effecting an orderly divestiture. The question presented was whether such “dpc” assets could be held indefinitely by a bank holding company subsidiary as incidental to its permissible lending activity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.140/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> While the Board believes that “dpc” acquisitions may be regarded as normal, necessary and incidental to the business of lending, the Board does not believe that the holding of assets acquired “dpc” without any time restrictions is appropriate from the standpoint of prudent banking and in light of the prohibitions in section 4 of the Act against engaging in nonbank activities. If a nonbanking subsidiary of a bank holding company were permitted, either directly or through a subsidiary, to hold “dpc” assets of substantial amount over an extended period of time, the holding of such property could result in an unsafe or unsound banking practice or in the holding company engaging in an impermissible activity in connection with the assets, rather than liquidating them.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.140/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content>
<p> The Board notes that section 4(c)(2) of the Bank Holding Company Act provides an exemption from the prohibitions of section 4 of the Act for bank holding company subsidiaries to acquire <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">shares</inline> “dpc”. It also provides that such “dpc” shares may be held for a period of two years, subject to the Board's authority to grant three one-year extensions up to a maximum of five years. <ref id="fnd3e15284" idref="fnd3e15295" style="-uslm-sgm:SU">1</ref> Viewed in light of the Congressional policy evidenced by section <?page num="252"?>4(c)(2), the Board believes that a lending subsidiary of a bank holding company or the holding company itself, should be permitted, as an incident to permissible lending activities, to make acquisitions of “dpc” <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">assets.</inline> Consistent with the principles underlying the provisions of section 4(c)(2) of the Act and as a matter of prudent banking practice, such assets may be held for no longer than five years from the date of acquisition. Within the divestiture period it is expected that the company will make good faith efforts to dispose of “dpc” shares or assets at the earliest practicable date. While no specific authorization is necessary to hold such assets for the five-year period, after two years from the date of acquisition of such assets, the holding company should report annually on its efforts to accomplish divestiture to its Reserve Bank. The Reserve Bank will monitor the efforts of the company to effect an orderly divestiture, and may order divestiture before the end of the five-year period if supervisory concerns warrant such action.</p>
<footnote id="fnd3e15295" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15284" style="-uslm-sgm:SU">1</ref> The Board notes that where the dpc shares or other similar interests represent <?page num=""?>less than 5 percent of the total of such interests outstanding, they may be retained on the basis of section 4(c)(6), even if originally acquired dpc.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.140/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content> The Board recognizes that there are instances where a company may encounter particular difficulty in attempting to effect an orderly divestiture of “dpc” real estate holdings within the divestiture period, notwithstanding its persistent good faith efforts to dispose of such property. In the Depository Institutions Deregulation and Monetary Control Act of 1980, (<ref href="/us/pl/96/221">Pub. L. 96–221</ref>) Congress, recognizing that real estate possesses unusual characteristics, amended the National Banking Act to permit national banks to hold real estate for five years and for an additional five-year period subject to certain conditions. Consistent with the policy underlying the recent Congressional enactment, and as a matter of supervisory policy, a bank holding company may be permitted to hold real estate acquired “dpc” beyond the initial five-year period provided that the value of the real estate on the books of the company has been written down to fair market value, the carrying costs are not significant in relation to the overall financial position of the company, and the company has made good faith efforts to effect divestiture. Companies holding real estate for this extended period are expected to make active efforts to dispose of it, and should keep the Reserve Bank advised on a regular basis concerning their ongoing efforts. Fair market value should be derived from appraisals, comparable sales or some other reasonable method. In any case, “dpc” real estate would not be permitted to be held beyond 10 years from the date of its acquisition.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.140/e" style="-uslm-sgm:P">
<num value="e">(e)</num>
<content> With respect to the transfer by a subsidiary of other “dpc” shares or assets to another company in the holding company system, including a section 4(c)(1)(D) liquidating subsidiary, or to the holding company itself, such transfers would not alter the original divestiture period applicable to such shares or assets at the time of their acquisition. Moreover, to ensure that assets are not carried at inflated values for extended periods of time, the Board expects, in the case of all such intracompany transfers, that the shares or assets will be transferred at a value no greater than the fair market value at the time of transfer and that the transfer will be made in a normal arms-length transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.140/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> With regard to “dpc” assets acquired by a banking subsidiary of a holding company, so long as the assets continue to be held by the bank itself, the Board will regard them as being solely within the regulatory authority of the primary supervisor of the bank. </content>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref> (c)(1)(d), (c)(2), (c)(8), and 1844 (b); <ref href="/us/usc/t12/s1818">12 U.S.C. 1818</ref>)</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/45/49905">45 FR 49905</ref>, <date date="1980-07-28">July 28, 1980</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.141">
<num value="225.141" style="-uslm-sgm:SECTNO">§ 225.141 </num>
<heading style="-uslm-sgm:SUBJECT">Operations subsidiaries of a bank holding company. </heading>
<content>
<p style="-uslm-sgm:P">In orders approving the retention by a bank holding company of a 4(c)(8) subsidiary, the Board has stated that it would permit, without any specific regulatory approval, the formation of a wholly owned subsidiary of an approved 4(c)(8) company to engage in activities that such a company could itself engage in directly through a division or department. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Northwestern Financial Corporation,</inline> 65 Federal Reserve Bulletin 566 (1979).) Section 4(a)(2) of <?page num="253"?>the Act provides generally that a bank holding company may engage directly in the business of managing and controlling banks and permissible nonbank activities, and in furnishing services directly to its subsidiaries. Even though section 4 of the Act generally prohibits the acquisition of shares of nonbanking organizations, the Board does not believe that such prohibition should apply to the formation by a holding company of a wholly-owned subsidiary to engage in activities that it could engage in directly. Accordingly, as a general matter, the Board will permit without any regulatory approval a bank holding company to form a wholly-owned subsidiary to perform servicing activities for subsidiaries that the holding company itself could perform directly or through a department or a division under section 4(a)(2) of the Act. The Board believes that permitting this type of subsidiary is not inconsistent with the nonbanking prohibitions of section 4 of the Act, and is consistent with the authority in section 4(c)(1)(C) of the Act, which permits a bank holding company, without regulatory approval, to form a subsidiary to perform services for its <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking</inline> subsidiaries. The Board notes, however, that a servicing subsidiary established by a bank holding company in reliance on this interpretation will be an affiliate of the subsidiary bank of the holding company for the purposes of the lending restrictions of section 23A of the Federal Reserve Act. (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref>)</p>
<authority style="-uslm-sgm:SECAUTH">(<ref href="/us/usc/t12/s1843/a/2">12 U.S.C. 1843(a)(2)</ref> and 1844(b))</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/45/54326">45 FR 54326</ref>, <date date="1980-07-15">July 15, 1980</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.142">
<num value="225.142" style="-uslm-sgm:SECTNO">§ 225.142 </num>
<heading style="-uslm-sgm:SUBJECT">Statement of policy concerning bank holding companies engaging in futures, forward and options contracts on U.S. Government and agency securities and money market instruments.</heading>
<paragraph identifier="/us/cfr/t12/s225.142/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Purpose of financial contract positions.</heading>
<content> In supervising the activities of bank holding companies, the Board has adopted and continues to follow the principle that bank holding companies should serve as a source of strength for their subsidiary banks. Accordingly, the Board believes that any positions that bank holding companies or their nonbank subsidiaries take in financial contracts should reduce risk exposure, that is, not be speculative. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.142/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Establishment of prudent written policies, appropriate limitations and internal controls and audit programs.</heading>
<content> If the parent organization or nonbank subsidiary is taking or intends to take positions in financial contracts, that company's board of directors should approve prudent written policies and establish appropriate limitations to insure that financial contract activities are performed in a safe and sound manner with levels of activity reasonably related to the organization's business needs and capacity to fulfill obligations. In addition, internal controls and internal audit programs to monitor such activity should be established. The board of directors, a duly authorized committee thereof or the internal auditors should review periodically (at least monthly) all financial contract positions to insure conformity with such policies and limits. In order to determine the company's exposure, all open positions should be reviewed and market values determined at least monthly, or more often, depending on volume and magnitude of positions. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.142/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Formulating policies and recording financial contracts.</heading>
<content> In formulating its policies and procedures, the parent holding company may consider the interest rate exposure of its nonbank subsidiaries, but not that of its bank subsidiaries. As a matter of policy, the Board believes that any financial contracts executed to reduce the interest rate exposure of a bank affiliate of a holding company should be reflected on the books and records of the bank affiliate (to the extent required by the bank policy statements), rather than on the books and records of the parent company. If a bank has an interest rate exposure that management believes requires hedging with financial contracts, the bank should be the direct beneficiary of any effort to reduce that exposure. The Board also believes that final responsibility for financial contract transactions for the account of each affiliated bank should reside with the management of that bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.142/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Accounting.</heading>
<content> The joint bank policy statements of <date date="1980-03-12">March 12, 1980</date> include accounting guidelines for banks that <?page num="254"?>engage in financial contract activities. Since the Financial Accounting Standards Board is presently considering accounting standards for contract activities, no specific accounting requirements for financial contracts entered into by parent bank holding companies and nonbank subsidiaries are being mandated at this time. The Board expects to review further developments in this area.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.142/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Board to monitor bank holding company transactions in financial contracts.</heading>
<content> The Board intends to monitor closely bank holding company transactions in financial contracts to ensure that any such activity is consistent with maintaining a safe and sound banking system. In any cases where bank holding companies are found to be engaging in speculative practices, the Board is prepared to institute appropriate action under the Financial Institutions Supervisory Act of 1966, as amended.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.142/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Federal Reserve Bank notification.</heading>
<content> Bank holding companies should furnish written notification to their District Federal Reserve Bank within 10 days after financial contract activities are begun by the parent or a nonbank subsidiary. Holding companies in which the parent or a nonbank subsidiary currently engage in financial contract activity should furnish notice by <date date="1983-03-31">March 31, 1983</date>.</content>
</paragraph>
<authority style="-uslm-sgm:SECAUTH">(Secs. 5(b) and 8 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1844">12 U.S.C. 1844</ref> and 1847); sec. 8(b) of the Financial Institutions Supervisory Act (<ref href="/us/usc/t12/s1818/b">12 U.S.C. 1818(b)</ref>)</authority>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/48/7720">48 FR 7720</ref>, <date date="1983-02-24">Feb. 24, 1983</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.143">
<num value="225.143" style="-uslm-sgm:SECTNO">§ 225.143</num>
<heading style="-uslm-sgm:SUBJECT">Policy statement on nonvoting equity investments by bank holding companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.143/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Introduction.</heading>
<paragraph identifier="/us/cfr/t12/s225.143/a/1" class="inline">
<num value="1"> (1)</num>
<content> In recent months, a number of bank holding companies have made substantial equity investments in a bank or bank holding company (the “acquiree”) located in states other than the home state of the investing company through acquisition of preferred stock or nonvoting common shares of the acquiree. Because of the evident interest in these types of investments and because they raise substantial questions under the Bank Holding Company Act (the “Act”), the Board believes it is appropriate to provide guidance regarding the consistency of such arrangements with the Act.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> This statement sets out the Board's concerns with these investments, the considerations the Board will take into account in determining whether the investments are consistent with the Act, and the general scope of arrangements to be avoided by bank holding companies. The Board recognizes that the complexity of legitimate business arrangements precludes rigid rules designed to cover all situations and that decisions regarding the existence or absence of control in any particular case must take into account the effect of the combination of provisions and covenants in the agreement as a whole and the particular facts and circumstances of each case. Nevertheless, the Board believes that the factors outlined in this statement provide a framework for guiding bank holding companies in complying with the requirements of the Act.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Statutory and regulatory provisions.</heading>
<paragraph identifier="/us/cfr/t12/s225.143/b/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Under section 3(a) of the Act, a bank holding company may not acquire direct or indirect ownership or control of more than 5 per cent of the voting shares of a bank without the Board's prior approval. (<ref href="/us/usc/t12/s1842/a/3">12 U.S.C. 1842(a)(3)</ref>). In addition, this section of the Act provides that a bank holding company may not, without the Board's prior approval, acquire control of a bank: That is, in the words of the statute, “for any action to be taken that causes a bank to become a subsidiary of a bank holding company.” (<ref href="/us/usc/t12/s1842/a/2">12 U.S.C. 1842(a)(2)</ref>). Under the Act, a bank is a subsidiary of a bank holding company if:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.143/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The company directly or indirectly owns, controls, or holds with power to vote 25 per cent or more of the voting shares of the bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The company controls in any manner the election of a majority of the board of directors of the bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The Board determines, after notice and opportunity for hearing, that the company has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the bank. (<ref href="/us/usc/t12/s1841/d">12 U.S.C. 1841(d)</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In intrastate situations, the Board may approve bank holding company acquisitions of additional banking subsidiaries. However, where the acquiree <?page num="255"?>is located outside the home state of the investing bank holding company, section 3(d) of the Act prevents the Board from approving any application that will permit a bank holding company to “acquire, directly or indirectly, any voting shares of, interest in, or all or substantially all of the assets of any additional bank.” (<ref href="/us/usc/t12/s1842/d/1">12 U.S.C. 1842(d)(1)</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Review of agreements.</heading>
<paragraph identifier="/us/cfr/t12/s225.143/c/1" class="inline">
<num value="1"> (1)</num>
<chapeau> In apparent expectation of statutory changes that might make interstate banking permissible, bank holding companies have sought to make substantial equity investments in other bank holding companies across state lines, but without obtaining more than 5 per cent of the voting shares or control of the acquiree. These investments involve a combination of the following arrangements:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.143/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Options on, warrants for, or rights to convert nonvoting shares into substantial blocks of voting securities of the acquiree bank holding company or its subsidiary bank(s);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Merger or asset acquisition agreements with the out-of-state bank or bank holding company that are to be consummated in the event interstate banking is permitted;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Provisions that limit or restrict major policies, operations or decisions of the acquiree; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content>
<p> Provisions that make acquisition of the acquiree or its subsidiary bank(s) by a third party either impossible or economically impracticable.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">The various warrants, options, and rights are not exercisable by the investing bank holding company unless interstate banking is permitted, but may be transferred by the investor either immediately or after the passage of a period of time or upon the occurrence of certain events.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> After a careful review of a number of these agreements, the Board believes that investments in nonvoting stock, absent other arrangements, can be consistent with the Act. Some of the agreements reviewed appear consistent with the Act since they are limited to investments of relatively moderate size in nonvoting equity that may become voting equity only if interstate banking is authorized.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> However, other agreements reviewed by the Board raise substantial problems of consistency with the control provisions of the Act because the investors, uncertain whether or when interstate banking may be authorized, have evidently sought to assure the soundness of their investments, prevent takeovers by others, and allow for sale of their options, warrants, or rights to a person of the investor's choice in the event a third party obtains control of the acquiree or the investor otherwise becomes dissatisfied with its investment. Since the Act precludes the investors from protecting their investments through ownership or use of voting shares or other exercise of control, the investors have substituted contractual agreements for rights normally achieved through voting shares.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> For example, various covenants in certain of the agreements seek to assure the continuing soundness of the investment by substantially limiting the discretion of the acquiree's management over major policies and decisions, including restrictions on entering into new banking activities without the investor's approval and requirements for extensive consultations with the investor on financial matters. By their terms, these covenants suggest control by the investing company over the management and policies of the acquiree.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Similarly, certain of the agreements deprive the acquiree bank holding company, by covenant or because of an option, of the right to sell, transfer, or encumber a majority or all of the voting shares of its subsidiary bank(s) with the aim of maintaining the integrity of the investment and preventing takeovers by others. These long-term restrictions on voting shares fall within the presumption in the Board's Regulation Y that attributes control of shares to any company that enters into any agreement placing long-term restrictions on the rights of a holder of voting securities. (<ref href="/us/cfr/t12/s225.2/b/4">12 CFR 225.2(b)(4)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/c/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content>
<p> Finally, investors wish to reserve the right to sell their options, warrants or rights to a person of their choice to prevent being locked into what may become an unwanted investment. The Board has taken the position that the <?page num="256"?>ability to control the ultimate disposition of voting shares to a person of the investor's choice and to secure the economic benefits therefrom indicates control of the shares under the Act. <ref id="fnd3e15426" idref="fnd3e15432" style="-uslm-sgm:SU">1</ref> Moreover, the ability to transfer rights to large blocks of voting shares, even if nonvoting in the hands of the investing company, may result in such a substantial position of leverage over the management of the acquiree as to involve a structure that inevitably results in control prohibited by the Act.</p>
<footnote id="fnd3e15432" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15426" style="-uslm-sgm:SU">1</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Board letter dated <date date="1982-03-18">March 18, 1982</date>, to C. A. Cavendes, Sociedad Financiera.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Provisions that avoid control.</heading>
<paragraph identifier="/us/cfr/t12/s225.143/d/1" class="inline">
<num value="1"> (1)</num>
<content> In the context of any particular agreement, provisions of the type described above may be acceptable if combined with other provisions that serve to preclude control. The Board believes that such agreements will not be consistent with the Act unless provisions are included that will preserve management's discretion over the policies and decisions of the acquiree and avoid control of voting shares. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> As a first step towards avoiding control, covenants in any agreement should leave management free to conduct banking and permissible nonbanking activities. Another step to avoid control is the right of the acquiree to “call” the equity investment and options or warrants to assure that covenants that may become inhibiting can be avoided by the acquiree. This right makes such investments or agreements more like a loan in which the borrower has a right to escape covenants and avoid the lender's influence by prepaying the loan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A measure to avoid problems of control arising through the investor's control over the ultimate disposition of rights to substantial amounts of voting shares of the acquiree would be a provision granting the acquiree a right of first refusal before warrants, options or other rights may be sold and requiring a public and dispersed distribution of these rights if the right of first refusal is not exercised. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> In this connection, the Board believes that agreements that involve rights to less than 25 percent of the voting shares, with a requirement for a dispersed public distribution in the event of sale, have a much greater prospect of achieving consistency with the Act than agreements involving a greater percentage. This guideline is drawn by analogy from the provision in the Act that ownership of 25 percent or more of the voting securities of a bank constitutes control of the bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The Board expects that one effect of this guideline would be to hold down the size of the nonvoting equity investment by the investing company relative to the acquiree's total equity, thus avoiding the potential for control because the investor holds a very large proportion of the acquiree's total equity. Observance of the 25 percent guideline will also make provisions in agreements providing for a right of first refusal or a public and widely dispersed offering of rights to the acquiree's shares more practical and realistic. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<chapeau> Finally, certain arrangements should clearly be avoided regardless of other provisions in the agreement that are designed to avoid control. These are:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.143/d/6/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Agreements that enable the investing bank holding company (or its designee) to direct in any manner the voting of more than 5 per cent of the voting shares of the acquiree;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Agreements whereby the investing company has the right to direct the acquiree's use of the proceeds of an equity investment by the investing company to effect certain actions, such as the purchase and redemption of the acquiree's voting shares; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/d/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The acquisition of more than 5 per cent of the voting shares of the acquiree that “simultaneously” with their acquisition by the investing company become nonvoting shares, remain nonvoting shares while held by the investor, and revert to voting shares when transferred to a third party.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.143/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Review by the Board.</heading>
<content> This statement does not constitute the exclusive scope of the Board's concerns, nor are the considerations with respect to control outlined in this statement an exhaustive catalog of permissible or impermissible arrangements. The Board has instructed its staff to review agreements of the kind discussed in this statement and to bring to the Board's attention those that raise problems of <?page num="257"?>consistency with the Act. In this regard, companies are requested to notify the Board of the terms of such proposed merger or asset acquisition agreements or nonvoting equity investments prior to their execution or consummation.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/47/30966">47 FR 30966</ref>, <date date="1982-07-16">July 16, 1982</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.145">
<num value="225.145" style="-uslm-sgm:SECTNO">§ 225.145</num>
<heading style="-uslm-sgm:SUBJECT">Limitations established by the Competitive Equality Banking Act of 1987 on the activities and growth of nonbank banks.</heading>
<paragraph identifier="/us/cfr/t12/s225.145/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Introduction.</heading>
<content>
<p> Effective <date date="1987-08-10">August 10, 1987</date>, the Competitive Equality Banking Act of 1987 (“CEBA”) redefined the term “bank” in the Bank Holding Company Act (“BHC Act” or “Act”) to include any bank the deposits of which are insured by the Federal Deposit Insurance Corporation as well as any other institution that accepts demand or checkable deposit accounts and is engaged in the business of making commercial loans. <ref href="/us/usc/t12/s1841/c">12 U.S.C. 1841(c)</ref>. CEBA also contained a grandfather provision for certain companies affected by this redefinition. CEBA amended section 4 of the BHC Act to permit a company that on <date date="1987-03-05">March 5, 1987</date>, controlled a nonbank bank (an institution that became a bank as a result of enactment of CEBA) and that was not a bank holding company on <date date="1987-08-09">August 9, 1987</date>, to retain its nonbank bank and not be treated as a bank holding company for purposes of the BHC Act if the company and its subsidiary nonbank bank observe certain limitations imposed by CEBA. <ref id="fnd3e15480" idref="fnd3e15490" style="-uslm-sgm:SU">1</ref> Certain of these limitations are codified in section 4(f)(3) of the BHC Act and generally restrict nonbank banks from commencing new activities or certain cross-marketing activities with affiliates after <date date="1987-03-05">March 5, 1987</date>, or permitting overdrafts for affiliates or incurring overdrafts on behalf of affiliates at a Federal Reserve Bank. <ref href="/us/usc/t12/s1843/f/3">12 U.S.C. 1843(f)(3)</ref>. <ref id="fnd3e15484" idref="fnd3e15498" style="-uslm-sgm:SU">2</ref> The Board's views regarding the meaning and scope of these limitations are set forth below and in provisions of the Board's Regulation Y (<ref href="/us/cfr/t12/s225.52">12 CFR 225.52</ref>).</p>
<footnote id="fnd3e15490" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15480" style="-uslm-sgm:SU">1</ref> <ref href="/us/usc/t12/s1843/f">12 U.S.C. 1843(f)</ref>. Such a company is treated as a bank holding company, however, for purposes of the anti-tying provisions in section 106 of the BHC Act Amendments of 1970 (<ref href="/us/usc/t12/s1971">12 U.S.C. 1971</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) and the insider lending limitations of section 22(h) of the Federal Reserve Act (<ref href="/us/usc/t12/s375b">12 U.S.C. 375b</ref>). The company is also subject to certain examination and enforcement provisions to assure compliance with CEBA.</p>
</content>
</footnote>
<footnote id="fnd3e15498" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15484" style="-uslm-sgm:SU">2</ref> CEBA also prohibits, with certain limited exceptions, a company controlling a grandfathered nonbank bank from acquiring control of an additional bank or thrift institution or acquiring, directly or indirectly after <date date="1987-03-05">March 5, 1987</date>, more than 5 percent of the assets or shares of a bank or thrift institution. <ref href="/us/usc/t12/s1843/f/2">12 U.S.C. 1843(f)(2)</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Congressional findings.</heading>
<paragraph identifier="/us/cfr/t12/s225.145/b/1" class="inline">
<num value="1"> (1)</num>
<content> At the outset, the Board notes that the scope and application of the Act's limitations on nonbank banks must be guided by the Congressional findings set out in section 4(f)(3) of the BHC Act. Congress was aware that these nonbank banks had been acquired by companies that engage in a wide range of nonbanking activities, such as retailing and general securities activities that are forbidden to bank holding companies under section 4 of the BHC Act. In section 4(f)(3), Congress found that nonbank banks controlled by grandfathered nonbanking companies may, because of their relationships with affiliates, be involved in conflicts of interest, concentration of resources, or other effects adverse to bank safety and soundness. Congress also found that nonbank banks may be able to compete unfairly against banks controlled by bank holding companies by combining banking services with financial services not permissible for bank holding companies. Section 4(f)(3) states that the purpose of the nonbank bank limitations is to minimize any such potential adverse effects or inequities by restricting the activities of nonbank banks until further Congressional action in the area of bank powers could be undertaken. Similarly, the Senate Report accompanying CEBA states that the restrictions CEBA places on nonbank banks “will help prevent existing nonbank banks from changing their basic character * * * while Congress considers proposals for comprehensive legislation; from drastically eroding the separation of banking and commerce; and from increasing the potential for unfair competition, conflicts of interest, undue concentration of resources, and other adverse effects.” S. <?page num="258"?>Rep. No. 100–19, 100th Cong., 1st Sess. 12 (1987). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> H. Rep. No. 100–261, 100th Cong., 1st Sess. 124 (1987) (the “Conference Report”).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Thus, Congress explicitly recognized in the statute itself that nonbanking companies controlling grandfathered nonbank banks, which include the many of the nation's largest commercial and financial organizations, were being accorded a significant competitive advantage that could not be matched by bank holding companies because of the general prohibition against nonbanking activities in section 4 of the BHC Act. Congress recognized that this inequality in regulatory approach could inflict serious competitive harm on regulated bank holding companies as the grandfathered entities sought to exploit potential synergies between banking and commercial products and services. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Conference Report at 125–126. The basic and stated purpose of the restrictions on grandfathered nonbank banks is to minimize these potential anticompetitive effects.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> The Board believes that the specific CEBA limitations should be implemented in light of these Congressional findings and the legislative intent reflected in the plain meaning of the terms used in the statute. In those instances when the language of the statute did not provide clear guidance, legislative materials and the Congressional intent manifested in the overall statutory structure were considered. The Board also notes that prior precedent requires that grandfather exceptions in the BHC Act, such as the nonbank bank limitations and particularly the exceptions thereto, are to be interpreted narrowly in order to ensure the proper implementation of Congressional intent. <ref id="fnd3e15518" idref="fnd3e15523" style="-uslm-sgm:SU">3</ref>
</p>
<footnote id="fnd3e15523" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15518" style="-uslm-sgm:SU">3</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.g., Maryland National Corporation,</inline> 73 Federal Reserve Bulletin 310, 313–314 (1987). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cf., Spokane &amp; Inland Empire Railroad Co.</inline> v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">United States,</inline> 241 U.S. 344, 350 (1915).</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Activity limitation—</heading>
<paragraph identifier="/us/cfr/t12/s225.145/c/1" class="inline">
<num value="1">(1) </num>
<heading>Scope of activity.</heading>
<paragraph identifier="/us/cfr/t12/s225.145/c/1/i" class="inline">
<num value="i"> (i)</num>
<content> The first limitation established under section 4(f)(3) provides that a nonbank bank shall not “engage in any activity in which such bank was not lawfully engaged as of <date date="1987-03-05">March 5, 1987</date>.” The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">activity</inline> as used in this provision of CEBA is not defined. The structure and placement of the CEBA activity restriction within section 4 of the BHC Act and its legislative history do, however, provide direction as to certain transactions that Congress intended to treat as separate activities, thereby providing guidance as to the meaning Congress intended to ascribe to the term generally. First, it is clear that the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">activity</inline> was not meant to refer to banking as a single activity. To the contrary, the term must be viewed as distinguishing between deposit taking and lending activities and treating demand deposit-taking as a separate activity from general deposit-taking and commercial lending as separate from the general lending category.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> Under the activity limitation, a nonbank bank may engage only in activities in which it was “lawfully engaged” as of <date date="1987-03-05">March 5, 1987</date>. As of that date, a nonbank bank could not have been engaged in both demand deposit-taking and commercial lending activity without placing it and its parent holding company in violation of the BHC Act. Thus, under the activity limitations, a nonbank bank could not after <date date="1987-03-05">March 5, 1987</date>, commence the demand deposit-taking or commercial lending activity that it did not conduct as of <date date="1987-03-05">March 5, 1987</date>. The debates and Senate and Conference Reports on CEBA confirm that Congress intended the activity limitation to prevent a grandfathered nonbank bank from converting itself into a full-service bank by both offering demand deposits and engaging in the business of making commercial loans. <ref id="fnd3e15551" idref="fnd3e15558" style="-uslm-sgm:SU">4</ref> Thus, these types of transactions provide a clear guide as to the type of banking transactions that would constitute activities under CEBA and the degree of specificity intended by Congress in interpreting that term.</p>
<footnote id="fnd3e15558" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15551" style="-uslm-sgm:SU">4</ref> Conference Report at 124–25; S. Rep. No. 100–19 at 12, 32; H. Rep. No. 99–175, 99th Cong., 1st Sess. 3 (1985) (“the activities limitation is to prevent an institution engaged in a limited range of functions from expanding into new areas and becoming, in essence, a full-service bank”); 133 Cong. Rec. S4054 (daily ed. <date date="1987-03-27">March 27, 1987</date>); (Comments of Senator Proxmire).</p>
</content>
</footnote>
<?page num="259"?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content>
<p> It is also clear that the activity limitation was not intended simply to prevent a nonbank bank from both accepting demand deposits and making commercial loans; it has a broader scope and purpose. If Congress had meant the term to refer to just these two activities, it would have used the restriction it used in another section of CEBA dealing with nonbank banks owned by bank holding companies which has this result, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the nonbank bank could not engage in any activity that would have caused it to become a bank under the prior bank definition in the Act. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/usc/t12/s1843/g/1/A">12 U.S.C. 1843(g)(1)(A)</ref>. Indeed, an earlier version of CEBA under consideration by the Senate Banking Committee contained such a provision for nonbank banks owned by commercial holding companies, which was deleted in favor of the broader activity limitation actually enacted. Committee Print No. 1, (Feb. 17, 1987). In this regard, both the Senate Report and Conference Report refer to demand deposit-taking and commercial lending as examples of activities that could be affected by the activity limitation, not as the sole activities to be limited by the provision. <ref id="fnd3e15570" idref="fnd3e15575" style="-uslm-sgm:SU">5</ref>
</p>
<footnote id="fnd3e15575" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15570" style="-uslm-sgm:SU">5</ref> Conference Report at 124–125; S. Rep. No. 100–19 at 32.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Finally, additional guidance as to the meaning of the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">activity</inline> is provided by the statutory context in which the term appears. The activity limitation is contained in section 4 of the BHC Act, which regulates the investments and activities of bank holding companies and their nonbank subsidiaries. The Board believes it reasonable to conclude that by placing the CEBA activity limitation in section 4 of the BHC Act, Congress meant that Board and judicial decisions regarding the meaning of the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">activity</inline> in that section be looked to for guidance. This is particularly appropriate given the fact that grandfathered nonbank banks, whether owned by bank holding companies or unregulated holding companies, were treated as nonbank companies and not banks before enactment of CEBA.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> This interpretation of the term activity draws support from comments by Senator Proxmire during the Senate's consideration of the provision that the term was not intended to apply “on a product-by-product, customer-by-customer basis.” 133 Cong. Rec. S4054–5 (daily ed. <date date="1987-03-27">March 27, 1987</date>). This is the same manner in which the Board has interpreted the term activity in the nonbanking provision of section 4 as referring to generic categories of activities, not to discrete products and services.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Accordingly, consistent with the terms and purposes of the legislation and the Congressional intent to minimize unfair competition and the other adverse effects set out in the CEBA findings, the Board concludes that the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">activity</inline> as used in section 4(f)(3) means any line of banking or nonbanking business. This definition does not, however, envision a product-by-product approach to the activity limitation. The Board believes it would be helpful to describe the application of the activity limitation in the context of the following major categories of activities: deposit-taking, lending, trust, and other activities engaged in by banks.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Deposit-taking activities.</heading>
<paragraph identifier="/us/cfr/t12/s225.145/c/2/i" class="inline">
<num value="i"> (i)</num>
<content> With respect to deposit-taking, the Board believes that the activity limitation in section 4(f)(3) generally refers to three types of activity: demand deposit-taking; non-demand deposit-taking with a third party payment capability; and time and savings deposit-taking without third party payment powers. As previously discussed, it is clear from the terms and intent of CEBA that the activity limitation would prevent, and was designed to prevent, nonbank banks that prior to the enactment of CEBA had refrained from accepting demand deposits in order to avoid coverage as a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> under the BHC Act, from starting to take these deposits after enactment of CEBA and thus becoming full-service banks. Accordingly, CEBA requires that the taking of demand deposits be treated as a separate activity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The Board also considers nondemand deposits withdrawable by check or other similar means for payment to third parties or others to constitute a separate line of business for purposes of applying the activity limitation. In this regard, the Board has <?page num="260"?>previously recognized that this line of business constitutes a permissible but separate activity under section 4 of the BHC Act. Furthermore, the offering of accounts with transaction capability requires different expertise and systems than non-transaction deposit-taking and represented a distinct new activity that traditionally separated banks from thrift and similar institutions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content>
<p> Support for this view may also be found in the House Banking Committee report on proposed legislation prior to CEBA that contained a similar prohibition on new activities for nonbank banks. In discussing the activity limitation, the report recognized a distinction between demand deposits and accounts with transaction capability and those without transaction capability:</p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:EXTRACT">
<p style="-uslm-sgm:P">With respect to deposits, the Committee recognizes that it is legitimate for an institution currently involved in offering demand deposits or other third party transaction accounts to make use of new technologies that are in the process of replacing the existing check-based, paper payment system. Again, however, the Committee does not believe that technology should be used as a lever for an institution that was only incidentally involved in the payment system to transform itself into a significant offeror of transaction account capability. <ref id="fnd3e15612" style="-uslm-sgm:SU">6</ref>
</p>
</note>
<footnote id="fnd3e15617" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<sup style="-uslm-sgm:SU">6</sup> H. Rep. No. 99–175, 99th Cong., 1st Sess. 13 (1985).</p>
</content>
</footnote>
<?GPOvSpace 04?>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content>
<p> Finally, this distinction between demand and nondemand checkable accounts and accounts not subject to withdrawal by check was specifically recognized by Congress in the redefinition of the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> in CEBA to include an institution that takes demand deposits or “deposits that the depositor may withdraw by check or other means for payment to third parties or others” as well as in various exemptions from that definition for trust companies, credit card banks, and certain industrial banks. <ref id="fnd3e15626" idref="fnd3e15631" style="-uslm-sgm:SU">7</ref>
</p>
<footnote id="fnd3e15631" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15626" style="-uslm-sgm:SU">7</ref> See <ref href="/us/usc/t12/s1841/c/2">12 U.S.C. 1841(c)(2)</ref> (D), (F), (H), and (I).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Thus, an institution that as of <date date="1987-03-05">March 5, 1987</date>, offered only time and savings accounts that were not withdrawable by check for payment to third parties could not thereafter begin offering accounts with transaction capability, for example, NOW accounts or other types of transaction accounts. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Lending.</heading>
<chapeau> As noted, the CEBA activity limitation does not treat lending as a single activity; it clearly distinguishes between commercial and other types of lending. This distinction is also reflected in the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> in the BHC Act in effect both prior to and after enactment of CEBA as well as in various of the exceptions from this definition. In addition, commercial lending is a specialized form of lending involving different techniques and analysis from other types of lending. Based upon these factors, the Board would view commercial lending as a separate and distinct activity for purposes of the activity limitation in section 4(f)(3). The Board's decisions under section 4 of the BHC Act have not generally differentiated between types of commercial lending, and thus the Board would view commercial lending as a single activity for purposes of CEBA. Thus, a nonbank bank that made commercial loans as of <date date="1987-03-05">March 5, 1987</date>, could make any type of commercial loan thereafter. </chapeau>
<paragraph identifier="/us/cfr/t12/s225.145/c/3/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Commercial lending.</heading>
<content>
<p> For purposes of the activity limitation, a commercial loan is defined in accordance with the Supreme Court's decision in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board of Governors</inline> v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dimension Financial Corporation,</inline> 474 U.S. 361 (1986), as a direct loan to a business customer for the purpose of providing funds for that customer's business. In this regard, the Board notes that whether a particular transaction is a commercial loan must be determined not from the face of the instrument, but from the application of the definition of commercial loan in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dimension</inline> decision to that transaction. Thus, certain transactions of the type mentioned in the Board's ruling at issue in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dimension</inline> and in the Senate and Conference Reports in the CEBA legislation <ref id="fnd3e15662" idref="fnd3e15673" style="-uslm-sgm:SU">8</ref> would be commercial loans if they meet the test for commercial loans established in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dimension.</inline> Under this test, a commercial loan would not include, for example, an <?page num="261"?>open-market investment in a commercial entity that does not involve a borrower-lender relationship or negotiation of credit terms, such as a money market transaction. </p>
<footnote id="fnd3e15673" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15662" style="-uslm-sgm:SU">8</ref> S. Rep. No. 100–19 at 31; Conference Report at 123.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Other lending.</heading>
<content> Based upon the guidance in the Act as to the degree of specificity required in applying the activity limitation with respect to lending, the Board believes that, in addition to commercial lending, there are three other types of lending activities: consumer mortgage lending, consumer credit card lending, and other consumer lending. Mortgage lending and credit card lending are recognized, discrete lines of banking and business activity, involving techniques and processes that are different from and more specialized than those required for general consumer lending. For example, these activities are, in many cases, conducted by specialized institutions, such as mortgage companies and credit card institutions, or through separate organizational structures within an institution, particularly in the case of mortgage lending. Additionally, the Board's decisions under section 4 of the Act have recognized mortgage banking and credit card lending as separate activities for bank holding companies. The Board's Regulation Y reflects this specialization, noting as examples of permissible lending activity: consumer finance, credit card and mortgage lending. <ref href="/us/cfr/t12/s225.25/b/1">12 CFR 225.25(b)(1)</ref>. Finally, CEBA itself recognizes the specialized nature of credit card lending by exempting an institution specializing in that activity from the bank definition. For purpose of the activity limitation, a consumer mortgage loan will mean any loan to an individual that is secured by real estate and that is not a commercial loan. A credit card loan would be any loan made to an individual by means of a credit card that is not a commercial loan. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Trust activities.</heading>
<content> Under section 4 of the Act, the Board has historically treated trust activities as a single activity and has not differentiated the function on the basis of whether the customer was an individual or a business. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s225.25/b/3">12 CFR 225.25(b)(3)</ref>. Similarly, the trust company exemption from the bank definition in CEBA makes no distinction between various types of trust activities. Accordingly, the Board would view trust activities as a separate activity without additional differentiation for purposes of the activity limitation in section 4(f)(3). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Other activities.</heading>
<content>
<p> With respect to activities other than the various traditional deposit-taking, lending or trust activities, the Board believes it appropriate, for the reasons discussed above, to apply the activity limitation in section 4(f)(3) as the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">activity</inline> generally applies in other provisions of section 4 of the BHC Act. Thus, a grandfathered nonbank bank could not, for example, commence after <date date="1987-03-05">March 5, 1987</date>, any of the following activities (unless it was engaged in such an activity as of that date): discount securities brokerage, full-service securities brokerage investment advisory services, underwriting or dealing in government securities as permissible for member banks, foreign exchange transaction services, real or personal property leasing, courier services, data processing for third parties, insurance agency activities, <ref id="fnd3e15698" idref="fnd3e15704" style="-uslm-sgm:SU">9</ref> real estate development, real estate brokerage, real estate syndication, insurance underwriting, management consulting, futures commission merchant, or activities of the general type listed in <ref href="/us/cfr/t12/s225.25/b">§ 225.25(b)</ref> of Regulation Y.</p>
<footnote id="fnd3e15704" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15698" style="-uslm-sgm:SU">9</ref> In this area, section 4 of the Act does not treat all insurance agency activities as a single activity. Thus, for example, the Act treats the sale of credit-related life, accident and health insurance as a separate activity from general insurance agency activities. See <ref href="/us/usc/t12/s1843/c/8">12 U.S.C. 1843(c)(8)</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Meaning of engaged in.</heading>
<content> In order to be <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">engaged in</inline> an activity, a nonbank bank must demonstrate that it had a program in place to provide a particular product or service included within the grandfathered activity to a customer and that it was in fact offering the product or service to customers as of <date date="1987-03-05">March 5, 1987</date>. Thus, a nonbank bank is not engaged in an activity as of <date date="1987-03-05">March 5, 1987</date>, if the product or service in question was in a planning state as of that date and had not been offered or delivered to a customer. Consistent with prior Board interpretations of the term activity in the grandfather provisions of section 4, the Board does not <?page num="262"?>believe that a company may be engaged in an activity on the basis of a single isolated transaction that was not part of a program to offer the particular product or to conduct in the activity on an ongoing basis. For example, a nonbank bank that held an interest in a single real estate project would not thereby be engaged in real estate development for purposes of this provision, unless evidence was presented indicating the interest was held under a program to commence a real estate development business.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Meaning of as of</heading>
<content> The Board believes that the grandfather date “as of <date date="1987-03-05">March 5, 1987</date>” as used throughout section 4(f)(3) should refer to activities engaged in on <date date="1987-03-05">March 5, 1987</date>, or a reasonably short period preceding this date not exceeding 13 months. 133 Cong. Rec. S3957 (daily ed. <date date="1987-03-26">March 26, 1987</date>). (Remarks of Senators Dodd and Proxmire). Activities that the institution had terminated prior to <date date="1988-03-05">March 5, 1988</date>, however, would not be considered to have been conducted or engaged in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">as of</inline> March 5. For example, if within 13 months of <date date="1987-03-05">March 5, 1987</date>, the nonbank bank had terminated its commercial lending activity in order to avoid the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> definition in the Act, the nonbank bank could not recommence that activity after enactment of CEBA.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Cross-marketing limitation—</heading>
<paragraph identifier="/us/cfr/t12/s225.145/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Section 4(f)(3) also limits cross-marketing activities by nonbank banks and their affiliates. Under this provision, a nonbank bank may not offer or market a product or service of an affiliate unless the product or service may be offered by bank holding companies generally under section 4(c)(8) of the BHC Act. In addition, a nonbank bank may not permit any of its products or services to be offered or marketed by or through a nonbank affiliate unless the affiliate engages only in activities permissible for a bank holding company under section 4(c)(8). These limitations are subject to an exception for products or services that were being so offered or marketed as of <date date="1987-03-05">March 5, 1987</date>, but only in the same manner in which they were being offered or marketed as of that date.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples of impermissible cross-marketing.</heading>
<content> The Conference Report illustrates the application of this limitation to the following two covered transactions: (i) products and services of an affiliate that bank holding companies may not offer under the BHC Act, and (ii) products and services of the nonbank bank. In the first case, the restrictions would prohibit, for example, a company from marketing life insurance or automotive supplies through its affiliate nonbank bank because these products are not generally permissible under the BHC Act. Conference Report at 126. In the second case, a nonbank bank may not permit its products or services to be offered or marketed through a life insurance affiliate or automobile parts retailer because these affiliates engage in activities prohibited under the BHC Act. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Id.</inline>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Permissible cross-marketing.</heading>
<content> On the other hand, a nonbank bank could offer to its customers consumer loans from an affiliated mortgage banking or consumer finance company. These affiliates could likewise offer their customers the nonbank bank's products or services provided the affiliates engaged only in activities permitted for bank holding companies under the closely-related-to-banking standard of section 4(c)(8) of the BHC Act. If the affiliate is engaged in both permissible and impermissible activities within the meaning of section 4(c)(8) of the BHC Act, however, the affiliate could not offer or market the nonbank bank's products or services.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Product approach to cross-marketing restriction.</heading>
<paragraph identifier="/us/cfr/t12/s225.145/d/4/i" class="inline">
<num value="i"> (i)</num>
<content> Unlike the activity restrictions, the cross-marketing restrictions of CEBA apply by their terms to individual products and services. Thus, an affiliate of a nonbank bank that was engaged in activities that are not permissible for bank holding companies and that was marketing a particular product or service of a nonbank bank on the grandfather date could continue to market that product and, as discussed below, could change the terms and conditions of the loan. The nonbank affiliate could not, however, begin to offer or market another product or service of the nonbank bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> The Board believes that the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">product or service</inline> must be interpreted in light of its accepted ordinary commercial usage. In some instances, commercial usage has identified a group of <?page num="263"?>products so closely related that they constitute a product line (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> certificates of deposit) and differences in versions of the product (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> a one-year certificate of deposit) simply represent a difference in the terms of the product. <ref id="fnd3e15766" idref="fnd3e15776" style="-uslm-sgm:SU">10</ref> This approach is consistent with the treatment in CEBA's legislative history of certificates of deposit as a product line rather than each particular type of CD as a separate product. <ref id="fnd3e15771" idref="fnd3e15784" style="-uslm-sgm:SU">11</ref>
</p>
<footnote id="fnd3e15776" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15766" style="-uslm-sgm:SU">10</ref> American Bankers Association, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Banking Terminology</inline> (1981).</p>
</content>
</footnote>
<footnote id="fnd3e15784" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15771" style="-uslm-sgm:SU">11</ref> During the Senate debates on CEBA, Senator Proxmire in response to a statement from Senator Cranston that the joint-marketing restrictions do not lock into place the specific terms or conditions of the particular grandfathered product or service, stated:</p>
<p style="-uslm-sgm:P">That is correct. For example, if a nonbank bank was jointly marketing on <date date="1987-03-05">March 5, 1987</date>, a 3 year, $5,000 certificate of deposit, this bill would not prohibit offering in the same manner a 1 year, $2,000 certificate of deposit with a different interest rate. 133 Cong. Rec. S3959 (daily ed. <date date="1987-03-26">March 26, 1987</date>).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content>
<p> In the area of consumer lending, the Board believes the following provide examples of different consumer loan products: mortgage loans to finance the purchase of the borrower's residence, unsecured consumer loans, consumer installment loans secured by the personal property to be purchased (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.</inline> automobile, boat or home appliance loans), or second mortgage loans. <ref id="fnd3e15795" idref="fnd3e15801" style="-uslm-sgm:SU">12</ref> Under this interpretation, a nonbank bank that offered automobile loans through a nonbank affiliate on the grandfather date could market boat loans, appliance loans or any type of secured consumer installment loan through that affiliate. It could not, however, market unsecured consumer loans, home mortgage loans or other types of consumer loans.</p>
<footnote id="fnd3e15801" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e15795" style="-uslm-sgm:SU">12</ref> In this regard, the Supreme Court in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">United States</inline> v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Philadelphia National Bank,</inline> noted that “the principal banking products are of course various types of credit, for example: unsecured personal and business loans, mortgage loans, loans secured by securities or accounts receivable, automobile installment and consumer goods, installment loans, tuition financing, bank credit cards, revolving credit funds.” 374 U.S. 321, 326 n.5 (1963).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> In other areas, the Board believes that the determination as to what constitutes a product or service should be made on a case-by-case basis consistent with the principles that the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">product or service</inline> must be interpreted in accordance with their ordinary commercial usage and must be narrower in scope than the definition of activity. Essentially, the concept applied in this analysis is one of permitting the continuation of the specific product marketing activity that was undertaken as of <date date="1987-03-05">March 5, 1987</date>. Thus, for example, while insurance underwriting may constitute a separate activity under CEBA, a nonbank bank could not market a life insurance policy issued by the affiliate if on the grandfather date it had only marketed homeowners' policies issued by the affiliate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Change in terms and conditions permitted.</heading>
<paragraph identifier="/us/cfr/t12/s225.145/d/5/i" class="inline">
<num value="i"> (i)</num>
<content> The cross-marketing restrictions would not limit the ability of the institution to change the specific terms and conditions of a particular grandfathered product or service. The Conference Report indicates a legislative intent not to lock into place the specific terms or conditions of a grandfathered product or service. Conference Report at 126. For example, a nonbank bank marketing a three-year, $5,000 certificate of deposit through an affiliate under the exemption could offer a one-year $2,000 certificate of deposit with a different interest rate after the grandfather date. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> footnote 11 above. Modifications that alter the type of product, however, are not permitted. Thus, a nonbank bank that marketed through affiliates on <date date="1987-03-05">March 5, 1987</date>, only certificates of deposit could not commence marketing MMDA's or NOW accounts after the grandfather date.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> General changes in the character of the product or service as the result of market or technological innovation are similarly permitted to the extent that they do not transform a grandfathered product into a new product. Thus, an unsecured line of credit could not be modified to include a lien on the borrower's residence without becoming a new product.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Meaning of offer or market.</heading>
<content> In the Board's opinion, the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">offer or market</inline> in the cross-marketing restrictions refer to the presentation to a customer of an institution's products or service through any type of program, including telemarketing, advertising brochures, <?page num="264"?>direct mailing, personal solicitation, customer referrals, or joint-marketing agreements or presentations. An institution must have offered or actually marketed the product or service on March 5 or shortly before that date (as discussed above) to qualify for the grandfather privilege. Thus, if the cross-marketing program was in the planning stage on <date date="1987-03-05">March 5, 1987</date>, the program would not quality for grandfather treatment under CEBA.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Limitations on cross-marketing to in the same manner.</heading>
<paragraph identifier="/us/cfr/t12/s225.145/d/7/i" class="inline">
<num value="i"> (i)</num>
<content> The cross-marketing restriction in section 4(f)(3) contains a grandfather provision that permits products or services that would otherwise be prohibited from being offered or marketed under the provision to continue to be offered or marketed by a particular entity if the products or services were being so offered or marketed as of <date date="1987-03-05">March 5, 1987</date>, but “only in the same manner in which they were being offered or marketed as of that date.” Thus, to qualify for the grandfather provision, the manner of offering or marketing the otherwise prohibited product or service must remain the same as on the grandfather date.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In interpreting this provision, the Board notes that Congress designed the joint-marketing restrictions to prevent the significant risk to the public posed by the conduct of such activities by insured banks affiliated with companies engaged in general commerce, to ensure objectivity in the credit-granting process and to “minimize the unfair competitive advantage that grandfathered commercial companies owning nonbank banks might otherwise engage over regulated bank holding companies and our competing commercial companies that have no subsidiary bank.” Conference Report at 125–126. The Board believes that determinations regarding the manner of cross-marketing of a particular product or service may best be accomplished by applying the limitation to the particular facts in each case consistent with the stated purpose of this provision of CEBA and the general principle that grandfather restrictions and exceptions to general prohibitions must be narrowly construed in order to prevent the exception from nullifying the rule. Essentially, as in the scope of the term “product or service”, the guiding principle of Congressional intent with respect to this term is to permit only the continuation of the specific types of cross-marketing activity that were undertaken as of <date date="1987-03-05">March 5, 1987</date>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/d/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Eligibility for cross-marketing grandfather exemption.</heading>
<content> The Conference Report also clarifies that entitlement to an exemption to continue to cross-market products and services otherwise prohibited by the statute applies only to the specific company that was engaged in the activity as of <date date="1987-03-05">March 5, 1987</date>. Conference Report at 126. Thus, an affiliate that was not engaged in cross-marketing products or services as of the grandfather date may not commence these activities under the exemption even if such activities were being conducted by another affiliate. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Id.</inline>; <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see also</inline> S. Rep. No. 100–19 at 33–34.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.145/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Eligibility for grandfathered nonbank bank status.</heading>
<content> In reviewing the reports required by CEBA, the Board notes that a number of institutions that had not commenced business operations on <date date="1987-08-10">August 10, 1987</date>, the date of enactment of CEBA, claimed grandfather privileges under section 4(f)(3) of CEBA. To qualify for grandfather privileges under section 4(f)(3), the institution must have “bec[o]me a bank as a result of the enactment of [CEBA]” and must have been controlled by a nonbanking company on <date date="1987-03-05">March 5, 1987</date>. <ref href="/us/usc/t12/s1843/f/1/A">12 U.S.C. 1843(f)(1)(A)</ref>. An institution that did not have FDIC insurance on <date date="1987-08-10">August 10, 1987</date>, and that did not accept demand deposits or transaction accounts or engage in the business of commercial lending on that date, would not have become a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> as a result of enactment of CEBA. Thus, institutions that had not commenced operations on <date date="1987-08-10">August 10, 1987</date>, could not qualify for grandfather privileges under section 4(f)(3) of CEBA. This view is supported by the activity limitations of section 4(f)(3), which, as noted, limit the activities of grandfathered nonbank banks to those in which they were lawfully engaged as of <date date="1987-03-05">March 5, 1987</date>. A nonbank bank that had not commenced conducting business activities on <?page num="265"?><date date="1987-03-05">March 5, 1987</date>, could not after enactment of CEBA engage in any activities under this provision.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/53/37746">53 FR 37746</ref>, <date date="1988-09-28">Sept. 28, 1988</date>, as amended by Reg. Y, <ref href="/us/fr/62/9343">62 FR 9343</ref>, <date date="1997-02-28" role="amended">Feb. 28, 1997</date>]
</source>
</section>
</level>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spJ">
<num value="J" style="-uslm-sgm:HED">Subpart J—</num>
<heading style="-uslm-sgm:HED">Merchant Banking Investments </heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Y, <ref href="/us/fr/66/8484">66 FR 8484</ref>, <date date="2001-01-31">Jan. 31, 2001</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.170">
<num value="225.170" style="-uslm-sgm:SECTNO">§ 225.170 </num>
<heading style="-uslm-sgm:SUBJECT">What type of investments are permitted by this subpart, and under what conditions may they be made? </heading>
<paragraph identifier="/us/cfr/t12/s225.170/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>What types of investments are permitted by this subpart?</heading>
<content> Section 4(k)(4)(H) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>) and this subpart authorize a financial holding company, directly or indirectly and as principal or on behalf of one or more persons, to acquire or control any amount of shares, assets or ownership interests of a company or other entity that is engaged in any activity not otherwise authorized for the financial holding company under section 4 of the Bank Holding Company Act. For purposes of this subpart, shares, assets or ownership interests acquired or controlled under section 4(k)(4)(H) and this subpart are referred to as “merchant banking investments.” A financial holding company may not directly or indirectly acquire or control any merchant banking investment except in compliance with the requirements of this subpart. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Must the investment be a bona fide merchant banking investment?</heading>
<content> The acquisition or control of shares, assets or ownership interests under this subpart is not permitted unless it is part of a bona fide underwriting or merchant or investment banking activity. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>What types of ownership interests may be acquired?</heading>
<content> Shares, assets or ownership interests of a company or other entity include any debt or equity security, warrant, option, partnership interest, trust certificate or other instrument representing an ownership interest in the company or entity, whether voting or nonvoting. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Where in a financial holding company may merchant banking investments be made?</heading>
<content> A financial holding company and any subsidiary (other than a depository institution or subsidiary of a depository institution) may acquire or control merchant banking investments. A financial holding company and its subsidiaries may not acquire or control merchant banking investments on behalf of a depository institution or subsidiary of a depository institution. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>May assets other than shares be held directly?</heading>
<chapeau> A financial holding company may not under this subpart acquire or control assets, other than debt or equity securities or other ownership interests in a company, unless: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.170/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The assets are held by or promptly transferred to a portfolio company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The portfolio company maintains policies, books and records, accounts, and other indicia of corporate, partnership or limited liability organization and operation that are separate from the financial holding company and limit the legal liability of the financial holding company for obligations of the portfolio company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The portfolio company has management that is separate from the financial holding company to the extent required by <ref href="/us/cfr/t12/s225.171">§ 225.171</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>What type of affiliate is required for a financial holding company to make merchant banking investments?</heading>
<chapeau> A financial holding company may not acquire or control merchant banking investments under this subpart unless the financial holding company qualifies under at least one of the following paragraphs: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.170/f/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Securities affiliate.</heading>
<chapeau> The financial holding company is or has an affiliate that is registered under the Securities Exchange Act of 1934 (<ref href="/us/usc/t15/s78c">15 U.S.C. 78c</ref>, 78o, 78o–4) as: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.170/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A broker or dealer; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A municipal securities dealer, including a separately identifiable department or division of a bank that is registered as a municipal securities dealer. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Insurance affiliate with an investment adviser affiliate.</heading>
<chapeau> The financial holding company controls: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.170/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> An insurance company that is predominantly engaged in underwriting life, accident and health, or property and casualty insurance (other than credit-related insurance), or providing and issuing annuities; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> A company that:
<?page num="266"?></chapeau>
<paragraph identifier="/us/cfr/t12/s225.170/f/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940 (<ref href="/us/usc/t15/s80b–1">15 U.S.C. 80b–1</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>); and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.170/f/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Provides investment advice to an insurance company.
</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.171">
<num value="225.171" style="-uslm-sgm:SECTNO">§ 225.171 </num>
<heading style="-uslm-sgm:SUBJECT">What are the limitations on managing or operating a portfolio company held as a merchant banking investment? </heading>
<paragraph identifier="/us/cfr/t12/s225.171/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>May a financial holding company routinely manage or operate a portfolio company?</heading>
<content> Except as permitted in paragraph (e) of this section, a financial holding company may not routinely manage or operate any portfolio company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>When does a financial holding company routinely manage or operate a company?—</heading>
<paragraph identifier="/us/cfr/t12/s225.171/b/1" class="inline">
<num value="1">(1) </num>
<heading>Examples of routine management or operation—</heading>
<paragraph identifier="/us/cfr/t12/s225.171/b/1/i" class="inline">
<num value="i">(i) </num>
<heading>Executive officer interlocks at the portfolio company.</heading>
<content> A financial holding company routinely manages or operates a portfolio company if any director, officer or employee of the financial holding company serves as or has the responsibilities of an executive officer of the portfolio company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Interlocks by executive officers of the financial holding company. (A) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibition.</inline> A financial holding company routinely manages or operates a portfolio company if any executive officer of the financial holding company serves as or has the responsibilities of an officer or employee of the portfolio company. </chapeau>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.171/b/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Definition.</heading>
<content>
<p> For purposes of paragraph (b)(1)(ii)(A) of this section, the term “financial holding company” includes the financial holding company and only the following subsidiaries of the financial holding company: </p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) A securities broker or dealer registered under the Securities Exchange Act of 1934; </p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) A depository institution; </p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) An affiliate that engages in merchant banking activities under this subpart or insurance company investment activities under section 4(k)(4)(I) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/I">12 U.S.C. 1843(k)(4)(I)</ref>); </p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4</inline>) A small business investment company (as defined in section 302(b) of the Small Business Investment Act of 1958 (<ref href="/us/usc/t15/s682/b">15 U.S.C. 682(b)</ref>) controlled by the financial holding company or by any depository institution controlled by the financial holding company; and </p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5</inline>) Any other affiliate that engages in significant equity investment activities that are subject to a special capital charge under the capital adequacy rules or guidelines of the Board. </p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Covenants regarding ordinary course of business.</heading>
<content> A financial holding company routinely manages or operates a portfolio company if any covenant or other contractual arrangement exists between the financial holding company and the portfolio company that would restrict the portfolio company's ability to make routine business decisions, such as entering into transactions in the ordinary course of business or hiring officers or employees other than executive officers. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Presumptions of routine management or operation.</heading>
<chapeau> A financial holding company is presumed to routinely manage or operate a portfolio company if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.171/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any director, officer, or employee of the financial holding company serves as or has the responsibilities of an officer (other than an executive officer) or employee of the portfolio company; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any officer or employee of the portfolio company is supervised by any director, officer, or employee of the financial holding company (other than in that individual's capacity as a director of the portfolio company). </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>How may a financial holding company rebut a presumption that it is routinely managing or operating a portfolio company?</heading>
<content> A financial holding company may rebut a presumption that it is routinely managing or operating a portfolio company under paragraph (b)(2) of this section by presenting information to the Board demonstrating to the Board's satisfaction that the financial holding company is not routinely managing or operating the portfolio company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>What arrangements do not involve routinely managing or operating a portfolio company?—</heading>
<paragraph identifier="/us/cfr/t12/s225.171/d/1" class="inline">
<num value="1">(1) </num>
<heading>Director representation at portfolio companies.</heading>
<chapeau> A financial holding company may select any or all of the directors of a portfolio company <?page num="267"?>or have one or more of its directors, officers, or employees serve as directors of a portfolio company if: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.171/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The portfolio company employs officers and employees responsible for routinely managing and operating the company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The financial holding company does not routinely manage or operate the portfolio company, except as permitted in paragraph (e) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Covenants or other provisions regarding extraordinary events.</heading>
<chapeau> A financial holding company may, by virtue of covenants or other written agreements with a portfolio company, restrict the ability of the portfolio company, or require the portfolio company to consult with or obtain the approval of the financial holding company, to take actions outside of the ordinary course of the business of the portfolio company. Examples of the types of actions that may be subject to these types of covenants or agreements include, but are not limited to, the following: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.171/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The acquisition of significant assets or control of another company by the portfolio company or any of its subsidiaries; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Removal or selection of an independent accountant or auditor or investment banker by the portfolio company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Significant changes to the business plan or accounting methods or policies of the portfolio company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Removal or replacement of any or all of the executive officers of the portfolio company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The redemption, authorization or issuance of any equity or debt securities (including options, warrants or convertible shares) of the portfolio company or any borrowing by the portfolio company outside of the ordinary course of business; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> The amendment of the articles of incorporation or by-laws (or similar governing documents) of the portfolio company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> The sale, merger, consolidation, spin-off, recapitalization, liquidation, dissolution or sale of substantially all of the assets of the portfolio company or any of its significant subsidiaries. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Providing advisory and underwriting services to, and having consultations with, a portfolio company.</heading>
<chapeau> A financial holding company may: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.171/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Provide financial, investment and management consulting advice to a portfolio company in a manner consistent with and subject to any restrictions on such activities contained in <ref href="/us/cfr/t12/s225.28/b/6">§§ 225.28(b)(6)</ref> or 225.86(b)(1) of this part (<ref href="/us/cfr/t12/s225.28/b/6">12 CFR 225.28(b)(6)</ref> and 225.86(b)(1)); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provide assistance to a portfolio company in connection with the underwriting or private placement of its securities, including acting as the underwriter or placement agent for such securities; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/d/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Meet with the officers or employees of a portfolio company to monitor or provide advice with respect to the portfolio company's performance or activities. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>When may a financial holding company routinely manage or operate a portfolio company?—</heading>
<paragraph identifier="/us/cfr/t12/s225.171/e/1" class="inline">
<num value="1">(1) </num>
<heading>Special circumstances required.</heading>
<content> A financial holding company may routinely manage or operate a portfolio company only when intervention by the financial holding company is necessary or required to obtain a reasonable return on the financial holding company's investment in the portfolio company upon resale or other disposition of the investment, such as to avoid or address a significant operating loss or in connection with a loss of senior management at the portfolio company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Duration Limited.</heading>
<content> A financial holding company may routinely manage or operate a portfolio company only for the period of time as may be necessary to address the cause of the financial holding company's involvement, to obtain suitable alternative management arrangements, to dispose of the investment, or to otherwise obtain a reasonable return upon the resale or disposition of the investment. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Notice required for extended involvement.</heading>
<content> A financial holding company may not routinely manage or operate a portfolio company for a period greater than nine months without prior written notice to the Board. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/e/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Documentation required.</heading>
<content> A financial holding company must maintain and make available to the Board upon request a written record describing its involvement in routinely managing or operating a portfolio company.
<?page num="268"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>May a depository institution or its subsidiary routinely manage or operate a portfolio company?—</heading>
<paragraph identifier="/us/cfr/t12/s225.171/f/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A depository institution and a subsidiary of a depository institution may not routinely manage or operate a portfolio company in which an affiliated company owns or controls an interest under this subpart. </content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s225.171/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Definition applying provisions governing routine management or operation.</heading>
<content> For purposes of this section other than paragraph (e) and for purposes of <ref href="/us/cfr/t12/s225.173/d">§ 225.173(d)</ref>, a financial holding company includes a depository institution controlled by the financial holding company and a subsidiary of such a depository institution. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.171/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Exception for certain subsidiaries of depository institutions.</heading>
<content> For purposes of paragraph (e) of this section, a financial holding company includes a financial subsidiary held in accordance with section 5136A of the Revised Statutes (<ref href="/us/usc/t12/s24a">12 U.S.C. 24a</ref>) or section 46 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1831w">12 U.S.C. 1831w</ref>), and a subsidiary that is a small business investment company and that is held in accordance with the Small Business Investment Act (<ref href="/us/usc/t15/s661">15 U.S.C. 661</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and such a subsidiary may, in accordance with the limitations set forth in this section, routinely manage or operate a portfolio company in which an affiliated company owns or controls an interest under this subpart.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.172">
<num value="225.172" style="-uslm-sgm:SECTNO">§ 225.172</num>
<heading style="-uslm-sgm:SUBJECT">What are the holding periods permitted for merchant banking investments? </heading>
<paragraph identifier="/us/cfr/t12/s225.172/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Must investments be made for resale?</heading>
<content> A financial holding company may own or control shares, assets and ownership interests pursuant to this subpart only for a period of time to enable the sale or disposition thereof on a reasonable basis consistent with the financial viability of the financial holding company's merchant banking investment activities. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>What period of time is generally permitted for holding merchant banking investments?—</heading>
<paragraph identifier="/us/cfr/t12/s225.172/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Except as provided in this section or <ref href="/us/cfr/t12/s225.173">§ 225.173</ref>, a financial holding company may not, directly or indirectly, own, control or hold any share, asset or ownership interest pursuant to this subpart for a period that exceeds 10 years. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Ownership interests acquired from or transferred to companies held under this subpart.</heading>
<chapeau> For purposes of paragraph (b)(1) of this section, shares, assets or ownership interests—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.172/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Acquired by a financial holding company from a company in which the financial holding company held an interest under this subpart will be considered to have been acquired by the financial holding company on the date that the share, asset or ownership interest was acquired by the company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Acquired by a company from a financial holding company will be considered to have been acquired by the company on the date that the share, asset or ownership interest was acquired by the financial holding company if—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.172/b/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The financial holding company held the share, asset, or ownership interest under this subpart; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The financial holding company holds an interest in the acquiring company under this subpart. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Interests previously held by a financial holding company under limited authority.</heading>
<content> For purposes of paragraph (b)(1) of this section, any shares, assets, or ownership interests previously owned or controlled, directly or indirectly, by a financial holding company under any other provision of the Federal banking laws that imposes a limited holding period will if acquired under this subpart be considered to have been acquired by the financial holding company under this subpart on the date the financial holding company first acquired ownership or control of the shares, assets or ownership interests under such other provision of law. For purposes of this paragraph (b)(3), a financial holding company includes a depository institution controlled by the financial holding company and any subsidiary of such a depository institution. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Approval required to hold interests held in excess of time limit.</heading>
<chapeau> A financial holding company may seek Board approval to own, control or hold shares, assets or ownership interests of a company under this subpart for a period that exceeds the period specified in paragraph (b)(1) of this section. A request for approval must:
<?page num="269"?></chapeau>
<paragraph identifier="/us/cfr/t12/s225.172/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Be submitted to the Board at least 90 days prior to the expiration of the applicable time period; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provide the reasons for the request, including information that addresses the factors in paragraph (b)(5) of this section; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Explain the financial holding company's plan for divesting the shares, assets or ownership interests. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Factors governing Board determinations.</heading>
<chapeau> In reviewing any proposal under paragraph (b)(4) of this section, the Board may consider all the facts and circumstances related to the investment, including: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.172/b/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The cost to the financial holding company of disposing of the investment within the applicable period; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The total exposure of the financial holding company to the company and the risks that disposing of the investment may pose to the financial holding company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Market conditions; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/5/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The nature of the portfolio company's business; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/5/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The extent and history of involvement by the financial holding company in the management and operations of the company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/5/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> The average holding period of the financial holding company's merchant banking investments. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Restrictions applicable to investments held beyond time period.</heading>
<chapeau> A financial holding company that directly or indirectly owns, controls or holds any share, asset or ownership interest of a company under this subpart for a total period that exceeds the period specified in paragraph (b)(1) of this section must—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.172/b/6/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> For purposes of determining the financial holding company's regulatory capital, apply to the financial holding company's adjusted carrying value of such shares, assets, or ownership interests a capital charge determined by the Board that must be: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.172/b/6/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Higher than the maximum marginal tier 1 capital charge applicable under part 217 to merchant banking investments held by that financial holding company; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/6/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In no event less than 25 percent of the adjusted carrying value of the investment; and </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.172/b/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Abide by any other restrictions that the Board may impose in connection with granting approval under paragraph (b)(4) of this section. </content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9329">62 FR 9329</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/78/62291">78 FR 62291</ref>, <date date="2013-10-11" role="amended">Oct. 11, 2013</date>; <ref href="/us/fr/80/70673">80 FR 70673</ref>, <date date="2015-11-16" role="amended">Nov. 16, 2015</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.173">
<num value="225.173" style="-uslm-sgm:SECTNO">§ 225.173 </num>
<heading style="-uslm-sgm:SUBJECT">How are investments in private equity funds treated under this subpart? </heading>
<paragraph identifier="/us/cfr/t12/s225.173/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>What is a private equity fund?</heading>
<chapeau> For purposes of this subpart, a “private equity fund” is any company that: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.173/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Is formed for the purpose of and is engaged exclusively in the business of investing in shares, assets, and ownership interests of financial and nonfinancial companies for resale or other disposition; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Is not an operating company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> No more than 25 percent of the total equity of which is held, owned or controlled, directly or indirectly, by the financial holding company and its directors, officers, employees and principal shareholders; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Has a maximum term of not more than 15 years; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Is not formed or operated for the purpose of making investments inconsistent with the authority granted under section 4(k)(4)(H) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/4/H">12 U.S.C. 1843(k)(4)(H)</ref>) or evading the limitations governing merchant banking investments contained in this subpart. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>What form may a private equity fund take?</heading>
<content> A private equity fund may be a corporation, partnership, limited liability company or other type of company that issues ownership interests in any form. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>What is the holding period permitted for interests in private equity funds?—</heading>
<paragraph identifier="/us/cfr/t12/s225.173/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A financial holding company may own, control or hold any interest in a private equity fund under this subpart and any interest in a portfolio company that is owned or controlled by a private equity fund in which the financial holding company owns or controls any interest under this subpart for the duration of the fund, up to a maximum of 15 years. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Request to hold interest for longer period.</heading>
<content> A financial holding company may seek Board approval to own, control or hold an interest in or held <?page num="270"?>through a private equity fund for a period longer than the duration of the fund in accordance with <ref href="/us/cfr/t12/s225.172/b">§ 225.172(b)</ref> of this subpart. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Application of rules.</heading>
<content> The rules described in <ref href="/us/cfr/t12/s225.172/b/2">§ 225.172(b)(2)</ref> and (3) governing holding periods of interests acquired, transferred or previously held by a financial holding company apply to interests in, held through, or acquired from a private equity fund. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>How do the restrictions on routine management and operation apply to private equity funds and investments held through a private equity fund?—</heading>
<paragraph identifier="/us/cfr/t12/s225.173/d/1" class="inline">
<num value="1">(1) </num>
<heading>Portfolio companies held through a private equity fund.</heading>
<content> A financial holding company may not routinely manage or operate a portfolio company that is owned or controlled by a private equity fund in which the financial holding company owns or controls any interest under this subpart, except as permitted under <ref href="/us/cfr/t12/s225.171/e">§ 225.171(e)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Private equity funds controlled by a financial holding company.</heading>
<content> A private equity fund that is controlled by a financial holding company may not routinely manage or operate a portfolio company, except as permitted under <ref href="/us/cfr/t12/s225.171/e">§ 225.171(e)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Private equity funds that are not controlled by a financial holding company.</heading>
<content> A private equity fund may routinely manage or operate a portfolio company so long as no financial holding company controls the private equity fund or as permitted under <ref href="/us/cfr/t12/s225.171/e">§ 225.171(e)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>When does a financial holding company control a private equity fund?</heading>
<chapeau> A financial holding company controls a private equity fund for purposes of this subpart if the financial holding company, including any director, officer, employee or principal shareholder of the financial holding company: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.173/d/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Serves as a general partner, managing member, or trustee of the private equity fund (or serves in a similar role with respect to the private equity fund); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Owns or controls 25 percent or more of any class of voting shares or similar interests in the private equity fund; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/d/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> In any manner selects, controls or constitutes a majority of the directors, trustees or management of the private equity fund; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.173/d/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Owns or controls more than 5 percent of any class of voting shares or similar interests in the private equity fund and is the investment adviser to the fund.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.174">
<num value="225.174" style="-uslm-sgm:SECTNO">§ 225.174 </num>
<heading style="-uslm-sgm:SUBJECT">What aggregate thresholds apply to merchant banking investments? </heading>
<paragraph identifier="/us/cfr/t12/s225.174/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<chapeau> A financial holding company may not, without Board approval, directly or indirectly acquire any additional shares, assets or ownership interests under this subpart or make any additional capital contribution to any company the shares, assets or ownership interests of which are held by the financial holding company under this subpart if the aggregate carrying value of all merchant banking investments held by the financial holding company under this subpart exceeds: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.174/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> 30 percent of the Tier 1 capital of the financial holding company; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.174/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> After excluding interests in private equity funds, 20 percent of the Tier 1 capital of the financial holding company. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.174/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>How do these thresholds apply to a private equity fund?</heading>
<content> Paragraph (a) of this section applies to the interest acquired or controlled by the financial holding company under this subpart in a private equity fund. Paragraph (a) of this section does not apply to any interest in a company held by a private equity fund or to any interest held by a person that is not affiliated with the financial holding company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.174/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>How long do these thresholds remain in effect?</heading>
<content> This <ref href="/us/cfr/t12/s225.174">§ 225.174</ref> shall cease to be effective on the date that a final rule issued by the Board that specifically addresses the appropriate regulatory capital treatment of merchant banking investments becomes effective.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.175">
<num value="225.175" style="-uslm-sgm:SECTNO">§ 225.175 </num>
<heading style="-uslm-sgm:SUBJECT">What risk management, record keeping and reporting policies are required to make merchant banking investments? </heading>
<paragraph identifier="/us/cfr/t12/s225.175/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>What internal controls and records are necessary?—</heading>
<paragraph identifier="/us/cfr/t12/s225.175/a/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<chapeau> A financial holding company, including a private equity fund controlled by a financial holding company, that makes investments under this subpart must establish and maintain policies, procedures, <?page num="271"?>records and systems reasonably designed to conduct, monitor and manage such investment activities and the risks associated with such investment activities in a safe and sound manner, including policies, procedures, records and systems reasonably designed to: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.175/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Monitor and assess the carrying value, market value and performance of each investment and the aggregate portfolio; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Identify and manage the market, credit, concentration and other risks associated with such investments;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Identify, monitor and assess the terms, amounts and risks arising from transactions and relationships (including contingent fees or contingent interests) with each company in which the financial holding company holds an interest under this subpart; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Ensure the maintenance of corporate separateness between the financial holding company and each company in which the financial holding company holds an interest under this subpart and protect the financial holding company and its depository institution subsidiaries from legal liability for the operations conducted and financial obligations of each such company; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/a/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Ensure compliance with this part and any other provisions of law governing transactions and relationships with companies in which the financial holding company holds an interest under this subpart (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> fiduciary principles or sections 23A and 23B of the Federal Reserve Act (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref>, 371c–1), if applicable). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Availability of records.</heading>
<content> A financial holding company must make the policies, procedures and records required by paragraph (a)(1) of this section available to the Board or the appropriate Reserve Bank upon request. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>What periodic reports must be filed?</heading>
<content> A financial holding company must provide reports to the appropriate Reserve Bank in such format and at such times as the Board may prescribe. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Is notice required for the acquisition of companies?—</heading>
<paragraph identifier="/us/cfr/t12/s225.175/c/1" class="inline">
<num value="1">(1) </num>
<heading>Fulfillment of statutory notice requirement.</heading>
<content> Except as required in paragraph (c)(2) of this section, no post-acquisition notice under section 4(k)(6) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k/6">12 U.S.C. 1843(k)(6)</ref>) is required by a financial holding company in connection with an investment made under this subpart if the financial holding company has previously filed a notice under <ref href="/us/cfr/t12/s225.87">§ 225.87</ref> indicating that it had commenced merchant banking investment activities under this subpart. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.175/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notice of large individual investments.</heading>
<content> A financial holding company must provide written notice to the Board on the appropriate form within 30 days after acquiring more than 5 percent of the voting shares, assets or ownership interests of any company under this subpart, including an interest in a private equity fund, at a total cost to the financial holding company that exceeds the lesser of 5 percent of the Tier 1 capital of the financial holding company or $200 million.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.176">
<num value="225.176" style="-uslm-sgm:SECTNO">§ 225.176</num>
<heading style="-uslm-sgm:SUBJECT">How do the statutory cross marketing and sections 23A and B limitations apply to merchant banking investments? </heading>
<paragraph identifier="/us/cfr/t12/s225.176/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Are cross marketing activities prohibited?—</heading>
<paragraph identifier="/us/cfr/t12/s225.176/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> A depository institution, including a subsidiary of a depository institution, controlled by a financial holding company may not: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.176/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Offer or market, directly or through any arrangement, any product or service of any company if more than 5 percent of the company's voting shares, assets or ownership interests are owned or controlled by the financial holding company pursuant to this subpart; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Allow any product or service of the depository institution, including any product or service of a subsidiary of the depository institution, to be offered or marketed, directly or through any arrangement, by or through any company described in paragraph (a)(1)(i) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>How are certain subsidiaries treated?</heading>
<content> For purposes of paragraph (a)(1) of this section, a subsidiary of a depository institution does not include a financial subsidiary held in accordance with section 5136A of the Revised Statutes (<ref href="/us/usc/t12/s24a">12 U.S.C. 24a</ref>) or section 46 of the Federal Deposit Insurance Act. (<ref href="/us/usc/t12/s1831w">12 U.S.C. 1831w</ref>), any company held by a company owned in accordance with section 25 or 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s601">12 U.S.C. 601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.;</inline> <ref href="/us/usc/t12/s611">12 U.S.C. 611</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), <?page num="272"?>or any company held by a small business investment company owned in accordance with the Small Business Investment Act of 1958 (<ref href="/us/usc/t15/s661">15 U.S.C. 661</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>How do the cross marketing restrictions apply to private equity funds?</heading>
<chapeau> The restriction contained in paragraph (a)(1) of this section does not apply to: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.176/a/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Portfolio companies held by a private equity fund that the financial holding company does not control; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The sale, offer or marketing of any interest in a private equity fund, whether or not controlled by the financial holding company. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>When are companies held under section 4(k)(4)(H) affiliates under sections 23A and B?—</heading>
<paragraph identifier="/us/cfr/t12/s225.176/b/1" class="inline">
<num value="1">(1) </num>
<heading>Rebuttable presumption of control.</heading>
<content> The following rebuttable presumption of control shall apply for purposes of sections 23A and 23B of the Federal Reserve Act (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref>, 371c-1): if a financial holding company directly or indirectly owns or controls more than 15 percent of the total equity of a company pursuant to this subpart, the company shall be presumed to be an affiliate of any member bank that is affiliated with the financial holding company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Request to rebut presumption.</heading>
<content> A financial holding company may rebut this presumption by providing information acceptable to the Board demonstrating that the financial holding company does not control the company. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Presumptions that control does not exist.</heading>
<chapeau> Absent evidence to the contrary, the presumption in paragraph (b)(1) of this section will be considered to have been rebutted without Board approval under paragraph (b)(2) of this section if any one of the following requirements are met: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.176/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> No officer, director or employee of the financial holding company serves as a director, trustee, or general partner (or individual exercising similar functions) of the company; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A person that is not affiliated or associated with the financial holding company owns or controls a greater percentage of the equity capital of the portfolio company than the amount owned or controlled by the financial holding company, and no more than one officer or employee of the holding company serves as a director or trustee (or individual exercising similar functions) of the company; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A person that is not affiliated or associated with the financial holding company owns or controls more than 50 percent of the voting shares of the portfolio company, and officers and employees of the holding company do not constitute a majority of the directors or trustees (or individuals exercising similar functions) of the company. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Convertible instruments.</heading>
<content> For purposes of paragraph (b)(1) of this section, equity capital includes options, warrants and any other instrument convertible into equity capital. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Application of presumption to private equity funds.</heading>
<content> A financial holding company will not be presumed to own or control the equity capital of a company for purposes of paragraph (b)(1) of this section solely by virtue of an investment made by the financial holding company in a private equity fund that owns or controls the equity capital of the company unless the financial holding company controls the private equity fund as described in <ref href="/us/cfr/t12/s225.173/d/4">§ 225.173(d)(4)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Application of sections 23A and B to U.S. branches and agencies of foreign banks.</heading>
<chapeau> Sections 23A and 23B of the Federal Reserve Act (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref>, 371c–1) shall apply to all covered transactions between each U.S. branch and agency of a foreign bank that acquires or controls, or that is affiliated with a company that acquires or controls, merchant banking investments and—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.176/b/6/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any portfolio company that the foreign bank or affiliated company controls or is presumed to control under paragraph (b)(1) of this section; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.176/b/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any company that the foreign bank or affiliated company controls or is presumed to control under paragraph (b)(1) of this section if the company is engaged in acquiring or controlling merchant banking investments and the proceeds of the covered transaction are used for the purpose of funding the company's merchant banking investment activities.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s225.177"><?page num="273"?>
<num value="225.177" style="-uslm-sgm:SECTNO">§ 225.177 </num>
<heading style="-uslm-sgm:SUBJECT">Definitions. </heading>
<content>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">What do references to a financial holding company include?</inline> (1) Except as otherwise expressly provided, the term “financial holding company” as used in this subpart means the financial holding company and all of its subsidiaries, including a private equity fund or other fund controlled by the financial holding company. </p>
<p style="-uslm-sgm:P">(2) Except as otherwise expressly provided, the term “financial holding company” does not include a depository institution or subsidiary of a depository institution or any portfolio company controlled directly or indirectly by the financial holding company. </p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">What do references to a depository institution include?</inline> For purposes of this subpart, the term “depository institution” includes a U.S. branch or agency of a foreign bank. </p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">What is a portfolio company?</inline> A portfolio company is any company or entity: </p>
<p style="-uslm-sgm:P">(1) That is engaged in any activity not authorized for the financial holding company under section 4 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>); and </p>
<p style="-uslm-sgm:P">(2) Any shares, assets or ownership interests of which are held, owned or controlled directly or indirectly by the financial holding company pursuant to this subpart, including through a private equity fund that the financial holding company controls. </p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Who are the executive officers of a company? </inline> (1) An executive officer of a company is any person who participates or has the authority to participate (other than in the capacity as a director) in major policymaking functions of the company, whether or not the officer has an official title, the title designates the officer as an assistant, or the officer serves without salary or other compensation. </p>
<p style="-uslm-sgm:P">(2) The term “executive officer” does not include—</p>
<p style="-uslm-sgm:P">(i) Any person, including a person with an official title, who may exercise a certain measure of discretion in the performance of his duties, including the discretion to make decisions in the ordinary course of the company's business, but who does not participate in the determination of major policies of the company and whose decisions are limited by policy standards fixed by senior management of the company; or </p>
<p style="-uslm-sgm:P">(ii) Any person who is excluded from participating (other than in the capacity of a director) in major policymaking functions of the company by resolution of the board of directors or by the bylaws of the company and who does not in fact participate in such policymaking functions.
</p>
</content>
</section>
<level style="-uslm-sgm:SUBJGRP">
<heading style="-uslm-sgm:HED">Conditions to Orders
</heading>
</level>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spK">
<num value="K" style="-uslm-sgm:HED">Subpart K—</num>
<heading style="-uslm-sgm:HED">Proprietary Trading and Relationships With Hedge Funds and Private Equity Funds</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/76/8275">76 FR 8275</ref>, <date date="2011-02-14">Feb. 14, 2011</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s225.180">
<num value="225.180" style="-uslm-sgm:SECTNO">§ 225.180</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">For purposes of this subpart:</p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Banking entity</inline> means—</p>
<p style="-uslm-sgm:P">(1) Any insured depository institution;</p>
<p style="-uslm-sgm:P">(2) Any company that controls an insured depository institution;</p>
<p style="-uslm-sgm:P">(3) Any company that is treated as a bank holding company for purposes of section 8 of the International Banking Act of 1978; and</p>
<p style="-uslm-sgm:P">(4) Any affiliate or subsidiary of any of the foregoing entities.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Hedge fund</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">private equity fund</inline> mean an issuer that would be an investment company, as defined in the Investment Company Act of 1940 (<ref href="/us/usc/t15/s80a–1">15 U.S.C. 80a–1</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), but for section 3(c)(1) or 3(c)(7) of that Act, or such similar funds as the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission may, by rule, as provided in section 13(b)(2) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851/b/2">12 U.S.C. 1851(b)(2)</ref>), determine.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insured depository institution</inline> has the same meaning as given that term in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>), except that for purposes of this subpart the term shall not include an institution that functions solely in a trust or fiduciary capacity if—</p>
<p style="-uslm-sgm:P">(1) All or substantially all of the deposits of such institution are in trust <?page num="274"?>funds and are received in a bona fide fiduciary capacity;</p>
<p style="-uslm-sgm:P">(2) No deposits of such institution which are insured by the Federal Deposit Insurance Corporation are offered or marketed by or through an affiliate of such institution;</p>
<p style="-uslm-sgm:P">(3) Such institution does not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others or make commercial loans; and</p>
<p style="-uslm-sgm:P">(4) Such institution does not—</p>
<p style="-uslm-sgm:P">(i) Obtain payment or payment related services from any Federal Reserve bank, including any service referred to in section 11A of the Federal Reserve Act (<ref href="/us/usc/t12/s248a">12 U.S.C. 248a</ref>); or</p>
<p style="-uslm-sgm:P">(ii) Exercise discount or borrowing privileges pursuant to section 19(b)(7) of the Federal Reserve Act (<ref href="/us/usc/t12/s416/b/7">12 U.S.C. 416(b)(7)</ref>).</p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonbank financial company supervised by the Board</inline> means a nonbank financial company supervised by the Board of Governors, as defined in section 102 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (<ref href="/us/usc/t12/s5311">12 U.S.C. 5311</ref>).</p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board</inline> means the Board of Governors of the Federal Reserve System.</p>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Illiquid fund</inline> means a hedge fund or private equity fund that:</p>
<p style="-uslm-sgm:P">(1) As of <date date="2010-05-01">May 1, 2010</date>—</p>
<p style="-uslm-sgm:P">(i) Was principally invested in illiquid assets; or</p>
<p style="-uslm-sgm:P">(ii) Was invested in, and contractually committed to principally invest in, illiquid assets; and</p>
<p style="-uslm-sgm:P">(2) Makes all investments pursuant to, and consistent with, an investment strategy to principally invest in illiquid assets.</p>
<p style="-uslm-sgm:P">(g) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Illiquid assets</inline> means any real property, security, obligation, or other asset that—</p>
<p style="-uslm-sgm:P">(1) Is not a liquid asset;</p>
<p style="-uslm-sgm:P">(2) Because of statutory or regulatory restrictions applicable to the hedge fund, private equity fund or asset, cannot be offered, sold, or otherwise transferred by the hedge fund or private equity fund to a person that is unaffiliated with the relevant banking entity; or</p>
<p style="-uslm-sgm:P">(3) Because of contractual restrictions applicable to the hedge fund, private equity fund or asset, cannot be offered, sold, or otherwise transferred by the hedge fund or private equity fund for a period of 3 years or more to a person that is unaffiliated with the relevant banking entity.</p>
<p style="-uslm-sgm:P">(h) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Liquid asset</inline> means:</p>
<p style="-uslm-sgm:P">(1) Cash or cash equivalents;</p>
<p style="-uslm-sgm:P">(2) An asset that is traded on a recognized, established exchange, trading facility or other market on which there exist independent, bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined for the particular asset almost instantaneously;</p>
<p style="-uslm-sgm:P">(3) An asset for which there are bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system or similar system or for which multiple dealers furnish bona fide, competitive bid and offer quotations to other brokers and dealers on request;</p>
<p style="-uslm-sgm:P">(4) An asset the price of which is quoted routinely in a widely disseminated publication that is readily available to the general public or through an electronic service that provides indicative data from real-time financial networks;</p>
<p style="-uslm-sgm:P">(5) An asset with an initial term of one year or less and the payments on which at maturity may be settled, closed-out, or paid in cash or one or more other liquid assets described in paragraphs (h)(1), (2), (3), or (4); and</p>
<p style="-uslm-sgm:P">(6) Any other asset that the Board determines, based on all the facts and circumstances, is a liquid asset.</p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principally invested</inline> and related definitions. A hedge fund or private equity fund:</p>
<p style="-uslm-sgm:P">(1) Is <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">principally invested</inline> in illiquid assets if at least 75 percent of the fund's consolidated total assets are—</p>
<p style="-uslm-sgm:P">(i) Illiquid assets; or</p>
<p style="-uslm-sgm:P">(ii) Risk-mitigating hedges entered into in connection with and related to individual or aggregated positions in, or holdings of, illiquid assets;</p>
<p style="-uslm-sgm:P">(2) Is <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">contractually committed to principally invest</inline> in illiquid assets if the fund's organizational documents, other documents that constitute a contractual obligation of the fund, or written representations contained in the fund's <?page num="275"?>offering materials distributed to potential investors provide for the fund to be principally invested in assets described in paragraph (i)(1) at all times other than during temporary periods, such as the period prior to the initial receipt of capital contributions from investors or the period during which the fund's investments are being liquidated and capital and profits are being returned to investors; and</p>
<p style="-uslm-sgm:P">(3) Has an <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">investment strategy to principally invest</inline> in illiquid assets if the fund—</p>
<p style="-uslm-sgm:P">(i) Markets or holds itself out to investors as intending to principally invest in assets described in paragraph (i)(1) of this section; or</p>
<p style="-uslm-sgm:P">(ii) Has a documented investment policy of principally investing in assets described in paragraph (i)(1) of this section.
</p>
<?GPOvSpace P?>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.181">
<num value="225.181" style="-uslm-sgm:SECTNO">§ 225.181</num>
<heading style="-uslm-sgm:SUBJECT">Conformance Period for Banking Entities Engaged in Prohibited Proprietary Trading or Private Fund Activities.</heading>
<paragraph identifier="/us/cfr/t12/s225.181/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Conformance Period—</heading>
<paragraph identifier="/us/cfr/t12/s225.181/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraph (b)(2) or (3) of this section, a banking entity shall bring its activities and investments into compliance with the requirements of section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) and this subpart no later than 2 years after the earlier of:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> <date date="2012-07-21">July 21, 2012</date>; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Twelve months after the date on which final rules adopted under section 13(b)(2) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851/b/2">12 U.S.C. 1851(b)(2)</ref>) are published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register.</inline>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>New banking entities.</heading>
<chapeau> A company that was not a banking entity, or a subsidiary or affiliate of a banking entity, as of <date date="2010-07-21">July 21, 2010</date>, and becomes a banking entity, or a subsidiary or affiliate of a banking entity, after that date shall bring its activities and investments into compliance with the requirements of section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) and this subpart before the later of—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The conformance date determined in accordance with paragraph (a)(1) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Two years after the date on which the company becomes a banking entity or a subsidiary or affiliate of a banking entity.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Extended conformance period.</heading>
<content> The Board may extend the two-year period under paragraph (a)(1) or (2) of this section by not more than three separate one-year periods, if, in the judgment of the Board, each such one-year extension is consistent with the purposes of section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) and this subpart and would not be detrimental to the public interest.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Illiquid funds—</heading>
<paragraph identifier="/us/cfr/t12/s225.181/b/1" class="inline">
<num value="1">(1) </num>
<heading>Extended transition period.</heading>
<chapeau> The Board may further extend the period provided by paragraph (a) of this section during which a banking entity may acquire or retain an equity, partnership, or other ownership interest in, or otherwise provide additional capital to, a private equity fund or hedge fund if—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The fund is an illiquid fund; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The acquisition or retention of such interest, or provision of additional capital, is necessary to fulfill a contractual obligation of the banking entity that was in effect on <date date="2010-05-01">May 1, 2010</date>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Duration limited.</heading>
<chapeau> The Board may grant a banking entity only one extension under paragraph (b)(1) of this section and such extension—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> May not exceed 5 years beyond any conformance period granted under paragraph (a)(3) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Shall terminate automatically on the date during any such extension on which the banking entity is no longer under a contractual obligation described in paragraph (b)(1)(ii).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Contractual obligation.</heading>
<chapeau> For purposes of this paragraph (b)—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> A banking entity has a contractual obligation to take or retain an equity, partnership, or other ownership interest in an illiquid fund if the banking entity is prohibited from redeeming all of its equity, partnership, or other ownership interests in the fund, and from selling or otherwise transferring all such ownership interests to a person that is not an affiliate of the banking entity—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Under the terms of the banking entity's equity, partnership, or other ownership interest in the fund or the banking entity's other contractual arrangements with the fund or unaffiliated investors in the fund; or
<?page num="276"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the banking entity is the sponsor of the fund, under the terms of a written representation made by the banking entity in the fund's offering materials distributed to potential investors;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> A banking entity has a contractual obligation to provide additional capital to an illiquid fund if the banking entity is required to provide additional capital to such fund—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Under the terms of its equity, partnership or other ownership interest in the fund or the banking entity's other contractual arrangements with the fund or unaffiliated investors in the fund; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the banking entity is the sponsor of the fund, under the terms of a written representation made by the banking entity in the fund's offering materials distributed to potential investors; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> A banking entity shall be considered to have a contractual obligation for purposes of paragraph (b)(3)(i) or (ii) of this section only if—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The obligation may not be terminated by the banking entity or any of its subsidiaries or affiliates under the terms of its agreement with the fund; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/b/3/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In the case of an obligation that may be terminated with the consent of other persons, the banking entity and its subsidiaries and affiliates have used their reasonable best efforts to obtain such consent and such consent has been denied.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Approval required to hold interests in excess of time limit.</heading>
<chapeau> The conformance period in paragraph (a) of this section may be extended in accordance with paragraph (a)(3) or (b) of this section only with the approval of the Board. A banking entity that seeks the Board's approval for an extension of the conformance period under paragraph (a)(3) or for an extended transition period under paragraph (b)(1) must—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Submit a request in writing to the Board at least 180 days prior to the expiration of the applicable time period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provide the reasons why the banking entity believes the extension should be granted, including information that addresses the factors in paragraph (d)(1) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Provide a detailed explanation of the banking entity's plan for divesting or conforming the activity or investment(s).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Factors governing Board determinations—</heading>
<paragraph identifier="/us/cfr/t12/s225.181/d/1" class="inline">
<num value="1">(1) </num>
<heading>Extension requests generally.</heading>
<chapeau> In reviewing any application by a specific company for an extension under paragraph (a)(3) or (b)(1) of this section, the Board may consider all the facts and circumstances related to the activity, investment, or fund, including, to the extent relevant—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> Whether the activity or investment—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Involves or results in material conflicts of interest between the banking entity and its clients, customers or counterparties;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Would result, directly or indirectly, in a material exposure by the banking entity to high-risk assets or high-risk trading strategies;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Would pose a threat to the safety and soundness of the banking entity; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Would pose a threat to the financial stability of the United States;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Market conditions;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The nature of the activity or investment;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The date that the banking entity's contractual obligation to make or retain an investment in the fund was incurred and when it expires;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The contractual terms governing the banking entity's interest in the fund;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> The degree of control held by the banking entity over investment decisions of the fund;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> The types of assets held by the fund, including whether any assets that were illiquid when first acquired by the fund have become liquid assets, such as, for example, because any statutory, regulatory, or contractual restrictions on the offer, sale, or transfer of such assets have expired;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> The date on which the fund is expected to wind up its activities and liquidate, or its investments may be redeemed or sold;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<content> The total exposure of the banking entity to the activity or investment and the risks that disposing of, or maintaining, the investment or activity may pose to the banking entity or the financial stability of the United States;
<?page num="277"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/x" style="-uslm-sgm:P">
<num value="x">(x)</num>
<content> The cost to the banking entity of divesting or disposing of the activity or investment within the applicable period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/xi" style="-uslm-sgm:P">
<num value="xi">(xi)</num>
<content> Whether the divestiture or conformance of the activity or investment would involve or result in a material conflict of interest between the banking entity and unaffiliated clients, customers or counterparties to which it owes a duty;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/xii" style="-uslm-sgm:P">
<num value="xii">(xii)</num>
<content> The banking entity's prior efforts to divest or conform the activity or investment(s), including, with respect to an illiquid fund, the extent to which the banking entity has made efforts to terminate or obtain a waiver of its contractual obligation to take or retain an equity, partnership, or other ownership interest in, or provide additional capital to, the illiquid fund; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/1/xiii" style="-uslm-sgm:P">
<num value="xiii">(xiii)</num>
<content> Any other factor that the Board believes appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Timing of Board review.</heading>
<content> The Board will seek to act on any request for an extension under paragraph (a)(3) or (b)(1) of this section no later than 90 calendar days after the receipt of a complete record with respect to such request.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Consultation.</heading>
<content> In the case of a banking entity that is primarily supervised by another Federal banking agency, the Securities and Exchange Commission, or the Commodity Futures Trading Commission, the Board will consult with such agency prior to the approval of a request by the banking entity for an extension under paragraph (a)(3) or (b)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Authority to impose restrictions on activities or investments during any extension period—</heading>
<paragraph identifier="/us/cfr/t12/s225.181/e/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> The Board may impose such conditions on any extension approved under paragraph (a)(3) or (b)(1) of this section as the Board determines are necessary or appropriate to protect the safety and soundness of the banking entity or the financial stability of the United States, address material conflicts of interest or other unsound banking practices, or otherwise further the purposes of section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) and this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.181/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Consultation.</heading>
<content>
<p> In the case of a banking entity that is primarily supervised by another Federal banking agency, the Securities and Exchange Commission, or the Commodity Futures Trading Commission, the Board will consult with such agency prior to imposing conditions on the approval of a request by the banking entity for an extension under paragraph (a)(3) or (b)(1) of this section.
</p>
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</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.182">
<num value="225.182" style="-uslm-sgm:SECTNO">§ 225.182</num>
<heading style="-uslm-sgm:SUBJECT">Conformance Period for Nonbank Financial Companies Supervised by the Board Engaged in Proprietary Trading or Private Fund Activities.</heading>
<paragraph identifier="/us/cfr/t12/s225.182/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Divestiture requirement.</heading>
<content> A nonbank financial company supervised by the Board shall come into compliance with all applicable requirements of section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) and this subpart, including any capital requirements or quantitative limitations adopted thereunder and applicable to the company, not later than 2 years after the date the company becomes a nonbank financial company supervised by the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.182/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Extensions.</heading>
<content> The Board may, by rule or order, extend the two-year period under paragraph (a) by not more than three separate one-year periods, if, in the judgment of the Board, each such one-year extension is consistent with the purposes of section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) and this subpart and would not be detrimental to the public interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.182/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Approval required to hold interests in excess of time limit.</heading>
<chapeau> A nonbank financial company supervised by the Board that seeks the Board's approval for an extension of the conformance period under paragraph (b) of this section must—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.182/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Submit a request in writing to the Board at least 180 days prior to the expiration of the applicable time period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.182/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provide the reasons why the nonbank financial company supervised by the Board believes the extension should be granted; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.182/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Provide a detailed explanation of the company's plan for conforming the activity or investment(s) to any applicable requirements established under section 13(a)(2) or (f)(4) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851/a/2">12 U.S.C. 1851(a)(2)</ref> and (f)(4)).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.182/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Factors governing Board determinations—</heading>
<paragraph identifier="/us/cfr/t12/s225.182/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> In reviewing any application for an extension under <?page num="278"?>paragraph (b) of this section, the Board may consider all the facts and circumstances related to the nonbank financial company and the request including, to the extent determined relevant by the Board, the factors described in <ref href="/us/cfr/t12/s225.181/d/1">§ 225.181(d)(1)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.182/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Timing.</heading>
<content> The Board will seek to act on any request for an extension under paragraph (b) of this section no later than 90 calendar days after the receipt of a complete record with respect to such request.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.182/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Authority to impose restrictions on activities or investments during any extension period.</heading>
<content>
<p> The Board may impose conditions on any extension approved under paragraph (b) of this section as the Board determines are necessary or appropriate to protect the safety and soundness of the nonbank financial company or the financial stability of the United States, address material conflicts of interest or other unsound practices, or otherwise further the purposes of section 13 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1851">12 U.S.C. 1851</ref>) and this subpart.
</p>
<?GPOvSpace P?>
</content>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spL">
<num value="L" style="-uslm-sgm:HED">Subpart L—</num>
<heading style="-uslm-sgm:HED">Conditions to Orders</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/76/8275">76 FR 8275</ref>, <date date="2011-02-14">Feb. 14, 2011</date>, unless otherwise noted.
</source>
<?GPOvSpace P?>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.200">
<num value="225.200" style="-uslm-sgm:SECTNO">§ 225.200 </num>
<heading style="-uslm-sgm:SUBJECT">Conditions to Board's section 20 orders. </heading>
<paragraph identifier="/us/cfr/t12/s225.200/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Introduction.</heading>
<content> Under section 20 of the Glass-Steagall Act (<ref href="/us/usc/t12/s377">12 U.S.C. 377</ref>) and section 4(c)(8) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/c/8">12 U.S.C. 1843(c)(8)</ref>), a nonbank subsidiary of a bank holding company may to a limited extent underwrite and deal in securities for which underwriting and dealing by a member bank is prohibited. Pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, these so-called section 20 subsidiaries are required to register with the SEC as broker-dealers and are subject to all the financial reporting, anti-fraud and financial responsibility rules applicable to broker-dealers. In addition, transactions between insured depository institutions and their section 20 affiliates are restricted by sections 23A and 23B of the Federal Reserve Act (<ref href="/us/usc/t12/s371c">12 U.S.C. 371c</ref> and 371c–1). The Board expects a section 20 subsidiary, like any other subsidiary of a bank holding company, to be operated prudently. Doing so would include observing corporate formalities (such as the maintenance of separate accounting and corporate records), and instituting appropriate risk management, including independent trading and exposure limits consistent with parent company guidelines. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Conditions.</heading>
<chapeau> As a condition of each order approving establishment of a section 20 subsidiary, a bank holding company shall comply with the following conditions. </chapeau>
<paragraph identifier="/us/cfr/t12/s225.200/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Capital.</heading>
<paragraph identifier="/us/cfr/t12/s225.200/b/1/i" class="inline">
<num value="i"> (i)</num>
<content> A bank holding company shall maintain adequate capital on a fully consolidated basis. If operating a section 20 authorized to underwrite and deal in all types of debt and equity securities, a bank holding company shall maintain strong capital on a fully consolidated basis. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> In the event that a bank or thrift affiliate of a section 20 subsidiary shall become less than well capitalized (as defined in section 38 of the Federal Deposit Insurance Act, <ref href="/us/usc/t12/s1831o">12 U.S.C. 1831o</ref>), and the bank holding company shall fail to restore it promptly to the well capitalized level, the Board may, in its discretion, reimpose the funding, credit extension and credit enhancement firewalls contained in its 1989 order allowing underwriting and dealing in bank-ineligible securities, <ref id="fnd3e16857" idref="fnd3e16863" style="-uslm-sgm:SU">1</ref> or order the bank holding company to divest the section 20 subsidiary. </p>
<footnote id="fnd3e16863" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e16857" style="-uslm-sgm:SU">1</ref> Firewalls 5–8, 19, 21 and 22 of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">J.P. Morgan &amp; Co., The Chase Manhattan Corp., Bankers Trust New York Corp., Citicorp, and Security Pacific Corp.,</inline> 75 Federal Reserve Bulletin 192, 214–16 (1989).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content>
<p> A foreign bank that operates a branch or agency in the United States shall maintain strong capital on a fully consolidated basis at levels above the minimum levels required by the Basle Capital Accord. In the event that the Board determines that the foreign bank's capital has fallen below these levels and the foreign bank fails to restore its capital position promptly, the Board may, in its discretion, reimpose the funding, credit extension and credit enhancement firewalls contained in its 1990 order allowing foreign banks to <?page num="279"?>underwrite and deal in bank-ineligible securities, <ref id="fnd3e16873" idref="fnd3e16879" style="-uslm-sgm:SU">2</ref> or order the foreign bank to divest the section 20 subsidiary. </p>
<footnote id="fnd3e16879" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e16873" style="-uslm-sgm:SU">2</ref> Firewalls 5–8, 19, 21 and 22 of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Canadian Imperial Bank of Commerce, The Royal Bank of Canada, Barclays PLC and Barclays Bank PLC,</inline> 76 Federal Reserve Bulletin 158, (1990).</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Internal controls.</heading>
<paragraph identifier="/us/cfr/t12/s225.200/b/2/i" class="inline">
<num value="i"> (i)</num>
<content>
<p> Each bank holding company or foreign bank shall cause its subsidiary banks, thrifts, branches or agencies <ref id="fnd3e16890" idref="fnd3e16896" style="-uslm-sgm:SU">3</ref> to adopt policies and procedures, including appropriate limits on exposure, to govern their participation in transactions underwritten or arranged by a section 20 affiliate. </p>
<footnote id="fnd3e16896" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e16890" style="-uslm-sgm:SU">3</ref> The terms “branch” and “agency” refer to a U.S. branch and agency of a foreign bank.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Each bank holding company or foreign bank shall ensure that an independent and thorough credit evaluation has been undertaken in connection with participation by a bank, thrift, or branch or agency in such transactions, and that adequate documentation of that evaluation is maintained for review by examiners of the appropriate federal banking agency and the Federal Reserve. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Interlocks restriction.</heading>
<paragraph identifier="/us/cfr/t12/s225.200/b/3/i" class="inline">
<num value="i"> (i)</num>
<content> Directors, officers or employees of a bank or thrift subsidiary of a bank holding company, or a bank or thrift subsidiary or branch or agency of a foreign bank, shall not serve as a majority of the board of directors or the chief executive officer of an affiliated section 20 subsidiary. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Directors, officers or employees of a section 20 subsidiary shall not serve as a majority of the board of directors or the chief executive officer of an affiliated bank or thrift subsidiary or branch or agency, except that the manager of a branch or agency may act as a director of the underwriting subsidiary. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> For purposes of this standard, the manager of a branch or agency of a foreign bank generally will be considered to be the chief executive officer of the branch or agency. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Customer disclosure—</heading>
<paragraph identifier="/us/cfr/t12/s225.200/b/4/i" class="inline">
<num value="i">(i) </num>
<heading>Disclosure to section 20 customers.</heading>
<content>
<p> A section 20 subsidiary shall provide, in writing, to each of its retail customers, <ref id="fnd3e16919" idref="fnd3e16925" style="-uslm-sgm:SU">4</ref> at the time an investment account is opened, the same minimum disclosures, and obtain the same customer acknowledgment, described in the Interagency Statement on Retail Sales of Nondeposit Investment Products (Statement) as applicable in such situations. These disclosures must be provided regardless of whether the section 20 subsidiary is itself engaged in activities through arrangements with a bank that is covered by the Statement.</p>
<footnote id="fnd3e16925" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e16919" style="-uslm-sgm:SU">4</ref> For purposes of this operating standard, a retail customer is any customer that is not an “accredited investor” as defined in <ref href="/us/cfr/t17/s230.501/a">17 CFR 230.501(a)</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Disclosures accompanying investment advice.</heading>
<content> A director, officer, or employee of a bank, thrift, branch or agency may not express an opinion on the value or the advisability of the purchase or the sale of a bank-ineligible security that he or she knows is being underwritten or dealt in by a section 20 affiliate unless he or she notifies the customer of the affiliate's role. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Intra-day credit.</heading>
<content> Any intra-day extension of credit to a section 20 subsidiary by an affiliated bank, thrift, branch or agency shall be on market terms consistent with section 23B of the Federal Reserve Act. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Restriction on funding purchases of securities during underwriting period.</heading>
<chapeau> No bank, thrift, branch or agency shall knowingly extend credit to a customer secured by, or for the purpose of purchasing, any bank-ineligible security that a section 20 affiliate is underwriting or has underwritten within the past 30 days, unless: </chapeau>
<paragraph identifier="/us/cfr/t12/s225.200/b/6/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The extension of credit is made pursuant to, and consistent with any conditions imposed in a preexisting line of credit that was not established in contemplation of the underwriting; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The extension of credit is made in connection with clearing transactions for the section 20 affiliate. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Reporting requirement.</heading>
<paragraph identifier="/us/cfr/t12/s225.200/b/7/i" class="inline">
<num value="i"> (i)</num>
<content> Each bank holding company or foreign bank shall submit quarterly to the appropriate Federal Reserve Bank any FOCUS report filed with the NASD or other self-regulatory organizations, and any information required by the Board to monitor compliance with these operating standards and section <?page num="280"?>20 of the Glass-Steagall Act, on forms provided by the Board. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In the event that a section 20 subsidiary is required to furnish notice concerning its capitalization to the Securities and Exchange Commission pursuant to <ref href="/us/cfr/t17/s240.17a">17 CFR 240.17a</ref>–11, a copy of the notice shall be filed concurrently with the appropriate Federal Reserve Bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.200/b/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Foreign banks.</heading>
<content> A foreign bank shall ensure that any extension of credit by its branch or agency to a section 20 affiliate, and any purchase by such branch or agency, as principal or fiduciary, of securities for which a section 20 affiliate is a principal underwriter, conforms to sections 23A and 23B of the Federal Reserve Act, and that its branches and agencies not advertise or suggest that they are responsible for the obligations of a section 20 affiliate, consistent with section 23B(c) of the Federal Reserve Act. </content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/62/45306">62 FR 45306</ref>, <date date="1997-08-27">Aug. 27, 1997</date>, as amended by Reg. Y, <ref href="/us/fr/63/14804">63 FR 14804</ref>, <date date="1998-03-27" role="amended">Mar. 27, 1998</date>]
</source>
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</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spM">
<num value="M" style="-uslm-sgm:HED">Subpart M—</num>
<heading style="-uslm-sgm:HED">Minimum Requirements for Appraisal Management Companies</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/80/32681">80 FR 32681</ref>, <date date="2015-06-09">June 9, 2015</date>, unless otherwise noted.
</source>
<?GPOvSpace P?>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.190">
<num value="225.190" style="-uslm-sgm:SECTNO">§ 225.190</num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, and scope.</heading>
<paragraph identifier="/us/cfr/t12/s225.190/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority.</heading>
<content> This subpart is issued by the Board of Governors of the Federal Reserve System (the Board) pursuant to title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (<ref href="/us/pl/101/73">Pub. L. 101–73</ref>, <ref href="/us/stat/103/183">103 Stat. 183</ref> (1989)), <ref href="/us/usc/t12/s3310">12 U.S.C. 3310</ref>, 3331–3351, section 1473 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, <ref href="/us/usc/t12/s3353">12 U.S.C. 3353</ref>, and section 5(b) of the Bank Holding Company Act, <ref href="/us/usc/t12/s1844/b">12 U.S.C. 1844(b)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.190/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purpose and scope.</heading>
<paragraph identifier="/us/cfr/t12/s225.190/b/1" class="inline">
<num value="1"> (1)</num>
<content> The purpose of this subpart is to implement sections 1109, 1117, 1121, and 1124 of FIRREA Title XI, <ref href="/us/usc/t12/s3338">12 U.S.C. 3338</ref>, 3346, 3350, and 3353. Title XI provides protection for Federal financial and public policy interests in real estate related transactions by requiring real estate appraisals used in connection with Federally related transactions to be performed in writing, in accordance with uniform standards, by appraisers whose competency has been demonstrated and whose professional conduct will be subject to effective supervision. This subpart implements the requirements of title XI as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act and applies to all Federally related transactions and to States and to appraisal management companies (AMCs) performing appraisal management services in connection with consumer credit transactions secured by a consumer's principal dwelling or securitizations of those transactions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.190/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> This subpart:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.190/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Identifies which real estate related financial transactions require the services of an appraiser.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.190/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Prescribes which categories of Federally related transactions shall be appraised by a State-certified appraiser and which by a State-licensed appraiser;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.190/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Prescribes minimum standards for the performance of real estate appraisals in connection with Federal related transactions under the jurisdiction of the Board;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.190/b/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Prescribes minimum requirements to be applied by participating States in the registration and supervision of AMCs; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.190/b/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Prescribes minimum requirements to be applied by participating States to report certain information concerning AMCs registered with the States to a national registry of AMCs.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.190/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Rule of construction.</heading>
<content>
<p> Nothing in this subpart should be construed to prevent a State from establishing requirements in addition to those in this subpart. In addition, nothing in this subpart should be construed to alter guidance in, and applicability of, the Interagency Appraisal and Evaluation Guidelines <ref id="fnd3e17008" idref="fnd3e17017" style="-uslm-sgm:SU">1</ref> or other relevant agency guidance that cautions banks and bank holding companies, that each organization is accountable for overseeing the <?page num="281"?>activities of third-party service providers and ensuring that any services provided by a third party comply with applicable laws, regulations, and supervisory guidance applicable directly to the creditor.</p>
<footnote id="fnd3e17017" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17008" style="-uslm-sgm:SU">1</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See,</inline> Agencies issue final appraisal and evalutation guidelines, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">http://www.federalreserve.gov/newsevents/press/bcreg/20101202a.htm.</inline>
</p>
</content>
</footnote>
<?GPOvSpace P?>
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s225.191">
<num value="225.191" style="-uslm-sgm:SECTNO">§ 225.191</num>
<heading style="-uslm-sgm:SUBJECT">Definitions.</heading>
<content>
<p style="-uslm-sgm:P">For purposes of this subpart:</p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate</inline> has the meaning provided in <ref href="/us/usc/t12/s1841">12 U.S.C. 1841</ref>.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">AMC National Registry</inline> means the registry of State-registered AMCs and Federally regulated AMCs maintained by the Appraisal Subcommittee.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal Foundation</inline> means the Appraisal Foundation established on <date date="1987-11-30">November 30, 1987</date>, as a not-for-profit corporation under the laws of Illinois.</p>
<p style="-uslm-sgm:P">(d)(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal management company</inline> (AMC) means a person that:</p>
<p style="-uslm-sgm:P">(i) Provides appraisal management services to creditors or to secondary mortgage market participants, including affiliates;</p>
<p style="-uslm-sgm:P">(ii) Provides such services in connection with valuing a consumer's principal dwelling as security for a consumer credit transaction or incorporating such transactions into securitizations; and</p>
<p style="-uslm-sgm:P">(iii) Within a 12-month period, as defined in <ref href="/us/cfr/t12/s225.192/d">§ 225.192(d)</ref>, oversees an appraiser panel of more than 15 State-certified or State-licensed appraisers in a State or 25 or more State-certified or State-licensed appraisers in two or more States, as described in <ref href="/us/cfr/t12/s225.192">§ 225.192</ref>;</p>
<p style="-uslm-sgm:P">(2) An AMC does not include a department or division of an entity that provides appraisal management services only to that entity.</p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal management services</inline> means one or more of the following:</p>
<p style="-uslm-sgm:P">(1) Recruiting, selecting, and retaining appraisers;</p>
<p style="-uslm-sgm:P">(2) Contracting with State-certified or State-licensed appraisers to perform appraisal assignments;</p>
<p style="-uslm-sgm:P">(3) Managing the process of having an appraisal performed, including providing administrative services such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and secondary market participants, collecting fees from creditors and secondary market participants for services provided, and paying appraisers for services performed; and</p>
<p style="-uslm-sgm:P">(4) Reviewing and verifying the work of appraisers.</p>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraiser panel</inline> means a network, list or roster of licensed or certified appraisers approved by an AMC to perform appraisals as independent contractors for the AMC. Appraisers on an AMC's “appraiser panel” under this part include both appraisers accepted by the AMC for consideration for future appraisal assignments in covered transactions or for secondary mortgage market participants in connection with covered transactions and appraisers engaged by the AMC to perform one or more appraisals in covered transactions or for secondary mortgage market participants in connection with covered transactions. An appraiser is an independent contractor for purposes of this part if the appraiser is treated as an independent contractor by the AMC for purposes of Federal income taxation.</p>
<p style="-uslm-sgm:P">(g) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer credit</inline> means credit offered or extended to a consumer primarily for personal, family, or household purposes.</p>
<p style="-uslm-sgm:P">(h) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Covered transaction</inline> means any consumer credit transaction secured by the consumer's principal dwelling.</p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor</inline> means:</p>
<p style="-uslm-sgm:P">(1) A person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.</p>
<p style="-uslm-sgm:P">(2) A person regularly extends consumer credit if the person extended credit (other than credit subject to the requirements of <ref href="/us/cfr/t12/s1026.32">12 CFR 1026.32</ref>) more than 5 times for transactions secured by a dwelling in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of <ref href="/us/cfr/t12/s1026.32">12 CFR 1026.32</ref> or one <?page num="282"?>or more such credit extensions through a mortgage broker.</p>
<p style="-uslm-sgm:P">(j) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dwelling</inline> means:</p>
<p style="-uslm-sgm:P">(1) A residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.</p>
<p style="-uslm-sgm:P">(2) A consumer can have only one “principal” dwelling at a time. Thus, a vacation or other second home would not be a principal dwelling. However, if a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within a year or upon the completion of construction, the new dwelling is considered the principal dwelling for purposes of this section.</p>
<p style="-uslm-sgm:P">(k) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Federally regulated AMC</inline> means an AMC that is owned and controlled by an insured depository institution, as defined in <ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref> and regulated by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation.</p>
<p style="-uslm-sgm:P">(l) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Federally related transaction regulations</inline> means regulations established by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, or the National Credit Union Administration, pursuant to sections 1112, 1113, and 1114 of FIRREA Title XI, <ref href="/us/usc/t12/s3341–3343">12 U.S.C. 3341–3343</ref>.</p>
<p style="-uslm-sgm:P">(m) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person</inline> means a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust, or government unit.</p>
<p style="-uslm-sgm:P">(n) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Secondary mortgage market participant</inline> means a guarantor or insurer of mortgage-backed securities, or an underwriter or issuer of mortgage-backed securities. Secondary mortgage market participant only includes an individual investor in a mortgage-backed security if that investor also serves in the capacity of a guarantor, insurer, underwriter, or issuer for the mortgage-backed security.</p>
<p style="-uslm-sgm:P">(o) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">States</inline> mean the 50 States and the District of Columbia and the territories of Guam, Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.</p>
<p style="-uslm-sgm:P">(p) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Uniform Standards of Professional Appraisal Practice</inline> (USPAP) means the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation.
</p>
<?GPOvSpace P?>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.192">
<num value="225.192" style="-uslm-sgm:SECTNO">§ 225.192</num>
<heading style="-uslm-sgm:SUBJECT">Appraiser panel—annual size calculation.</heading>
<chapeau style="-uslm-sgm:P">For purposes of determining whether, within a 12-month period, an AMC oversees an appraiser panel of more than 15 State-certified or State-licensed appraisers in a State or 25 or more State-certified or State-licensed appraisers in two or more States pursuant to <ref href="/us/cfr/t12/s225.191/d/1/iii">§ 225.191(d)(1)(iii)</ref>–</chapeau>
<paragraph identifier="/us/cfr/t12/s225.192/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<chapeau> An appraiser is deemed part of the AMC's appraiser panel as of the earliest date on which the AMC:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.192/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Accepts the appraiser for the AMC's consideration for future appraisal assignments in covered transactions or for secondary mortgage market participants in connection with covered transactions; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.192/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Engages the appraiser to perform one or more appraisals on behalf of a creditor for a covered transaction or secondary mortgage market participant in connection with a covered transaction.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.192/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> An appraiser who is deemed part of the AMC's appraiser panel pursuant to paragraph (a) of this section is deemed to remain on the panel until the date on which the AMC:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.192/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Sends written notice to the appraiser removing the appraiser from the appraiser panel, with an explanation of its action; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.192/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Receives written notice from the appraiser asking to be removed from the appraiser panel or notice of the death or incapacity of the appraiser.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.192/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> If an appraiser is removed from an AMC's appraiser panel pursuant to paragraph (b) of this section, but the AMC subsequently accepts the appraiser for consideration for future assignments or engages the appraiser at any time during the twelve months after the AMC's removal, the removal will be deemed not to have occurred, and the appraiser will be deemed to have been part of the AMC's appraiser panel without interruption.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.192/d" style="-uslm-sgm:P">
<num value="d">(d)</num>
<content>
<p> The period for purposes of counting appraisers on an AMC's appraiser <?page num="283"?>panel may be the calendar year or a 12-month period established by law or rule of each State with which the AMC is required to register.
</p>
<?GPOvSpace P?>
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.193">
<num value="225.193" style="-uslm-sgm:SECTNO">§ 225.193</num>
<heading style="-uslm-sgm:SUBJECT">Appraisal management company registration.</heading>
<chapeau style="-uslm-sgm:P">Each State electing to register AMCs pursuant to paragraph (b)(1) of this section must:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.193/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<chapeau> Establish and maintain within the State appraiser certifying and licensing agency a licensing program that is subject to the limitations set forth in <ref href="/us/cfr/t12/s225.194">§ 225.194</ref> and with the legal authority and mechanisms to:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.193/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Review and approve or deny an AMC's application for initial registration;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Review and renew or review and deny an AMC's registration periodically;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Examine the books and records of an AMC operating in the State and require the AMC to submit reports, information, and documents;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Verify that the appraisers on the AMC's appraiser panel hold valid State certifications or licenses, as applicable;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Conduct investigations of AMCs to assess potential violations of applicable appraisal-related laws, regulations, or orders;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/a/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Discipline, suspend, terminate, or deny renewal of the registration of an AMC that violates applicable appraisal-related laws, regulations, or orders; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/a/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Report an AMC's violation of applicable appraisal-related laws, regulations, or orders, as well as disciplinary and enforcement actions and other relevant information about an AMC's operations, to the Appraisal Subcommittee.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<chapeau> Impose requirements on AMCs that are not owned and controlled by an insured depository institution and not regulated by a Federal financial institutions regulatory agency to:</chapeau>
<paragraph identifier="/us/cfr/t12/s225.193/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Register with and be subject to supervision by the State appraiser certifying and licensing agency;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Engage only State-certified or State-licensed appraisers for Federally related transactions in conformity with any Federally related transaction regulations;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Establish and comply with processes and controls reasonably designed to ensure that the AMC, in engaging an appraiser, selects an appraiser who is independent of the transaction and who has the requisite education, expertise, and experience necessary to competently complete the appraisal assignment for the particular market and property type;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Direct the appraiser to perform the assignment in accordance with USPAP; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.193/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content>
<p> Establish and comply with processes and controls reasonably designed to ensure that the AMC conducts its appraisal management services in accordance with the requirements of section 129E(a)–(i) of the Truth in Lending Act, <ref href="/us/usc/t15/s1639e/a">15 U.S.C. 1639e(a)</ref>–(i), and regulations thereunder.
</p>
<?GPOvSpace P?>
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.194">
<num value="225.194" style="-uslm-sgm:SECTNO">§ 225.194</num>
<heading style="-uslm-sgm:SUBJECT">Ownership limitations for State-registered appraisal management companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.194/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Appraiser certification or licensing of owners.</heading>
<paragraph identifier="/us/cfr/t12/s225.194/a/1" class="inline">
<num value="1"> (1)</num>
<content> An AMC subject to State registration pursuant to <ref href="/us/cfr/t12/s225.193">§ 225.193</ref> shall not be registered by a State or included on the AMC National Registry if such AMC, in whole or in part, directly or indirectly, is owned by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any State for a substantive cause, as determined by the appropriate State appraiser certifying and licensing agency.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.194/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An AMC subject to State registration pursuant to <ref href="/us/cfr/t12/s225.193">§ 225.193</ref> is not barred by paragraph (a)(1) of this section from being registered by a State or included on the AMC National Registry if the license or certificate of the appraiser with an ownership interest was not revoked for a substantive cause and has been reinstated by the State or States in which the appraiser was licensed or certified.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.194/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Good moral character of owners.</heading>
<chapeau> An AMC shall not be registered by a State if any person that owns more than 10 percent of the AMC—</chapeau>
<paragraph identifier="/us/cfr/t12/s225.194/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Is determined by the State appraiser certifying and licensing agency not to have good moral character; or
<?page num="284"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.194/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> Fails to submit to a background investigation carried out by the State appraiser certifying and licensing agency.
</p>
<?GPOvSpace P?>
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.195">
<num value="225.195" style="-uslm-sgm:SECTNO">§ 225.195</num>
<heading style="-uslm-sgm:SUBJECT">Requirements for Federally regulated appraisal management companies.</heading>
<paragraph identifier="/us/cfr/t12/s225.195/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Requirements in providing services.</heading>
<content> To provide appraisal management services for a creditor or secondary mortgage market participant relating to a covered transaction, a Federally regulated AMC must comply with the requirements in <ref href="/us/cfr/t12/s225.193/b/2">§ 225.193(b)(2)</ref> through (5).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.195/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Ownership limitations.</heading>
<paragraph identifier="/us/cfr/t12/s225.195/b/1" class="inline">
<num value="1"> (1)</num>
<content> A Federally regulated AMC shall not be included on the AMC National Registry if such AMC, in whole or in part, directly or indirectly, is owned by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any State for a substantive cause, as determined by the ASC.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.195/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A Federally regulated AMC is not barred by this paragraph (b) from being included on the AMC National Registry if the license or certificate of the appraiser with an ownership interest was not revoked for a substantive cause and has been reinstated by the State or States in which the appraiser was licensed or certified.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s225.195/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Reporting information for the AMC National Registry.</heading>
<content>
<p> A Federally regulated AMC must report to the State or States in which it operates the information required to be submitted by the State to the Appraisal Subcommittee pursuant to the Appraisal Subcommittee's policies regarding the determination of the AMC National Registry fee, including but not necessarily limited to the collection of information related to the limitations set forth in this section.
</p>
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</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s225.196">
<num value="225.196" style="-uslm-sgm:SECTNO">§ 225.196</num>
<heading style="-uslm-sgm:SUBJECT">Information to be presented to the Appraisal Subcommittee by participating States.</heading>
<content style="-uslm-sgm:P">Each State electing to register AMCs for purposes of permitting AMCs to provide appraisal management services relating to covered transactions in the State must submit to the Appraisal Subcommittee the information required to be submitted by Appraisal Subcommittee regulations or guidance concerning AMCs that operate in the State.
</content>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p225/spNaN">
<heading style="-uslm-sgm:RESERVED"> 
</heading>
</subpart>
<?GPOvSpace P?>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 225, App. A</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix A to Part 225—</num>
<heading style="-uslm-sgm:HED">Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure </heading>
<heading style="-uslm-sgm:HD1">I. Overview</heading>
<p style="-uslm-sgm:P">The Board of Governors of the Federal Reserve System has adopted a risk-based capital measure to assist in the assessment of the capital adequacy of bank holding companies (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking organizations</inline>). <ref id="fnd3e17283" idref="fnd3e17292" style="-uslm-sgm:SU">1</ref> The principal objectives of this measure are to: (i) Make regulatory capital requirements more sensitive to differences in risk profiles among banking organizations; (ii) factor off-balance sheet exposures into the assessment of capital adequacy; (iii) minimize disincentives to holding liquid, low-risk assets; and (iv) achieve greater consistency in the evaluation of the capital adequacy of major banking organizations throughout the world. <ref id="fnd3e17287" idref="fnd3e17297" style="-uslm-sgm:SU">2</ref>
</p>
<footnote id="fnd3e17292" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17283" style="-uslm-sgm:SU">1</ref> Supervisory ratios that relate capital to total assets for bank holding companies are outlined in appendices B and D of this part.</p>
</content>
</footnote>
<footnote id="fnd3e17297" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17287" style="-uslm-sgm:SU">2</ref> The risk-based capital measure is based upon a framework developed jointly by supervisory authorities from the countries represented on the Basle Committee on Banking Regulations and Supervisory Practices (Basle Supervisors' Committee) and endorsed by the Group of Ten Central Bank Governors. The framework is described in a paper prepared by the BSC entitled “International Convergence of Capital Measurement,” July 1988.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">The risk-based capital guidelines include both a definition of capital and a framework for calculating weighted risk assets by assigning assets and off-balance sheet items to broad risk categories. An institution's risk-based capital ratio is calculated by dividing its qualifying capital (the numerator of the ratio) by its weighted risk assets (the denominator). <ref id="fnd3e17302" idref="fnd3e17310" style="-uslm-sgm:SU">3</ref> The definition of qualifying capital is outlined below in section II, and <?page num="285"?>the procedures for calculating weighted risk assets are discussed in section III. Attachment I illustrates a sample calculation of weighted risk assets and the risk-based capital ratio.</p>
<footnote id="fnd3e17310" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17302" style="-uslm-sgm:SU">3</ref> Banking organizations will initially be expected to utilize period-end amounts in calculating their risk-based capital ratios. When necessary and appropriate, ratios based on average balances may also be calculated on a case-by-case basis. Moreover, to the extent banking organizations have data on average balances that can be used to calculate risk-based ratios, the Federal Reserve will take such data into account.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">In addition, when certain organizations that engage in trading activities calculate their risk-based capital ratio under this appendix A, they must also refer to appendix E of this part, which incorporates capital charges for certain market risks into the risk-based capital ratio. When calculating their risk-based capital ratio under this appendix A, such organizations are required to refer to appendix E of this part for supplemental rules to determine qualifying and excess capital, calculate risk-weighted assets, calculate market risk equivalent assets, and calculate risk-based capital ratios adjusted for market risk. </p>
<p style="-uslm-sgm:P">The risk-based capital guidelines also establish a schedule for achieving a minimum supervisory standard for the ratio of qualifying capital to weighted risk assets and provide for transitional arrangements during a phase-in period to facilitate adoption and implementation of the measure at the end of 1992. These interim standards and transitional arrangements are set forth in section IV.</p>
<p style="-uslm-sgm:P">The risk-based guidelines apply on a consolidated basis to any bank holding company with consolidated assets of $500 million or more. The risk-based guidelines also apply on a consolidated basis to any bank holding company with consolidated assets of less than $500 million if the holding company (i) is engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (ii) conducts significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank subsidiary; or (iii) has a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the Securities and Exchange Commission (SEC). The Federal Reserve may apply the risk-based guidelines at its discretion to any bank holding company, regardless of asset size, if such action is warranted for supervisory purposes. <ref id="fnd3e17319" idref="fnd3e17326" style="-uslm-sgm:SU">4</ref>
</p>
<footnote id="fnd3e17326" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e17319" style="-uslm-sgm:SU">4</ref> [Reserved]</p>
</content>
</footnote>
<p style="-uslm-sgm:P">The risk-based guidelines are to be used in the inspection and supervisory process as well as in the analysis of applications acted upon by the Federal Reserve. Thus, in considering an application filed by a bank holding company, the Federal Reserve will take into account the organization's risk-based capital ratio, the reasonableness of its capital plans, and the degree of progress it has demonstrated toward meeting the interim and final risk-based capital standards.</p>
<p style="-uslm-sgm:P">The risk-based capital ratio focuses principally on broad categories of credit risk, although the framework for assigning assets and off-balance sheet items to risk categories does incorporate elements of transfer risk, as well as limited instances of interest rate and market risk. The risk-based ratio does not, however, incorporate other factors that can affect an organization's financial condition. These factors include overall interest rate exposure; liquidity, funding and market risks; the quality and level of earnings; investment or loan portfolio concentrations; the quality of loans and investments; the effectiveness of loan and investment policies; and management's ability to monitor and control financial and operating risks.</p>
<p style="-uslm-sgm:P">In addition to evaluating capital ratios, an overall assessment of capital adequacy must take account of these other factors, including, in particular, the level and severity of problem and classified assets. For this reason, the final supervisory judgment on an organization's capital adequacy may differ significantly from conclusions that might be drawn solely from the level of the organization's risk-based capital ratio.</p>
<p style="-uslm-sgm:P">The risk-based capital guidelines establish <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">minimum</inline> ratios of capital to weighted risk assets. In light of the considerations just discussed, banking organizations generally are expected to operate well above the minimum risk-based ratios. In particular, banking organizations contemplating significant expansion proposals are expected to maintain strong capital levels substantially above the minimum ratios and should not allow significant diminution of financial strength below these strong levels to fund their expansion plans. Institutions with high or inordinate levels of risk are also expected to operate above minimum capital standards. In all cases, institutions should hold capital commensurate with the level and nature of the risks to which they are exposed. Banking organizations that do not meet the minimum risk-based standard, or that are otherwise considered to be inadequately capitalized, are expected to develop and implement plans acceptable to the Federal Reserve for achieving adequate levels of capital within a reasonable period of time.</p>
<p style="-uslm-sgm:P">The Board will monitor the implementation and effect of these guidelines in relation to domestic and international developments in the banking industry. When necessary and appropriate, the Board will consider the need to modify the guidelines in light of any significant changes in the economy, financial markets, banking practices, or other relevant factors.</p>
<p style="-uslm-sgm:P">The Federal Reserve may determine that the regulatory capital treatment for a banking organization's exposure or other relationship to an entity not consolidated on the banking organization's balance sheet is not <?page num="286"?>commensurate with the actual risk relationship of the banking organization to the entity. In making this determination, the Federal Reserve may require the banking organization to treat the entity as if it were consolidated onto the balance sheet of the banking organization for risk-based capital purposes and calculate the appropriate risk-based capital ratios accordingly, all as specified by the Federal Reserve.</p>
<heading style="-uslm-sgm:HD1">II. Definition of Qualifying Capital for the Risk Based Capital Ratio</heading>
<p style="-uslm-sgm:P">(i) A banking organization's qualifying total capital consists of two types of capital components: “core capital elements” (tier 1 capital elements) and “supplementary capital elements” (tier 2 capital elements). These capital elements and the various limits, restrictions, and deductions to which they are subject, are discussed below. To qualify as an element of tier 1 or tier 2 capital, an instrument must be fully paid up and effectively unsecured. Accordingly, if a banking organization has purchased, or has directly or indirectly funded the purchase of, its own capital instrument, that instrument generally is disqualified from inclusion in regulatory capital. A qualifying tier 1 or tier 2 capital instrument must be subordinated to all senior indebtedness of the organization. If issued by a bank, it also must be subordinated to claims of depositors. In addition, the instrument must not contain or be covered by any covenants, terms, or restrictions that are inconsistent with safe and sound banking practices.</p>
<p style="-uslm-sgm:P">(ii) On a case-by-case basis, the Federal Reserve may determine whether, and to what extent, any instrument that does not fit wholly within the terms of a capital element set forth below, or that does not have the characteristics or the ability to absorb losses commensurate with the capital treatment specified below, will qualify as an element of tier 1 or tier 2 capital. In making such a determination, the Federal Reserve will consider the similarity of the instrument to instruments explicitly addressed in the guidelines; the ability of the instrument to absorb losses, particularly while the organization operates as a going concern; the maturity and redemption features of the instrument; and other relevant terms and factors.</p>
<p style="-uslm-sgm:P">(iii) The redemption of capital instruments before stated maturity could have a significant impact on an organization's overall capital structure. Consequently, an organization should consult with the Federal Reserve before redeeming any equity or other capital instrument included in tier 1 or tier 2 capital prior to stated maturity if such redemption could have a material effect on the level or composition of the organization's capital base. Such consultation generally would not be necessary when the instrument is to be redeemed with the proceeds of, or replaced by, a like amount of a capital instrument that is of equal or higher quality with regard to terms and maturity and the Federal Reserve considers the organization's capital position to be fully sufficient.</p>
<heading style="-uslm-sgm:HD2">A. The Definition and Components of Qualifying Capital</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tier 1 capital.</inline> Tier 1 capital generally is defined as the sum of core capital elements less any amounts of goodwill, other intangible assets, interest-only strips receivables, deferred tax assets, nonfinancial equity investments, and other items that are required to be deducted in accordance with section II.B. of this appendix. Tier 1 capital must represent at least 50 percent of qualifying total capital.</p>
<p style="-uslm-sgm:P">a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Core capital elements (tier 1 capital elements).</inline> The elements qualifying for inclusion in the tier 1 component of a banking organization's qualifying total capital are:</p>
<p style="-uslm-sgm:P">i. Qualifying common stockholders' equity;</p>
<p style="-uslm-sgm:P">ii. Qualifying noncumulative perpetual preferred stock, including related surplus, and senior perpetual preferred stock issued to the United States Department of the Treasury (Treasury) under the Troubled Asset Relief Program (TARP), established by the Emergency Economic Stabilization Act of 2008 (EESA), <ref href="/us/pl/110/343/dA">Division A of Public Law 110–343</ref> (which for purposes of this appendix shall be considered qualifying noncumulative perpetual preferred stock), including related surplus;</p>
<p style="-uslm-sgm:P">iii. Minority interest related to qualifying common or noncumulative perpetual preferred stock directly issued by a consolidated U.S. depository institution or foreign bank subsidiary (Class A minority interest); and</p>
<p style="-uslm-sgm:P">iv. Restricted core capital elements. The aggregate of these items is limited within tier 1 capital as set forth in section II.A.1.b. of this appendix. These elements are defined to include:</p>
<p style="-uslm-sgm:P">(1) Qualifying cumulative perpetual preferred stock (including related surplus);</p>
<p style="-uslm-sgm:P">(2) Minority interest related to qualifying cumulative perpetual preferred stock directly issued by a consolidated U.S. depository institution or foreign bank subsidiary (Class B minority interest);</p>
<p style="-uslm-sgm:P">(3) Minority interest related to qualifying common stockholders' equity or perpetual preferred stock issued by a consolidated subsidiary that is neither a U.S. depository institution nor a foreign bank (Class C minority interest);</p>
<p style="-uslm-sgm:P">(4) Qualifying trust preferred securities; and</p>
<p style="-uslm-sgm:P">(5) Subordinated debentures issued prior to <date date="2010-10-04">October 4, 2010</date>, to the Treasury under the TARP (TARP Subordinated Securities) established by the EESA by a bank holding company that has made a valid election to <?page num="287"?>be taxed under Subchapter S of Chapter 1 of the U.S. Internal Revenue Code (S-Corp BHC) or by a bank holding company organized in mutual form (Mutual BHC).</p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limits on restricted core capital elements</inline>—i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limits.</inline> (1) The aggregate amount of restricted core capital elements that may be included in the tier 1 capital of a banking organization must not exceed 25 percent of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Stated differently, the aggregate amount of restricted core capital elements is limited to one-third of the sum of core capital elements, excluding restricted core capital elements, net of goodwill less any associated deferred tax liability. Notwithstanding the foregoing, the full amount of TARP Subordinated Securities issued by an S–Corp BHC or Mutual BHC may be included in its tier 1 capital, provided that the banking organization must include the TARP Subordinated Securities in restricted core capital elements for the purposes of determining the aggregate amount of other restricted core capital elements that may be included in tier 1 capital in accordance with this section.</p>
<p style="-uslm-sgm:P">(2) In addition, the aggregate amount of restricted core capital elements (other than qualifying mandatory convertible preferred securities <ref id="fnd3e17398" idref="fnd3e17409" style="-uslm-sgm:SU">5</ref>) that may be included in the tier 1 capital of an internationally active banking organization <ref id="fnd3e17403" idref="fnd3e17414" style="-uslm-sgm:SU">6</ref> must not exceed 15 percent of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability.</p>
<footnote id="fnd3e17409" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17398" style="-uslm-sgm:SU">5</ref> Qualifying mandatory convertible preferred securities generally consist of the joint issuance by a bank holding company to investors of trust preferred securities and a forward purchase contract, which the investors fully collateralize with the securities, that obligates the investors to purchase a fixed amount of the bank holding company's common stock, generally in three years. A bank holding company wishing to issue mandatorily convertible preferred securities and include them in tier 1 capital must consult with the Federal Reserve prior to issuance to ensure that the securities' terms are consistent with tier 1 capital treatment.</p>
</content>
</footnote>
<footnote id="fnd3e17414" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17403" style="-uslm-sgm:SU">6</ref> For this purpose, an internationally active banking organization is a banking organization that (1) as of its most recent year-end FR Y–9C reports total consolidated assets equal to $250 billion or more or (2) on a consolidated basis, reports total on-balance-sheet foreign exposure of $10 billion or more on its filings of the most recent year-end FFIEC 009 Country Exposure Report.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(3) Amounts of restricted core capital elements in excess of this limit generally may be included in tier 2 capital. The excess amounts of restricted core capital elements that are in the form of Class C minority interest and qualifying trust preferred securities are subject to further limitation within tier 2 capital in accordance with section II.A.2.d.iv. of this appendix. A banking organization may attribute excess amounts of restricted core capital elements first to any qualifying cumulative perpetual preferred stock or to Class B minority interest, and second to qualifying trust preferred securities or to Class C minority interest, which are subject to a tier 2 sublimit.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transition.</inline>
</p>
<p style="-uslm-sgm:P">(1) The quantitative limits for restricted core capital elements set forth in sections II.A.1.b.i. and II.A.2.d.iv. of this appendix become effective on <date date="2011-03-31">March 31, 2011</date>. Prior to that time, a banking organization with restricted core capital elements in amounts that cause it to exceed these limits must consult with the Federal Reserve on a plan for ensuring that the banking organization is not unduly relying on these elements in its capital base and, where appropriate, for reducing such reliance to ensure that the organization complies with these limits as of <date date="2011-03-31">March 31, 2011</date>.</p>
<p style="-uslm-sgm:P">(2) Until <date date="2011-03-31">March 31, 2011</date>, the aggregate amount of qualifying cumulative perpetual preferred stock (including related surplus) and qualifying trust preferred securities that a banking organization may include in tier 1 capital is limited to 25 percent of the sum of the following core capital elements: qualifying common stockholders' equity, Qualifying noncumulative and cumulative perpetual preferred stock (including related surplus), qualifying minority interest in the equity accounts of consolidated subsidiaries, and qualifying trust preferred securities. Amounts of qualifying cumulative perpetual preferred stock (including related surplus) and qualifying trust preferred securities in excess of this limit may be included in tier 2 capital.</p>
<p style="-uslm-sgm:P">(3) Until <date date="2011-03-31">March 31, 2011</date>, internationally active banking organizations generally are expected to limit the amount of qualifying cumulative perpetual preferred stock (including related surplus) and qualifying trust preferred securities included in tier 1 capital to 15 percent of the sum of core capital elements set forth in section II.A.1.b.ii.2. of this appendix.</p>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definitions and requirements for core capital elements</inline>—i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying common stockholders' equity.</inline>
</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> Qualifying common stockholders' equity is limited to common stock; related surplus; and retained earnings, including capital reserves and adjustments for the cumulative effect of foreign currency translation, net of any treasury stock, less net unrealized holding losses on available-<?page num="288"?>for-sale equity securities with readily determinable fair values. For this purpose, net unrealized holding gains on such equity securities and net unrealized holding gains (losses) on available-for-sale debt securities are not included in qualifying common stockholders' equity.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Restrictions on terms and features.</inline> A capital instrument that has a stated maturity date or that has a preference with regard to liquidation or the payment of dividends is not deemed to be a component of qualifying common stockholders' equity, regardless of whether or not it is called common equity. Terms or features that grant other preferences also may call into question whether the capital instrument would be deemed to be qualifying common stockholders' equity. Features that require, or provide significant incentives for, the issuer to redeem the instrument for cash or cash equivalents will render the instrument ineligible as a component of qualifying common stockholders' equity.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reliance on voting common stockholders' equity.</inline> Although section II.A.1. of this appendix allows for the inclusion of elements other than common stockholders' equity within tier 1 capital, voting common stockholders' equity, which is the most desirable capital element from a supervisory standpoint, generally should be the dominant element within tier 1 capital. Thus, banking organizations should avoid over-reliance on preferred stock and nonvoting elements within tier 1 capital. Such nonvoting elements can include portions of common stockholders' equity where, for example, a banking organization has a class of nonvoting common equity, or a class of voting common equity that has substantially fewer voting rights per share than another class of voting common equity. Where a banking organization relies excessively on nonvoting elements within tier 1 capital, the Federal Reserve generally will require the banking organization to allocate a portion of the nonvoting elements to tier 2 capital.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying perpetual preferred stock.</inline>
</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying requirements.</inline> Perpetual preferred stock qualifying for inclusion in tier 1 capital has no maturity date and cannot be redeemed at the option of the holder. Perpetual preferred stock will qualify for inclusion in tier 1 capital only if it can absorb losses while the issuer operates as a going concern.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Restrictions on terms and features.</inline> Perpetual preferred stock included in tier 1 capital may not have any provisions restricting the banking organization's ability or legal right to defer or waive dividends, other than provisions requiring prior or concurrent deferral or waiver of payments on more junior instruments, which the Federal Reserve generally expects in such instruments consistent with the notion that the most junior capital elements should absorb losses first. Dividend deferrals or waivers for preferred stock, which the Federal Reserve expects will occur either voluntarily or at its direction when an organization is in a weakened condition, must not be subject to arrangements that would diminish the ability of the deferral to shore up the banking organization's resources. Any perpetual preferred stock with a feature permitting redemption at the option of the issuer may qualify as tier 1 capital only if the redemption is subject to prior approval of the Federal Reserve. Features that require, or create significant incentives for the issuer to redeem the instrument for cash or cash equivalents will render the instrument ineligible for inclusion in tier 1 capital. For example, perpetual preferred stock that has a credit-sensitive dividend feature—that is, a dividend rate that is reset periodically based, in whole or in part, on the banking organization's current credit standing—generally does not qualify for inclusion in tier 1 capital. <ref id="fnd3e17468" idref="fnd3e17478" style="-uslm-sgm:SU">7</ref> Similarly, perpetual preferred stock that has a dividend rate step-up or a market value conversion feature—that is, a feature whereby the holder must or can convert the preferred stock into common stock at the market price prevailing at the time of conversion—generally does not qualify for inclusion in tier 1 capital. <ref id="fnd3e17472" idref="fnd3e17483" style="-uslm-sgm:SU">8</ref>
</p>
<footnote id="fnd3e17478" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17468" style="-uslm-sgm:SU">7</ref> Traditional floating-rate or adjustable-rate perpetual preferred stock (that is, perpetual preferred stock in which the dividend rate is not affected by the issuer's credit standing or financial condition but is adjusted periodically in relation to an independent index based solely on general market interest rates), however, generally qualifies for inclusion in tier 1 capital provided all other requirements are met.</p>
</content>
</footnote>
<footnote id="fnd3e17483" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17472" style="-uslm-sgm:SU">8</ref> Notwithstanding this provision, senior perpetual preferred stock issued to the Treasury under the TARP, established by the EESA, may be included in tier 1 capital. In addition, traditional convertible perpetual preferred stock, which the holder must or can convert into a fixed number of common shares at a preset price, generally qualifies for inclusion in tier 1 capital provided all other requirements are met.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Noncumulative and cumulative features.</inline> Perpetual preferred stock that is noncumulative generally may not permit the accumulation or payment of unpaid dividends in any form, including in the form of common stock. Perpetual preferred stock that provides for the accumulation or future payment of unpaid dividends is deemed to be cumulative, regardless of whether or not it is called noncumulative.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying minority interest.</inline> Minority interest in the common and preferred stockholders' equity accounts of a consolidated subsidiary (minority interest) represents <?page num="289"?>stockholders' equity associated with common or preferred equity instruments issued by a banking organization's consolidated subsidiary that are held by investors other than the banking organization. Minority interest is included in tier 1 capital because, as a general rule, it represents equity that is freely available to absorb losses in the issuing subsidiary. Nonetheless, minority interest typically is not available to absorb losses in the banking organization as a whole, a feature that is a particular concern when the minority interest is issued by a subsidiary that is neither a U.S. depository institution nor a foreign bank. For this reason, this appendix distinguishes among three types of qualifying minority interest. Class A minority interest is minority interest related to qualifying common and noncumulative perpetual preferred equity instruments issued directly (that is, not through a subsidiary) by a consolidated U.S. depository institution <ref id="fnd3e17498" idref="fnd3e17508" style="-uslm-sgm:SU">9</ref> or foreign bank <ref id="fnd3e17502" idref="fnd3e17514" style="-uslm-sgm:SU">10</ref> subsidiary of a banking organization. Class A minority interest is not subject to a formal limitation within tier 1 capital. Class B minority interest is minority interest related to qualifying cumulative perpetual preferred equity instruments issued directly by a consolidated U.S. depository institution or foreign bank subsidiary of a banking organization. Class B minority interest is a restricted core capital element subject to the limitations set forth in section II.A.1.b.i. of this appendix, but is not subject to a tier 2 sub-limit. Class C minority interest is minority interest related to qualifying common or perpetual preferred stock issued by a banking organization's consolidated subsidiary that is neither a U.S. depository institution nor a foreign bank. Class C minority interest is eligible for inclusion in tier 1 capital as a restricted core capital element and is subject to the limitations set forth in sections II.A.1.b.i. and II.A.2.d.iv. of this appendix. Minority interest in small business investment companies, investment funds that hold nonfinancial equity investments (as defined in section II.B.5.b. of this appendix), and subsidiaries engaged in nonfinancial activities are not included in the banking organization's tier 1 or total capital if the banking organization's interest in the company or fund is held under one of the legal authorities listed in section II.B.5.b. of this appendix. </p>
<footnote id="fnd3e17508" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17498" style="-uslm-sgm:SU">9</ref> U.S. depository institutions are defined to include branches (foreign and domestic) of federally insured banks and depository institutions chartered and headquartered in the 50 states of the United States, the District of Columbia, Puerto Rico, and U.S. territories and possessions. The definition encompasses banks, mutual or stock savings banks, savings or building and loan associations, cooperative banks, credit unions, and international banking facilities of domestic banks.</p>
</content>
</footnote>
<footnote id="fnd3e17514" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17502" style="-uslm-sgm:SU">10</ref> For this purpose, a foreign bank is defined as an institution that engages in the business of banking; is recognized as a bank by the bank supervisory or monetary authorities of the country of its organization or principal banking operations; receives deposits to a substantial extent in the regular course of business; and has the power to accept demand deposits.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying trust preferred securities.</inline>
</p>
<p style="-uslm-sgm:P">(1) A banking organization that wishes to issue trust preferred securities and include them in tier 1 capital must first consult with the Federal Reserve. Trust preferred securities are defined as undated preferred securities issued by a trust or similar entity sponsored (but generally not consolidated) by a banking organization that is the sole common equity holder of the trust. Qualifying trust preferred securities must allow for dividends to be deferred for at least twenty consecutive quarters without an event of default, unless an event of default leading to acceleration permitted under section II.A.1.c.iv.(2) has occurred. The required notification period for such deferral must be reasonably short, no more than 15 business days prior to the payment date. Qualifying trust preferred securities are otherwise subject to the same restrictions on terms and features as qualifying perpetual preferred stock under section II.A.1.c.ii.(2) of this appendix.</p>
<p style="-uslm-sgm:P">(2) The sole asset of the trust must be a junior subordinated note issued by the sponsoring banking organization that has a minimum maturity of thirty years, is subordinated with regard to both liquidation and priority of periodic payments to all senior and subordinated debt of the sponsoring banking organization (other than other junior subordinated notes underlying trust preferred securities). Otherwise the terms of a junior subordinated note must mirror those of the preferred securities issued by the trust. <ref id="fnd3e17525" idref="fnd3e17537" style="-uslm-sgm:SU">11</ref> The note must comply with section <?page num="290"?>II.A.2.d. of this appendix and the Federal Reserve's subordinated debt policy statement set forth in <ref href="/us/cfr/t12/s250.166">12 CFR 250.166</ref> <ref id="fnd3e17531" idref="fnd3e17544" style="-uslm-sgm:SU">12</ref> except that the note may provide for an event of default and the acceleration of principal and accrued interest upon (a) nonpayment of interest for 20 or more consecutive quarters or (b) termination of the trust without redemption of the trust preferred securities, distribution of the notes to investors, or assumption of the obligation by a successor to the banking organization.</p>
<footnote id="fnd3e17537" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17525" style="-uslm-sgm:SU">11</ref> Under generally accepted accounting principles, the trust issuing the preferred securities generally is not consolidated on the banking organization's balance sheet; rather the underlying subordinated note is recorded as a liability on the organization's balance sheet. Only the amount of the trust preferred securities issued, which generally is equal to the amount of the underlying subordinated note less the amount of the sponsoring banking organization's common equity investment in the trust (which is recorded as an asset on the banking organization's consolidated balance sheet), may be included in tier 1 capital. Because this calculation method <?page num=""?>effectively deducts the banking organization's common stock investment in the trust in computing the numerator of the capital ratio, the common equity investment in the trust should be excluded from the calculation of risk-weighted assets in accordance with footnote 17 of this appendix. Where a banking organization has issued trust preferred securities as part of a pooled issuance, the organization generally must not buy back a security issued from the pool. Where a banking organization does hold such a security (for example, as a result of an acquisition of another banking organization), the amount of the trust preferred securities includable in regulatory capital must, consistent with section II.(i) of this appendix, be reduced by the notional amount of the banking organization's investment in the security issued by the pooling entity.</p>
</content>
</footnote>
<footnote id="fnd3e17544" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17531" style="-uslm-sgm:SU">12</ref> Trust preferred securities issued before <date date="2005-04-15">April 15, 2005</date>, generally would be includable in tier 1 capital despite noncompliance with sections II.A.1.c.iv. or II.A.2.d. of this appendix or <ref href="/us/cfr/t12/s250.166">12 CFR 250.166</ref> provided the non-complying terms of the instrument (i) have been commonly used by banking organizations, (ii) do not provide an unreasonably high degree of protection to the holder in circumstances other than bankruptcy of the banking organization, and (iii) do not effectively allow a holder in due course of the note to stand ahead of senior or subordinated debt holders in the event of bankruptcy of the banking organization.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(3) In the last five years before the maturity of the note, the outstanding amount of the associated trust preferred securities is excluded from tier 1 capital and included in tier 2 capital, where the trust preferred securities are subject to the amortization provisions and quantitative restrictions set forth in sections II.A.2.d.iii. and iv. of this appendix as if the trust preferred securities were limited-life preferred stock.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Supplementary capital elements (tier 2 capital elements).</inline> The tier 2 component of an institution's qualifying capital may consist of the following items that are defined as supplementary capital elements: </p>
<p style="-uslm-sgm:P">(i) Allowance for loan and lease losses (subject to limitations discussed below); </p>
<p style="-uslm-sgm:P">(ii) Perpetual preferred stock and related surplus (subject to conditions discussed below); </p>
<p style="-uslm-sgm:P">(iii) Hybrid capital instruments (as defined below), perpetual debt, and mandatory convertible debt securities; </p>
<p style="-uslm-sgm:P">(iv) Term subordinated debt and intermediate-term preferred stock, including related surplus (subject to limitations discussed below); </p>
<p style="-uslm-sgm:P">(v) Unrealized holding gains on equity securities (subject to limitations discussed in section II.A.2.e. of this appendix). </p>
<p style="-uslm-sgm:P">The maximum amount of tier 2 capital that may be included in an institution's qualifying total capital is limited to 100 percent of tier 1 capital (net of goodwill, other intangible assets, interest-only strips receivables and nonfinancial equity investments that are required to be deducted in accordance with section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline> of this appendix A).</p>
<p style="-uslm-sgm:P">The elements of supplementary capital are discussed in greater detail below.</p>
<p style="-uslm-sgm:P">a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Allowance for loan and lease losses.</inline> Allowances for loan and lease losses are reserves that have been established through a charge against earnings to absorb future losses on loans or lease financing receivables. Allowances for loan and lease losses exclude “allocated transfer risk reserves,” <ref id="fnd3e17577" idref="fnd3e17583" style="-uslm-sgm:SU">13</ref> and reserves created against identified losses. </p>
<footnote id="fnd3e17583" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17577" style="-uslm-sgm:SU">13</ref> Allocated transfer risk reserves are reserves that have been established in accordance with Section 905(a) of the International Lending Supervision Act of 1983, <ref href="/us/usc/t12/s3904/a">12 U.S.C. 3904(a)</ref>, against certain assets whose value U.S. supervisory authorities have found to be significantly impaired by protracted transfer risk problems.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">During the transition period, the risk-based capital guidelines provide for reducing the amount of this allowance that may be included in an institution's total capital. Initially, it is unlimited. However, by year-end 1990, the amount of the allowance for loan and lease losses that will qualify as capital will be limited to 1.5 percent of an institution's weighted risk assets. By the end of the transition period, the amount of the allowance qualifying for inclusion in Tier 2 capital may not exceed 1.25 percent of weighted risk assets. <ref id="fnd3e17588" idref="fnd3e17593" style="-uslm-sgm:SU">14</ref>
</p>
<footnote id="fnd3e17593" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17588" style="-uslm-sgm:SU">14</ref> The amount of the allowance for loan and lease losses that may be included in Tier 2 capital is based on a percentage of gross weighted risk assets. A banking organization may deduct reserves for loan and lease losses in excess of the amount permitted to be included in Tier 2 capital, as well as allocated transfer risk reserves, from the sum of gross weighted risk assets and use the resulting net sum of weighted risk assets in computing the denominator of the risk-based capital ratio.</p>
</content>
</footnote>
<?page num="291"?>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Perpetual preferred stock.</inline> Perpetual preferred stock (and related surplus) that meets the requirements set forth in section II.A.1.c.ii.(1) of this appendix is eligible for inclusion in tier 2 capital without limit. <ref id="fnd3e17602" idref="fnd3e17607" style="-uslm-sgm:SU">15</ref>
</p>
<footnote id="fnd3e17607" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17602" style="-uslm-sgm:SU">15</ref> Long-term preferred stock with an original maturity of 20 years or more (including related surplus) will also qualify in this category as an element of tier 2 capital. If the holder of such an instrument has the right to require the issuer to redeem, repay, or repurchase the instrument prior to the original stated maturity, maturity would be defined for risk-based capital purposes as the earliest possible date on which the holder can put the instrument back to the issuing banking organization. In the last five years before the maturity of the stock, it must be treated as limited-life preferred stock, subject to the amortization provisions and quantitative restrictions set forth in sections II.A.2.d.iii. and iv. of this appendix.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Hybrid capital instruments, perpetual debt, and mandatory convertible debt securities.</inline> Hybrid capital instruments include instruments that are essentially permanent in nature and that have certain characteristics of both equity and debt. Such instruments may be included in Tier 2 without limit. The general criteria hybrid capital instruments must meet in order to qualify for inclusion in Tier 2 capital are listed below: </p>
<p style="-uslm-sgm:P">(1) The instrument must be unsecured; fully paid-up and subordinated to general creditors. If issued by a bank, it must also be subordinated to claims or depositors. </p>
<p style="-uslm-sgm:P">(2) The instrument must not be redeemable at the option of the holder prior to maturity, except with the prior approval of the Federal Reserve. (Consistent with the Board's criteria for perpetual debt and mandatory convertible securities, this requirement implies that holders of such instruments may not accelerate the payment of principal except in the event of bankruptcy, insolvency, or reorganization.)</p>
<p style="-uslm-sgm:P">(3) The instrument must be available to participate in losses while the issuer is operating as a going concern. (Term subordinated debt would not meet this requirement.) To satisfy this requirement, the instrument must convert to common or perpetual preferred stock in the event that the accumulated losses exceed the sum of the retained earnings and capital surplus accounts of the issuer. </p>
<p style="-uslm-sgm:P">(4) The instrument must provide the option for the issuer to defer interest payments if: a) the issuer does not report a profit in the preceding annual period (defined as combined profits for the most recent four quarters), <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">and</inline> b) the issuer eliminates cash dividends on common and preferred stock. </p>
<p style="-uslm-sgm:P">Perpetual debt and mandatory convertible debt securities that meet the criteria set forth in <ref href="/us/cfr/t12/p225">12 CFR part 225</ref>, appendix B, also qualify as unlimited elements of Tier 2 capital for bank holding companies. </p>
<p style="-uslm-sgm:P">d. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subordinated debt and intermediate-term preferred stock</inline>—i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Five-year minimum maturity.</inline> Subordinated debt and intermediate-term preferred stock must have an original weighted average maturity of at least five years to qualify as tier 2 capital. If the holder has the option to require the issuer to redeem, repay, or repurchase the instrument prior to the original stated maturity, maturity would be defined, for risk-based capital purposes, as the earliest possible date on which the holder can put the instrument back to the issuing banking organization.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other restrictions on subordinated debt.</inline> Subordinated debt included in tier 2 capital must comply with the Federal Reserve's subordinated debt policy statement set forth in <ref href="/us/cfr/t12/s250.166">12 CFR 250.166</ref>. <ref id="fnd3e17642" idref="fnd3e17648" style="-uslm-sgm:SU">16</ref> Accordingly, such subordinated debt must meet the following requirements:</p>
<footnote id="fnd3e17648" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17642" style="-uslm-sgm:SU">16</ref> The subordinated debt policy statement set forth in <ref href="/us/cfr/t12/s250.166">12 CFR 250.166</ref> notes that certain terms found in subordinated debt may provide protection to investors without adversely affecting the overall benefits of the instrument to the issuing banking organization and, thus, would be acceptable for subordinated debt included in capital. For example, a provision that prohibits a bank holding company from merging, consolidating, or selling substantially all of its assets unless the new entity redeems or assumes the subordinated debt or that designates the failure to pay principal and interest on a timely basis as an event of default would be acceptable, so long as the occurrence of such events does not allow the debt holders to accelerate the payment of principal or interest on the debt.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(1) The subordinated debt must be unsecured.</p>
<p style="-uslm-sgm:P">(2) The subordinated debt must clearly state on its face that it is not a deposit and is not insured by a Federal agency.</p>
<p style="-uslm-sgm:P">(3) The subordinated debt must not have credit-sensitive features or other provisions that are inconsistent with safe and sound banking practice.</p>
<p style="-uslm-sgm:P">(4) Subordinated debt issued by a subsidiary U.S. depository institution or foreign bank of a bank holding company must be subordinated in right of payment to the claims of all the institution's general creditors and depositors, and generally must not contain provisions permitting debt holders to accelerate payment of principal or interest upon the occurrence of any event other than receivership of the institution. Subordinated debt issued by a bank holding company or its subsidiaries that are neither U.S. depository institutions nor foreign banks <?page num="292"?>must be subordinated to all senior indebtedness of the issuer; that is, the debt must be subordinated at a minimum to all borrowed money, similar obligations arising from off-balance sheet guarantees and direct credit substitutes, and obligations associated with derivative products such as interest rate and foreign exchange contracts, commodity contracts, and similar arrangements. Subordinated debt issued by a bank holding company or any of its subsidiaries that is not a U.S. depository institution or foreign bank must not contain provisions permitting debt holders to accelerate the payment of principal or interest upon the occurrence of any event other than the bankruptcy of the bank holding company or the receivership of a major subsidiary depository institution. Thus, a provision permitting acceleration in the event that any other affiliate of the bank holding company issuer enters into bankruptcy or receivership makes the instrument ineligible for inclusion in tier 2 capital.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounting in last five years.</inline> As a limited-life capital instrument approaches maturity, it begins to take on characteristics of a short-term obligation. For this reason, the outstanding amount of term subordinated debt and limited-life preferred stock eligible for inclusion in tier 2 capital is reduced, or discounted, as these instruments approach maturity: one-fifth of the outstanding amount is excluded each year during the instrument's last five years before maturity. When remaining maturity is less than one year, the instrument is excluded from tier 2 capital.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limits.</inline> The aggregate amount of term subordinated debt (excluding mandatory convertible debt) and limited-life preferred stock as well as, beginning <date date="2011-03-31">March 31, 2011</date>, qualifying trust preferred securities and Class C minority interest in excess of the limits set forth in section II.A.1.b.i. of this appendix that may be included in tier 2 capital is limited to 50 percent of tier 1 capital (net of goodwill and other intangible assets required to be deducted in accordance with section II.B.1.b. of this appendix). Amounts of these instruments in excess of this limit, although not included in tier 2 capital, will be taken into account by the Federal Reserve in its overall assessment of a banking organization's funding and financial condition.</p>
<p style="-uslm-sgm:P">e. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unrealized gains on equity securities and unrealized gains (losses) on other assets.</inline> Up to 45 percent of pretax net unrealized holding gains (that is, the excess, if any, of the fair value over historical cost) on available-for-sale equity securities with readily determinable fair values may be included in supplementary capital. However, the Federal Reserve may exclude all or a portion of these unrealized gains from Tier 2 capital if the Federal Reserve determines that the equity securities are not prudently valued. Unrealized gains (losses) on other types of assets, such as bank premises and available-for-sale debt securities, are not included in supplementary capital, but the Federal Reserve may take these unrealized gains (losses) into account as additional factors when assessing an institution's overall capital adequacy.</p>
<p style="-uslm-sgm:P">f. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Revaluation reserves.</inline> i. Such reserves reflect the formal balance sheet restatement or revaluation for capital purposes of asset carrying values to reflect current market values. The Federal Reserve generally has not included unrealized asset appreciation in capital ratio calculations, although it has long taken such values into account as a separate factor in assessing the overall financial strength of a banking organization. </p>
<p style="-uslm-sgm:P">ii. Consistent with long-standing supervisory practice, the excess of market values over book values for assets held by bank holding companies will generally not be recognized in supplementary capital or in the calculation of the risk-based capital ratio. However, all bank holding companies are encouraged to disclose their equivalent of premises (building) and security revaluation reserves. The Federal Reserve will consider any appreciation, as well as any depreciation, in specific asset values as additional considerations in assessing overall capital strength and financial condition.</p>
<heading style="-uslm-sgm:HD2">B. Deductions from Capital and Other Adjustments</heading>
<p style="-uslm-sgm:P">Certain assets are deducted from an organization's capital for the purpose of calculating the risk-based capital ratio. <ref id="fnd3e17688" idref="fnd3e17694" style="-uslm-sgm:SU">17</ref> These assets include: </p>
<footnote id="fnd3e17694" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17688" style="-uslm-sgm:SU">17</ref> Any assets deducted from capital in computing the numerator of the ratio are not included in weighted risk assets in computing the denominator of the ratio.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(i)(a) Goodwill—deducted from the sum of core capital elements.</p>
<p style="-uslm-sgm:P">(b) Certain identifiable intangible assets, that is, intangible assets other than goodwill—deducted from the sum of core capital elements in accordance with section II.B.1.b. of this appendix.</p>
<p style="-uslm-sgm:P">(c) Certain credit-enhancing interest-only strips receivables—deducted from the sum of core capital elements in accordance with sections II.B.1.c. through e. of this appendix. </p>
<p style="-uslm-sgm:P">(ii) Investments in banking and finance subsidiaries that are not consolidated for accounting or supervisory purposes, and investments in other designated subsidiaries or associated companies at the discretion of the Federal Reserve—deducted from total capital components (as described in greater detail below). </p>
<p style="-uslm-sgm:P">(iii) Reciprocal holdings of capital instruments of banking organizations—deducted from total capital components.
<?page num="293"?></p>
<p style="-uslm-sgm:P">(iv) Deferred tax assets—portions are deducted from the sum of core capital elements in accordance with section II.B.4. of this appendix A.</p>
<p style="-uslm-sgm:P">(v) Nonfinancial equity investments—portions are deducted from the sum of core capital elements in accordance with section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5 of this appendix A.</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Goodwill and other intangible assets</inline>—a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Goodwill.</inline> Goodwill is an intangible asset that represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is deducted from the sum of core capital elements in determining tier 1 capital.</p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other intangible assets.</inline> i. All servicing assets, including servicing assets on assets other than mortgages (i.e., nonmortgage servicing assets), are included in this appendix as identifiable intangible assets. The only types of identifiable intangible assets that may be included in, that is, not deducted from, an organization's capital are readily marketable mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships. The total amount of these assets that may be included in capital is subject to the limitations described below in sections II.B.1.d. and e. of this appendix. </p>
<p style="-uslm-sgm:P">ii. The treatment of identifiable intangible assets set forth in this section generally will be used in the calculation of a bank holding company's capital ratios for supervisory and applications purposes. However, in making an overall assessment of a bank holding company's capital adequacy for applications purposes, the Board may, if it deems appropriate, take into account the quality and composition of an organization's capital, together with the quality and value of its tangible and intangible assets. </p>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit-enhancing interest-only strips receivables (I/Os)</inline> i. Credit-enhancing I/Os are on-balance sheet assets that, in form or in substance, represent a contractual right to receive some or all of the interest due on transferred assets and expose the bank holding company to credit risk directly or indirectly associated with transferred assets that exceeds a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro rata</inline> share of the bank holding company's claim on the assets, whether through subordination provisions or other credit enhancement techniques. Such I/Os, whether purchased or retained, including other similar “spread” assets, may be included in, that is, not deducted from, a bank holding company's capital subject to the limitations described below in sections II.B.1.d. and e. of this appendix.</p>
<p style="-uslm-sgm:P">ii. Both purchased and retained credit-enhancing I/Os, on a non-tax adjusted basis, are included in the total amount that is used for purposes of determining whether a bank holding company exceeds the tier 1 limitation described below in this section. In determining whether an I/O or other types of spread assets serve as a credit enhancement, the Federal Reserve will look to the economic substance of the transaction. </p>
<p style="-uslm-sgm:P">d. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fair value limitation.</inline> The amount of mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships that a bank holding company may include in capital shall be the lesser of 90 percent of their fair value, as determined in accordance with section II.B.1.f. of this appendix, or 100 percent of their book value, as adjusted for capital purposes in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (FR Y–9C Report). The amount of credit-enhancing I/Os that a bank holding company may include in capital shall be its fair value. If both the application of the limits on mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships and the adjustment of the balance sheet amount for these assets would result in an amount being deducted from capital, the bank holding company would deduct only the greater of the two amounts from its core capital elements in determining tier 1 capital. </p>
<p style="-uslm-sgm:P">e. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tier 1 capital limitation.</inline> i. The total amount of mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships that may be included in capital, in the aggregate, cannot exceed 100 percent of tier 1 capital. Nonmortgage servicing assets and purchased credit card relationships are subject, in the aggregate, to a separate sublimit of 25 percent of tier 1 capital. In addition, the total amount of credit-enhancing I/Os (both purchased and retained) that may be included in capital cannot exceed 25 percent of tier 1 capital. <ref id="fnd3e17752" idref="fnd3e17758" style="-uslm-sgm:SU">18</ref>
</p>
<footnote id="fnd3e17758" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17752" style="-uslm-sgm:SU">18</ref> Amounts of servicing assets, purchased credit card relationships, and credit-enhancing I/Os (both retained and purchased) in excess of these limitations, as well as all other identifiable intangible assets, including core deposit intangibles and favorable leaseholds, are to be deducted from a bank holding company's core capital elements in determining tier 1 capital. However, identifiable intangible assets (other than mortgage servicing assets and purchased credit card relationships) acquired on or before <date date="1992-02-19">February 19, 1992</date>, generally will not be deducted from capital for supervisory purposes, although they will continue to be deducted for applications purposes.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">ii. For purposes of calculating these limitations on mortgage servicing assets, nonmortgage servicing assets, purchased credit card relationships, and credit-enhancing I/Os, tier 1 capital is defined as the sum of core capital elements, net of goodwill, and net of all identifiable intangible assets other <?page num="294"?>than mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships, but prior to the deduction of any disallowed mortgage servicing assets, any disallowed nonmortgage servicing assets, any disallowed purchased credit card relationships, any disallowed credit-enhancing I/Os (both purchased and retained), any disallowed deferred tax assets, and any nonfinancial equity investments.</p>
<p style="-uslm-sgm:P">iii. Bank holding companies may elect to deduct goodwill, disallowed mortgage servicing assets, disallowed nonmortgage servicing assets, and disallowed credit-enhancing I/Os (both purchased and retained) on a basis that is net of any associated deferred tax liability. Deferred tax liabilities netted in this manner cannot also be netted against deferred tax assets when determining the amount of deferred tax assets that are dependent upon future taxable income.</p>
<p style="-uslm-sgm:P">f. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Valuation.</inline> Bank holding companies must review the book value of goodwill and other intangible assets at least quarterly and make adjustments to these values as necessary. The fair value of mortgage servicing assets, nonmortgage servicing assets, purchased credit card relationships, and credit-enhancing I/Os also must be determined at least quarterly. This determination shall include adjustments for any significant changes in original valuation assumptions, including changes in prepayment estimates or account attrition rates. Examiners will review both the book value and the fair value assigned to these assets, together with supporting documentation, during the inspection process. In addition, the Federal Reserve may require, on a case-by-case basis, an independent valuation of a bank holding company's goodwill, other intangible assets, or credit-enhancing I/Os.</p>
<p style="-uslm-sgm:P">g. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Growing organizations.</inline> Consistent with long-standing Board policy, banking organizations experiencing substantial growth, whether internally or by acquisition, are expected to maintain strong capital positions substantially above minimum supervisory levels, without significant reliance on intangible assets or credit-enhancing I/Os. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Investments in certain subsidiaries</inline>— a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unconsolidated banking or finance subsidiaries.</inline> The aggregate amount of investments in banking or finance subsidiaries <ref id="fnd3e17785" idref="fnd3e17795" style="-uslm-sgm:SU">19</ref> whose financial statements are not consolidated for accounting or regulatory reporting purposes, regardless of whether the investment is made by the parent bank holding company or its direct or indirect subsidiaries, will be deducted from the consolidated parent banking organization's total capital components. <ref id="fnd3e17789" idref="fnd3e17800" style="-uslm-sgm:SU">20</ref> Generally, investments for this purpose are defined as equity and debt capital investments and any other instruments that are deemed to be capital in the particular subsidiary.</p>
<footnote id="fnd3e17795" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17785" style="-uslm-sgm:SU">19</ref> For this purpose, a banking and finance subsidiary generally is defined as any company engaged in banking or finance in which the parent institution holds directly or indirectly more than 50 percent of the outstanding voting stock, or which is otherwise controlled or capable of being controlled by the parent institution. For purposes of this section, the definition of banking and finance subsidiary does not include a trust or other special purpose entity used to issue trust preferred securities.</p>
</content>
</footnote>
<footnote id="fnd3e17800" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17789" style="-uslm-sgm:SU">20</ref> An exception to this deduction would be made in the case of shares acquired in the regular course of securing or collecting a debt previously contracted in good faith. The requirements for consolidation are spelled out in the instructions to the FR Y–9C Report.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">Advances (that is, loans, extensions of credit, guarantees, commitments, or any other forms of credit exposure) to the subsidiary that are not deemed to be capital will generally not be deducted from an organization's capital. Rather, such advances generally will be included in the parent banking organization's consolidated assets and be assigned to the 100 percent risk category, unless such obligations are backed by recognized collateral or guarantees, in which case they will be assigned to the risk category appropriate to such collateral or guarantees. These advances may, however, also be deducted from the consolidated parent banking organization's capital if, in the judgment of the Federal Reserve, the risks stemming from such advances are comparable to the risks associated with capital investments or if the advances involve other risk factors that warrant such an adjustment to capital for supervisory purposes. These other factors could include, for example, the absence of collateral support.</p>
<p style="-uslm-sgm:P">Inasmuch as the assets of unconsolidated banking and finance subsidiaries are not fully reflected in a banking organization's consolidated total assets, such assets may be viewed as the equivalent of off-balance sheet exposures since the operations of an unconsolidated subsidiary could expose the parent organization and its affiliates to considerable risk. For this reason, it is generally appropriate to view the capital resources invested in these unconsolidated entities as primarily supporting the risks inherent in these off-balance sheet assets, and not generally available to support risks or absorb losses elsewhere in the organization.</p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other subsidiaries and investments.</inline> The deduction of investments, regardless of whether they are made by the parent bank holding company or by its direct or indirect <?page num="295"?>subsidiaries, from a consolidated banking organization's capital will also be applied in the case of any subsidiaries, that, while consolidated for accounting purposes, are not consolidated for certain specified supervisory or regulatory purposes, such as to facilitate functional regulation. For this purpose, aggregate capital investments (that is, the sum of any equity or debt instruments that are deemed to be capital) in these subsidiaries will be deducted from the consolidated parent banking organization's total capital components. <ref id="fnd3e17815" idref="fnd3e17820" style="-uslm-sgm:SU">21</ref>
</p>
<footnote id="fnd3e17820" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17815" style="-uslm-sgm:SU">21</ref> Investments in unconsolidated subsidiaries will be deducted from both Tier 1 and Tier 2 capital. As a general rule, one-half (50 percent) of the aggregate amount of capital investments will be deducted from the bank holding company's Tier 1 capital and one-half (50 percent) from its Tier 2 capital. However, the Federal Reserve may, on a case-by-case basis, deduct a proportionately greater amount from Tier 1 if the risks associated with the subsidiary so warrant. If the amount deductible from Tier 2 capital exceeds actual Tier 2 capital, the excess would be deducted from Tier 1 capital. Bank holding companies' risk-based capital ratios, net of these deductions, must exceed the minimum standards set forth in section IV.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">Advances (that is, loans, extensions of credit, guarantees, commitments, or any other forms of credit exposure) to such subsidiaries that are not deemed to be capital will generally not be deducted from capital. Rather, such advances will normally be included in the parent banking organization's consolidated assets and assigned to the 100 percent risk category, unless such obligations are backed by recognized collateral or guarantees, in which case they will be assigned to the risk category appropriate to such collateral or guarantees. These advances may, however, be deducted from the consolidated parent banking organization's capital if, in the judgment of the Federal Reserve, the risks stemming from such advances are comparable to the risks associated with capital investments or if such advances involve other risk factors that warrant such an adjustment to capital for supervisory purposes. These other factors could include, for example, the absence of collateral support. <ref id="fnd3e17825" idref="fnd3e17830" style="-uslm-sgm:SU">22</ref>
</p>
<footnote id="fnd3e17830" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17825" style="-uslm-sgm:SU">22</ref> In assessing the overall capital adequacy of a banking organization, the Federal Reserve may also consider the organization's fully consolidated capital position.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">In general, when investments in a consolidated subsidiary are deducted from a consolidated parent banking organization's capital, the subsidiary's assets will also be excluded from the consolidated assets of the parent banking organization in order to assess the latter's capital adequacy. <ref id="fnd3e17835" idref="fnd3e17840" style="-uslm-sgm:SU">23</ref>
</p>
<footnote id="fnd3e17840" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17835" style="-uslm-sgm:SU">23</ref> If the subsidiary's assets are consolidated with the parent banking organization for financial reporting purposes, this adjustment will involve excluding the subsidiary's assets on a line-by-line basis from the consolidated parent organization's assets. The parent banking organization's capital ratio will then be calculated on a consolidated basis with the exception that the assets of the excluded subsidiary will not be consolidated with the remainder of the parent banking organization.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">The Federal Reserve may also deduct from a banking organization's capital, on a case-by-case basis, investments in certain other subsidiaries in order to determine if the consolidated banking organization meets minimum supervisory capital requirements without reliance on the resources invested in such subsidiaries.</p>
<p style="-uslm-sgm:P">The Federal Reserve will not automatically deduct investments in other unconsolidated subsidiaries or investments in joint ventures and associated companies. <ref id="fnd3e17847" idref="fnd3e17853" style="-uslm-sgm:SU">24</ref> Nonetheless, the resources invested in these entities, like investments in unconsolidated banking and finance subsidiaries, support assets not consolidated with the rest of the banking organization's activities and, therefore, may not be generally available to support additional leverage or absorb losses elsewhere in the banking organization. Moreover, experience has shown that banking organizations stand behind the losses of affiliated institutions, such as joint ventures and associated companies, in order to protect the reputation of the organization as a whole. In some cases, this has led to losses that have exceeded the investments in such organizations.</p>
<footnote id="fnd3e17853" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17847" style="-uslm-sgm:SU">24</ref> The definition of such entities is contained in the instructions to the Consolidated Financial Statements for Bank Holding Companies. Under regulatory reporting procedures, associated companies and joint ventures generally are defined as companies in which the banking organization owns 20 to 50 percent of the voting stock.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">For this reason, the Federal Reserve will monitor the level and nature of such investments for individual banking organizations and may, on a case-by-case basis, deduct such investments from total capital components, apply an appropriate risk-weighted capital charge against the organization's proportionate share of the assets of its associated companies, require a line-by-line consolidation of the entity (in the event that the parent's control over the entity makes it the functional equivalent of a subsidiary), or otherwise require the organization to operate with a risk-based capital ratio above the minimum.
<?page num="296"?></p>
<p style="-uslm-sgm:P">In considering the appropriateness of such adjustments or actions, the Federal Reserve will generally take into account whether:</p>
<p style="-uslm-sgm:P">(1) The parent banking organization has significant influence over the financial or managerial policies or operations of the subsidiary, joint venture, or associated company;</p>
<p style="-uslm-sgm:P">(2) The banking organization is the largest investor in the affiliated company; or</p>
<p style="-uslm-sgm:P">(3) Other circumstances prevail that appear to closely tie the activities of the affiliated company to the parent banking organization.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reciprocal holdings of banking organizations' capital instruments.</inline> Reciprocal holdings of banking organizations' capital instruments (that is, instruments that qualify as Tier 1 or Tier 2 capital) will be deducted from an organization's total capital components for the purpose of determining the numerator of the risk-based capital ratio.</p>
<p style="-uslm-sgm:P">Reciprocal holdings are cross-holdings resulting from formal or informal arrangements in which two or more banking organizations swap, exchange, or otherwise agree to hold each other's capital instruments. Generally, deductions will be limited to intentional cross-holdings. At present, the Board does not intend to require banking organizations to deduct non-reciprocal holdings of such capital instruments. <ref id="fnd3e17875" idref="fnd3e17880" style="-uslm-sgm:SU">25</ref>
</p>
<footnote id="fnd3e17880" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17875" style="-uslm-sgm:SU">25</ref> Deductions of holdings of capital securities also would not be made in the case of interstate “stake out” investments that comply with the Board's Policy Statement on Nonvoting Equity Investments, <ref href="/us/cfr/t12/s225.143">12 CFR 225.143</ref> (Federal Reserve Regulatory Service 4–172.1; 68 Federal Reserve Bulletin 413 (1982)). In addition, holdings of capital instruments issued by other banking organizations but taken in satisfaction of debts previously contracted would be exempt from any deduction from capital. The Board intends to monitor nonreciprocal holdings of other banking organizations' capital instruments and to provide information on such holdings to the Basle Supervisors' Committee as called for under the Basle capital framework.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred-tax assets.</inline> a. The amount of deferred-tax assets that is dependent upon future taxable income, net of the valuation allowance for deferred-tax assets, that may be included in, that is, not deducted from, a bank holding company's capital may not exceed the lesser of: </p>
<p style="-uslm-sgm:P">i. The amount of these deferred-tax assets that the bank holding company is expected to realize within one year of the calendar quarter-end date, based on its projections of future taxable income for that year, <ref id="fnd3e17890" idref="fnd3e17896" style="-uslm-sgm:SU">26</ref> or </p>
<footnote id="fnd3e17896" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17890" style="-uslm-sgm:SU">26</ref> To determine the amount of expected deferred-tax assets realizable in the next 12 months, an institution should assume that all existing temporary differences fully reverse as of the report date. Projected future taxable income should not include net operating loss carry-forwards to be used during that year or the amount of existing temporary differences a bank holding company expects to reverse within the year. Such projections should include the estimated effect of tax-planning strategies that the organization expects to implement to realize net operating losses or tax-credit carry-forwards that would otherwise expire during the year. Institutions do not have to prepare a new 12-month projection each quarter. Rather, on interim report dates, institutions may use the future-taxable income projections for their current fiscal year, adjusted for any significant changes that have occurred or are expected to occur.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">ii. 10 percent of tier 1 capital. </p>
<p style="-uslm-sgm:P">b. The reported amount of deferred-tax assets, net of any valuation allowance for deferred-tax assets, in excess of the lesser of these two amounts is to be deducted from a banking organization's core capital elements in determining tier 1 capital. For purposes of calculating the 10 percent limitation, tier 1 capital is defined as the sum of core capital elements, net of goodwill and net of all identifiable intangible assets other than mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships, but prior to the deduction of any disallowed mortgage servicing assets, any disallowed nonmortgage servicing assets, any disallowed purchased credit card relationships, any disallowed credit-enhancing I/Os, any disallowed deferred-tax assets, and any nonfinancial equity investments. There generally is no limit in tier 1 capital on the amount of deferred-tax assets that can be realized from taxes paid in prior carry-back years or from future reversals of existing taxable temporary differences.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonfinancial equity investments</inline>—a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A bank holding company must deduct from its core capital elements the sum of the appropriate percentages (as determined below) of the adjusted carrying value of all nonfinancial equity investments held by the parent bank holding company or by its direct or indirect subsidiaries. For purposes of this section II.B.5, investments held by a bank holding company include all investments held directly or indirectly by the bank holding company or any of its subsidiaries.</p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope of nonfinancial equity investments.</inline> A nonfinancial equity investment means any equity investment held by the bank holding company: under the merchant banking authority of section 4(k)(4)(H) of the BHC Act and subpart J of the Board's Regulation Y (<ref href="/us/cfr/t12/s225.175">12 CFR 225.175</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>); under section 4(c)(6) or 4(c)(7) of BHC Act in a nonfinancial company or in a company that makes investments in <?page num="297"?>nonfinancial companies; in a nonfinancial company through a small business investment company (SBIC) under section 302(b) of the Small Business Investment Act of 1958; <ref id="fnd3e17922" idref="fnd3e17933" style="-uslm-sgm:SU">27</ref> in a nonfinancial company under the portfolio investment provisions of the Board's Regulation K (<ref href="/us/cfr/t12/s211.8/c/3">12 CFR 211.8(c)(3)</ref>); or in a nonfinancial company under section 24 of the Federal Deposit Insurance Act (other than section 24(f)). <ref id="fnd3e17926" idref="fnd3e17938" style="-uslm-sgm:SU">28</ref> A nonfinancial company is an entity that engages in any activity that has not been determined to be financial in nature or incidental to financial activities under section 4(k) of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843/k">12 U.S.C. 1843(k)</ref>).</p>
<footnote id="fnd3e17933" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17922" style="-uslm-sgm:SU">27</ref> An equity investment made under section 302(b) of the Small Business Investment Act of 1958 in an SBIC that is not consolidated with the parent banking organization is treated as a nonfinancial equity investment.</p>
</content>
</footnote>
<footnote id="fnd3e17938" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17926" style="-uslm-sgm:SU">28</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/usc/t12/s1843/c/6">12 U.S.C. 1843(c)(6)</ref>, (c)(7) and (k)(4)(H); <ref href="/us/usc/t15/s682/b">15 U.S.C. 682(b)</ref>; <ref href="/us/cfr/t12/s211.5/b/1/iii">12 CFR 211.5(b)(1)(iii)</ref>; and <ref href="/us/usc/t12/s1831a">12 U.S.C. 1831a</ref>. In a case in which the Board of Directors of the FDIC, acting directly in exceptional cases and after a review of the proposed activity, has permitted a lesser capital deduction for an investment approved by the Board of Directors under section 24 of the Federal Deposit Insurance Act, such deduction shall also apply to the consolidated bank holding company capital calculation so long as the bank's investments under section 24 and SBIC investments represent, in the aggregate, less than 15 percent of the Tier 1 capital of the bank.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of deduction from core capital.</inline> i. The bank holding company must deduct from its core capital elements the sum of the appropriate percentages, as set forth in Table 1, of the adjusted carrying value of all nonfinancial equity investments held by the bank holding company. The amount of the percentage deduction increases as the aggregate amount of nonfinancial equity investments held by the bank holding company increases as a percentage of the bank holding company's Tier 1 capital.</p>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L2,s75,xs50">
<xhtml:caption>
<p style="-uslm-sgm:TTITLE">Table 1—Deduction for Nonfinancial Equity Investments</p>
</xhtml:caption>
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Aggregate adjusted carrying value of all nonfinancial equity investments held directly or indirectly by the bank holding company (as a percentage of the Tier 1 capital of the parent banking organization) <ref idref="fnd3e17975" id="fnd3e17955" style="-uslm-sgm:SU">1</ref>
</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Deduction from Core Capital Elements (as a percentage of the adjusted carrying value of the investment)</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tfoot>
<xhtml:tr>
<xhtml:td colspan="2">
<footnote id="fnd3e17975" style="-uslm-sgm:TNOTE">
<content>
<ref idref="fnd3e17955" style="-uslm-sgm:SU">1</ref> For purposes of calculating the adjusted carrying value of nonfinancial equity investments as a percentage of Tier 1 capital, Tier 1 capital is defined as the sum of core capital elements net of goodwill and net of all identifiable intangible assets other than mortgage servicing assets, nonmortgage servicing assets and purchased credit card relationships, but prior to the deduction for any disallowed mortgage servicing assets, any disallowed nonmortgage servicing assets, any disallowed purchased credit card relationships, any disallowed credit enhancing I/Os (both purchased and retained), any disallowed deferred tax assets, and any nonfinancial equity investments.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
</xhtml:tfoot>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Less than 15 percent</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8 percent.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">15 percent to 24.99 percent</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">12 percent.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">25 percent and above</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">25 percent.</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">ii. These deductions are applied on a marginal basis to the portions of the adjusted carrying value of nonfinancial equity investments that fall within the specified ranges of the parent holding company's Tier 1 capital. For example, if the adjusted carrying value of all nonfinancial equity investments held by a bank holding company equals 20 percent of the Tier 1 capital of the bank holding company, then the amount of the deduction would be 8 percent of the adjusted carrying value of all investments up to 15 percent of the company's Tier 1 capital, and 12 percent of the adjusted carrying value of all investments in excess of 15 percent of the company's Tier 1 capital.</p>
<p style="-uslm-sgm:P">iii. The total adjusted carrying value of any nonfinancial equity investment that is subject to deduction under this paragraph is excluded from the bank holding company's risk-weighted assets for purposes of computing the denominator of the company's risk-based capital ratio. <ref id="fnd3e17982" idref="fnd3e17987" style="-uslm-sgm:SU">29</ref>
</p>
<footnote id="fnd3e17987" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e17982" style="-uslm-sgm:SU">29</ref> For example, if 8 percent of the adjusted carrying value of a nonfinancial equity investment is deducted from Tier 1 capital, the entire adjusted carrying value of the investment will be excluded from risk-weighted assets in calculating the denominator for the risk-based capital ratio.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">iv. As noted in section I, this appendix establishes <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">minimum</inline> risk-based capital ratios and banking organizations are at all times expected to maintain capital commensurate with the level and nature of the risks to which they are exposed. The risk to a banking organization from nonfinancial equity investments increases with its concentration in such investments and strong capital levels above the minimum requirements are particularly important when a banking organization has a high degree of concentration in <?page num="298"?>nonfinancial equity investments (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> in excess of 50 percent of Tier 1 capital). The Federal Reserve intends to monitor banking organizations and apply heightened supervision to equity investment activities as appropriate, including where the banking organization has a high degree of concentration in nonfinancial equity investments, to ensure that each organization maintains capital levels that are appropriate in light of its equity investment activities. The Federal Reserve also reserves authority to impose a higher capital charge in any case where the circumstances, such as the level of risk of the particular investment or portfolio of investments, the risk management systems of the banking organization, or other information, indicate that a higher minimum capital requirement is appropriate.</p>
<p style="-uslm-sgm:P">d. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">SBIC investments.</inline> i. No deduction is required for nonfinancial equity investments that are held by a bank holding company through one or more SBICs that are consolidated with the bank holding company or in one or more SBICs that are not consolidated with the bank holding company to the extent that all such investments, in the aggregate, do not exceed 15 percent of the aggregate of the bank holding company's pro rata interests in the Tier 1 capital of its subsidiary banks. Any nonfinancial equity investment that is held through or in an SBIC and not required to be deducted from Tier 1 capital under this section II.B.5.d. will be assigned a 100 percent risk-weight and included in the parent holding company's consolidated risk-weighted assets. <ref id="fnd3e18006" idref="fnd3e18011" style="-uslm-sgm:SU">30</ref>
</p>
<footnote id="fnd3e18011" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18006" style="-uslm-sgm:SU">30</ref> If a bank holding company has an investment in an SBIC that is consolidated for accounting purposes but that is not wholly owned by the bank holding company, the adjusted carrying value of the bank holding company's nonfinancial equity investments through the SBIC is equal to the holding company's proportionate share of the adjusted carrying value of the SBIC's equity investments in nonfinancial companies. The remainder of the SBIC's adjusted carrying value (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.</inline> the minority interest holders' proportionate share) is excluded from the risk-weighted assets of the bank holding company. If a bank holding company has an investment in a SBIC that is not consolidated for accounting purposes and has current information that identifies the percentage of the SBIC's assets that are equity investments in nonfinancial companies, the bank holding company may reduce the adjusted carrying value of its investment in the SBIC proportionately to reflect the percentage of the adjusted carrying value of the SBIC's assets that are not equity investments in nonfinancial companies. If a bank holding company reduces the adjusted carrying value of its investment in a non-consolidated SBIC to reflect financial investments of the SBIC, the amount of the adjustment will be risk weighted at 100 percent and included in the bank's risk-weighted assets.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">ii. To the extent the adjusted carrying value of all nonfinancial equity investments that a bank holding company holds through one or more SBICs that are consolidated with the bank holding company or in one or more SBICs that are not consolidated with the bank holding company exceeds, in the aggregate, 15 percent of the aggregate Tier 1 capital of the company's subsidiary banks, the appropriate percentage of such amounts (as set forth in Table 1) must be deducted from the bank holding company's core capital elements. In addition, the aggregate adjusted carrying value of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">all</inline> nonfinancial equity investments held through a consolidated SBIC and in a non-consolidated SBIC (including any investments for which no deduction is required) must be included in determining, for purposes of Table 1, the total amount of nonfinancial equity investments held by the bank holding company in relation to its Tier 1 capital.</p>
<p style="-uslm-sgm:P">e. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transition provisions.</inline> No deduction under this section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5 is required to be made with respect to the adjusted carrying value of any nonfinancial equity investment (or portion of such an investment) that was made by the bank holding company prior to <date date="2000-03-13">March 13, 2000</date>, or that was made after such date pursuant to a binding written commitment <ref id="fnd3e18030" idref="fnd3e18046" style="-uslm-sgm:SU">31</ref> entered into by the bank holding company prior to <date date="2000-03-13">March 13, 2000</date>, provided that in either case the bank holding company has continuously held the investment since the relevant investment date. <ref id="fnd3e18034" idref="fnd3e18054" style="-uslm-sgm:SU">32</ref> For <?page num="299"?>purposes of this section II.B.5.e., a nonfinancial equity investment made prior to <date date="2000-03-13">March 13, 2000</date>, includes any shares or other interests received by the bank holding company through a stock split or stock dividend on an investment made prior to <date date="2000-03-13">March 13, 2000</date>, provided the bank holding company provides no consideration for the shares or interests received and the transaction does not materially increase the bank” holding company's proportional interest in the company. The exercise on or after <date date="2000-03-13">March 13, 2000</date>, of options or warrants acquired prior to <date date="2000-03-13">March 13, 2000</date>, is <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> considered to be an investment made prior to <date date="2000-03-13">March 13, 2000</date>, if the bank holding company provides any consideration for the shares or interests received upon exercise of the options or warrants. Any nonfinancial equity investment (or portion thereof) that is not required to be deducted from Tier 1 capital under this section II.B.5.e. must be included in determining the total amount of nonfinancial equity investments held by the bank holding company in relation to its Tier 1 capital for purposes of Table 1. In addition, any nonfinancial equity investment (or portion thereof) that is not required to be deducted from Tier 1 capital under this section II.B.5.e. will be assigned a 100-percent risk weight and included in the bank holding company's consolidated risk-weighted assets.</p>
<footnote id="fnd3e18046" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18030" style="-uslm-sgm:SU">31</ref> A “binding written commitment” means a legally binding written agreement that requires the banking organization to acquire shares or other equity of the company, or make a capital contribution to the company, under terms and conditions set forth in the agreement. Options, warrants, and other agreements that give a banking organization the right to acquire equity or make an investment, but do not require the banking organization to take such actions, are not considered a binding written commitment for purposes of this section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5.</p>
</content>
</footnote>
<footnote id="fnd3e18054" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18034" style="-uslm-sgm:SU">32</ref> For example, if a bank holding company made an equity investment in 100 shares of a nonfinancial company prior to <date date="2000-03-13">March 13, 2000</date>, that investment would not be subject to a deduction under this section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5. However, if the bank holding company made any additional equity investment in the company after <date date="2000-03-13">March 13, 2000</date>, such as by purchasing additional shares of the company (including through the exercise of options or warrants acquired before or after <date date="2000-03-13">March 13, 2000</date>) or by making a capital contribution to the company, and such investment was not made <?page num=""?>pursuant to a binding written commitment entered into before <date date="2000-03-13">March 13, 2000</date>, the adjusted carrying value of the additional investment would be subject to a deduction under this section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5. In addition, if the bank holding company sold and repurchased shares of the company after <date date="2000-03-13">March 13, 2000</date>, the adjusted carrying value of the re-acquired shares would be subject to a deduction under this section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">f. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjusted carrying value.</inline> i. For purposes of this section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5., the “adjusted carrying value” of investments is the aggregate value at which the investments are carried on the balance sheet of the consolidated bank holding company reduced by any unrealized gains on those investments that are reflected in such carrying value but excluded from the bank holding company's Tier 1 capital and associated deferred tax liabilities. For example, for investments held as available-for-sale (AFS), the adjusted carrying value of the investments would be the aggregate carrying value of the investments (as reflected on the consolidated balance sheet of the bank holding company) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">less</inline> any unrealized gains on those investments that are included in other comprehensive income and not reflected in Tier 1 capital, and associated deferred tax liabilities. <ref id="fnd3e18079" idref="fnd3e18084" style="-uslm-sgm:SU">33</ref>
</p>
<footnote id="fnd3e18084" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18079" style="-uslm-sgm:SU">33</ref> Unrealized gains on AFS investments may be included in supplementary capital to the extent permitted under section II.A.2.e of this appendix A. In addition, the unrealized losses on AFS equity investments are deducted from Tier 1 capital in accordance with section II.A.1.a of this appendix A.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">ii. As discussed above with respect to consolidated SBICs, some equity investments may be in companies that are consolidated for accounting purposes. For investments in a nonfinancial company that is consolidated for accounting purposes under generally accepted accounting principles, the parent banking organization's adjusted carrying value of the investment is determined under the equity method of accounting (net of any intangibles associated with the investment that are deducted from the consolidated bank holding company's core capital in accordance with section II.B.1 of this appendix). Even though the assets of the nonfinancial company are consolidated for accounting purposes, these assets (as well as the credit equivalent amounts of the company's off-balance sheet items) should be excluded from the banking organization's risk-weighted assets for regulatory capital purposes.</p>
<p style="-uslm-sgm:P">g. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Equity investments.</inline> For purposes of this section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5, an equity investment means any equity instrument (including common stock, preferred stock, partnership interests, interests in limited liability companies, trust certificates and warrants and call options that give the holder the right to purchase an equity instrument), any equity feature of a debt instrument (such as a warrant or call option), and any debt instrument that is convertible into equity where the instrument or feature is held under one of the legal authorities listed in section II.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline>5.b. of this appendix. An investment in any other instrument (including subordinated debt) may be treated as an equity investment if, in the judgment of the Federal Reserve, the instrument is the functional equivalent of equity or exposes the state member bank to essentially the same risks as an equity instrument.</p>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L2,s100,r100">
<xhtml:caption>
<p style="-uslm-sgm:TTITLE">Attachment II—Summary of Definition of Qualifying Capital for Bank Holding Companies*</p>
<p style="-uslm-sgm:TDESC">[Using the Year-End 1992 Standard]</p>
</xhtml:caption>
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Components</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Minimum requirements</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tfoot>
<xhtml:tr>
<xhtml:td colspan="2">
<footnote id="fnd3e18203" style="-uslm-sgm:TNOTE">
<content>
<ref idref="fnd3e18139" style="-uslm-sgm:SU">1</ref> Requirements for the deduction of other intangible assets and residual interests are set forth in section II.B.1. of this appendix.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td colspan="2">
<footnote id="fnd3e18207" style="-uslm-sgm:TNOTE">
<content>
<ref idref="fnd3e18146" style="-uslm-sgm:SU">2</ref> Amounts in excess of limitations are permitted but do not qualify as capital.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td colspan="2">
<footnote id="fnd3e18212" style="-uslm-sgm:TNOTE">
<content>
<ref idref="fnd3e18187" style="-uslm-sgm:SU">3</ref> A proportionately greater amount may be deducted from tier 1 capital, if the risks associated with the subsidiary so warrant.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td colspan="2">
<footnote style="-uslm-sgm:TNOTE">
<content>* See discussion in section II of the guidelines for a complete description of the requirements for, and the limitations on, the components of qualifying capital.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
</xhtml:tfoot>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">CORE CAPITAL (Tier 1)</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Must equal or exceed 4% of weighted-risk assets.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Common stockholders' equity</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">No limit.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW"><?page num="300"?>
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Qualifying noncumulative perpetual preferred stock</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">No limit; bank holding companies should avoid undue reliance on preferred stock in tier 1.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Qualifying cumulative perpetual preferred stock</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Limited to 25% of the sum of common stock, qualifying perpetual stock, and minority interests.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Minority interest in equity accounts of consolidated subsidiaries</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Organizations should avoid using minority interests to introduce elements not otherwise qualifying for tier 1 capital.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">Less: Goodwill, other intangible assets, credit-enhancing interest-only strips and nonfinancial equity investments required to be deducted from capital <ref idref="fnd3e18203" id="fnd3e18139" style="-uslm-sgm:SU">1</ref>
</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">SUPPLEMENTARY CAPITAL (Tier 2)</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Total of tier 2 is limited to 100% of tier 1. <ref idref="fnd3e18207" id="fnd3e18146" style="-uslm-sgm:SU">2</ref>
</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Allowance for loan and lease losses</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Limited to 1.25% of weighted-risk assets. <ref idref="fnd3e18207" id="fnd3e18153" style="-uslm-sgm:SU">2</ref>
</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Perpetual preferred stock</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">No limit within tier 2.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Hybrid capital instruments and equity contract notes</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">No limit within tier 2.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Subordinated debt and intermediate-term preferred stock (original weighted average maturity of 5 years or more)</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Subordinated debt and intermediate-term preferred stock are limited to 50% of tier 1 <ref idref="fnd3e18207" id="fnd3e18171" style="-uslm-sgm:SU">2</ref>; amortized for capital purposes as they approach maturity.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Revaluation reserves (equity and building)</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Not included; organizations encouraged to disclose; may be evaluated on a case-by-case basis for international comparisons; and taken into account in making an overall assessment of capital.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">DEDUCTIONS (from sum of tier 1 and tier 2)</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Investments in unconsolidated subsidiaries</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">As a general rule, one-half of the aggregate investments will be deducted from tier 1 capital and one-half from tier 2 capital. <ref idref="fnd3e18212" id="fnd3e18187" style="-uslm-sgm:SU">3</ref>
</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">Reciprocal holdings of banking organizations' capital securities</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Other deductions (such as other subsidiaries or joint ventures) as determined by supervisory authority</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">On a case-by-case basis or as a matter of policy after a formal rulemaking.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I04">TOTAL CAPITAL (tier 1 + tier 2− deductions)</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Must equal or exceed 8% of weighted-risk assets.</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<heading style="-uslm-sgm:HD1">III. Procedures for Computing Weighted Risk Assets and Off-Balance Sheet Items</heading>
<heading style="-uslm-sgm:HD2">A. Procedures</heading>
<p style="-uslm-sgm:P">Assets and credit equivalent amounts of off-balance sheet items of bank holding companies are assigned to one of several broad risk categories, according to the obligor, or, if relevant, the guarantor or the nature of the collateral. The aggregate dollar value of the amount in each category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are added together, and this sum is the banking organization's total weighted risk assets that comprise the denominator of the risk-based capital ratio. Attachment I provides a sample calculation.</p>
<p style="-uslm-sgm:P">Risk weights for all off-balance sheet items are determined by a two-step process. First, the “credit equivalent amount” of off-balance sheet items is determined, in most cases, by multiplying the off-balance sheet item by a credit conversion factor. Second, the credit equivalent amount is treated like any balance sheet asset and generally is assigned to the appropriate risk category according to the obligor, or, if relevant, the guarantor or the nature of the collateral.</p>
<p style="-uslm-sgm:P">In general, if a particular item qualifies for placement in more than one risk category, it is assigned to the category that has the lowest risk weight. A holding of a U.S. municipal revenue bond that is fully guaranteed by a U.S. bank, for example, would be assigned the 20 percent risk weight appropriate to claims guaranteed by U.S. banks, rather than the 50 percent risk weight appropriate to U.S. municipal revenue bonds. <ref id="fnd3e18228" idref="fnd3e18233" style="-uslm-sgm:SU">34</ref>
</p>
<footnote id="fnd3e18233" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18228" style="-uslm-sgm:SU">34</ref> An investment in shares of a fund whose portfolio consists primarily of various securities or money market instruments that, if held separately, would be assigned to different risk categories, generally is assigned to the risk category appropriate to the highest risk-weighted asset that the fund is permitted to hold in accordance with the stated investment objectives set forth in the prospectus. An organization may, at its option, assign a fund investment on a pro rata basis to different risk categories according to the investment limits in the fund's prospectus. In no case will an investment in shares in any fund be assigned to a total risk weight of <?page num=""?>less than 20 percent. If an organization chooses to assign a fund investment on a pro rata basis, and the sum of the investment limits of assets in the fund's prospectus exceeds 100 percent, the organization must assign risk weights in descending order. If, in order to maintain a necessary degree of short-term liquidity, a fund is permitted to hold an insignificant amount of its assets in short-term, highly liquid securities of superior credit quality that do not qualify for a preferential risk weight, such securities generally will be disregarded when determining the risk category into which the organization's holding in the overall fund should be assigned. The prudent use of hedging instruments by a fund to reduce the risk of its assets will not increase the risk weighting of the fund investment. For example, the use of hedging instruments by a fund to reduce the interest rate risk of its government bond portfolio will not increase the risk weight of that fund above the 20 percent category. Nonetheless, if a fund engages in any activities that appear speculative in nature or has any other characteristics that are inconsistent with the preferential risk weighting assigned to the fund's assets, holdings in the fund will be assigned to the 100 percent risk category.</p>
</content>
</footnote>
<?page num="301"?>
<p style="-uslm-sgm:P">The Federal Reserve will, on a case-by-case basis, determine the appropriate risk weight for any asset or credit equivalent amount of an off-balance sheet item that does not fit wholly within the terms of one of the risk weight categories set forth below or that imposes risks on a bank holding company that are incommensurate with the risk weight otherwise specified below for the asset or off-balance sheet item. In addition, the Federal Reserve will, on a case-by-case basis, determine the appropriate credit conversion factor for any off-balance sheet item that does not fit wholly within the terms of one of the credit conversion factors set forth below or that imposes risks on a banking organization that are incommensurate with the credit conversion factors otherwise specified below for the off-balance sheet item. In making such a determination, the Federal Reserve will consider the similarity of the asset or off-balance sheet item to assets or off-balance sheet items explicitly treated in the guidelines, as well as other relevant factors. </p>
<heading style="-uslm-sgm:HD2">B. Collateral, Guarantees, and Other Considerations</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collateral.</inline> The only forms of collateral that are formally recognized by the risk-based capital framework are: Cash on deposit in a subsidiary lending institution; securities issued or guaranteed by the central governments of the OECD-based group of countries, <ref id="fnd3e18248" idref="fnd3e18254" style="-uslm-sgm:SU">35</ref> U.S. Government agencies, or U.S. Government-sponsored agencies; and securities issued by multilateral lending institutions or regional development banks. Claims fully secured by such collateral generally are assigned to the 20 percent risk-weight category. Collateralized transactions meeting all the conditions described in section III.C.1. may be assigned a zero percent risk weight.</p>
<footnote id="fnd3e18254" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18248" style="-uslm-sgm:SU">35</ref> The OECD-based group of countries comprises all full members of the Organization for Economic Cooperation and Development (OECD) regardless of entry date, as well as countries that have concluded special lending arrangements with the International Monetary Fund (IMF) associated with the IMF's General Arrangements to Borrow, but excludes any country that has rescheduled its external sovereign debt within the previous five years. As of November 1995, the OECD included the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States; and Saudi Arabia had concluded special lending arrangements with the IMF associated with the IMF's General Arrangements to Borrow. A rescheduling of external sovereign debt generally would include any renegotiation of terms arising from a country's inability or unwillingness to meet its external debt service obligations, but generally would not include renegotiations of debt in the normal course of business, such as a renegotiation to allow the borrower to take advantage of a decline in interest rates or other change in market conditions.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">With regard to collateralized claims that may be assigned to the 20 percent risk-weight category, the extent to which qualifying securities are recognized as collateral is determined by their current market value. If such a claim is only partially secured, that is, the market value of the pledged securities is less than the face amount of a balance-sheet asset or an off-balance-sheet item, the portion that is covered by the market value of the qualifying collateral is assigned to the 20 percent risk category, and the portion of the claim that is not covered by collateral in the form of cash or a qualifying security is assigned to the risk category appropriate to the obligor or, if relevant, the guarantor. For example, to the extent that a claim on a private sector obligor is collateralized by the current market value of U.S. Government securities, it would be placed in the 20 percent risk category and the balance would be assigned to the 100 percent risk category.
<?page num="302"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Guarantees.</inline> Guarantees of the OECD and non-OECD central governments, U.S. Government agencies, U.S. Government-sponsored agencies, state and local governments of the OECD-based group of countries, multilateral lending institutions and regional development banks, U.S. depository institutions, and foreign banks are also recognized. If a claim is partially guaranteed, that is, coverage of the guarantee is less than the face amount of a balance sheet asset or an off-balance sheet item, the portion that is not fully covered by the guarantee is assigned to the risk category appropriate to the obligor or, if relevant, to any collateral. The face amount of a claim covered by two types of guarantees that have different risk weights, such as a U.S. Government guarantee and a state guarantee, is to be apportioned between the two risk categories appropriate to the guarantors.</p>
<p style="-uslm-sgm:P">The existence of other forms of collateral or guarantees that the risk-based capital framework does not formally recognize may be taken into consideration in evaluating the risks inherent in an organization's loan portfolio—which, in turn, would affect the overall supervisory assessment of the organization's capital adequacy.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Recourse obligations, direct credit substitutes, residual interests, and asset- and mortgage-backed securities.</inline> Direct credit substitutes, assets transferred with recourse, and securities issued in connection with asset securitizations and structured financings are treated as described below. The term “asset securitizations” or “securitizations” in this rule includes structured financings, as well as asset securitization transactions. </p>
<p style="-uslm-sgm:P">a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definitions</inline>—i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit derivative</inline> means a contract that allows one party (the “protection purchaser”) to transfer the credit risk of an asset or off-balance sheet credit exposure to another party (the “protection provider”). The value of a credit derivative is dependent, at least in part, on the credit performance of the “reference asset.”</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit-enhancing representations and warranties</inline> means representations and warranties that are made or assumed in connection with a transfer of assets (including loan servicing assets) and that obligate the bank holding company to protect investors from losses arising from credit risk in the assets transferred or the loans serviced. Credit-enhancing representations and warranties include promises to protect a party from losses resulting from the default or nonperformance of another party or from an insufficiency in the value of the collateral. Credit-enhancing representations and warranties do not include:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> Early default clauses and similar warranties that permit the return of, or premium refund clauses covering, 1–4 family residential first mortgage loans that qualify for a 50 percent risk weight for a period not to exceed 120 days from the date of transfer. These warranties may cover only those loans that were originated within 1 year of the date of transfer;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> Premium refund clauses that cover assets guaranteed, in whole or in part, by the U.S. Government, a U.S. Government agency or a government-sponsored enterprise, provided the premium refund clauses are for a period not to exceed 120 days from the date of transfer; or</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3.</inline> Warranties that permit the return of assets in instances of misrepresentation, fraud or incomplete documentation.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Direct credit substitute</inline> means an arrangement in which a bank holding company assumes, in form or in substance, credit risk associated with an on- or off-balance sheet credit exposure that was not previously owned by the bank holding company (third-party asset) and the risk assumed by the bank holding company exceeds the pro rata share of the bank holding company's interest in the third-party asset. If the bank holding company has no claim on the third-party asset, then the bank holding company's assumption of any credit risk with respect to the third party asset is a direct credit substitute. Direct credit substitutes include, but are not limited to:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> Financial standby letters of credit that support financial claims on a third party that exceed a bank holding company's pro rata share of losses in the financial claim;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> Guarantees, surety arrangements, credit derivatives, and similar instruments backing financial claims that exceed a bank holding company's pro rata share in the financial claim;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3.</inline> Purchased subordinated interests or securities that absorb more than their pro rata share of losses from the underlying assets;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4.</inline> Credit derivative contracts under which the bank holding company assumes more than its pro rata share of credit risk on a third party exposure;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5.</inline> Loans or lines of credit that provide credit enhancement for the financial obligations of an account party;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6.</inline> Purchased loan servicing assets if the servicer is responsible for credit losses or if the servicer makes or assumes credit-enhancing representations and warranties with respect to the loans serviced. Mortgage servicer cash advances that meet the conditions of section III.B.3.a.viii. of this appendix are not direct credit substitutes;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7.</inline> Clean-up calls on third party assets. Clean-up calls that are 10 percent or less of the original pool balance that are exercisable at the option of the bank holding company are not direct credit substitutes; and</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8.</inline> Liquidity facilities that provide liquidity support to ABCP (other than eligible ABCP liquidity facilities).
<?page num="303"?></p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligible ABCP liquidity facility</inline> means a liquidity facility supporting ABCP, in form or in substance, that is subject to an asset quality test at the time of draw that precludes funding against assets that are 90 days or more past due or in default. In addition, if the assets that an eligible ABCP liquidity facility is required to fund against are externally rated assets or exposures at the inception of the facility, the facility can be used to fund only those assets or exposures that are externally rated investment grade at the time of funding. Notwithstanding the eligibility requirements set forth in the two preceding sentences, a liquidity facility will be considered an eligible ABCP liquidity facility if the assets that are funded under the liquidity facility and which do not meet the eligibility requirements are guaranteed, either conditionally or unconditionally, by the U.S. government or its agencies, or by the central government of an OECD country.</p>
<p style="-uslm-sgm:P">v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Externally rated</inline> means that an instrument or obligation has received a credit rating from a nationally recognized statistical rating organization.</p>
<p style="-uslm-sgm:P">vi. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Face amount</inline> means the notional principal, or face value, amount of an off-balance sheet item; the amortized cost of an asset not held for trading purposes; and the fair value of a trading asset.</p>
<p style="-uslm-sgm:P">vii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financial asset</inline> means cash or other monetary instrument, evidence of debt, evidence of an ownership interest in an entity, or a contract that conveys a right to receive or exchange cash or another financial instrument from another party.</p>
<p style="-uslm-sgm:P">viii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financial standby letter of credit</inline> means a letter of credit or similar arrangement that represents an irrevocable obligation to a third-party beneficiary:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> To repay money borrowed by, or advanced to, or for the account of, a second party (the account party), or</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> To make payment on behalf of the account party, in the event that the account party fails to fulfill its obligation to the beneficiary.</p>
<p style="-uslm-sgm:P">ix. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Liquidity Facility</inline> means a legally binding commitment to provide liquidity support to ABCP by lending to, or purchasing assets from, any structure, program, or conduit in the event that funds are required to repay maturing ABCP.</p>
<p style="-uslm-sgm:P">x. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage servicer cash advance</inline> means funds that a residential mortgage loan servicer advances to ensure an uninterrupted flow of payments, including advances made to cover foreclosure costs or other expenses to facilitate the timely collection of the loan. A mortgage servicer cash advance is not a recourse obligation or a direct credit substitute if:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> The servicer is entitled to full reimbursement and this right is not subordinated to other claims on the cash flows from the underlying asset pool; or</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> For any one loan, the servicer's obligation to make nonreimbursable advances is contractually limited to an insignificant amount of the outstanding principal balance of that loan.</p>
<p style="-uslm-sgm:P">xi. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nationally recognized statistical rating organization (NRSRO)</inline> means an entity recognized by the Division of Market Regulation of the Securities and Exchange Commission (or any successor Division) (Commission) as a nationally recognized statistical rating organization for various purposes, including the Commission's uniform net capital requirements for brokers and dealers.</p>
<p style="-uslm-sgm:P">xii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Recourse</inline> means the retention, by a bank holding company, in form or in substance, of any credit risk directly or indirectly associated with an asset it has transferred and sold that exceeds a pro rata share of the banking organization's claim on the asset. If a banking organization has no claim on a transferred asset, then the retention of any risk of credit loss is recourse. A recourse obligation typically arises when a bank holding company transfers assets and retains an explicit obligation to repurchase the assets or absorb losses due to a default on the payment of principal or interest or any other deficiency in the performance of the underlying obligor or some other party. Recourse may also exist implicitly if a bank holding company provides credit enhancement beyond any contractual obligation to support assets it has sold. The following are examples of recourse arrangements:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> Credit-enhancing representations and warranties made on the transferred assets;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> Loan servicing assets retained pursuant to an agreement under which the bank holding company will be responsible for credit losses associated with the loans being serviced. Mortgage servicer cash advances that meet the conditions of section III.B.3.a.x. of this appendix are not recourse arrangements;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3.</inline> Retained subordinated interests that absorb more than their pro rata share of losses from the underlying assets;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4.</inline> Assets sold under an agreement to repurchase, if the assets are not already included on the balance sheet;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5.</inline> Loan strips sold without contractual recourse where the maturity of the transferred loan is shorter than the maturity of the commitment under which the loan is drawn;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6.</inline> Credit derivatives issued that absorb more than the bank holding company's pro rata share of losses from the transferred assets;</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7.</inline> Clean-up calls at inception that are greater than 10 percent of the balance of the original pool of transferred loans. Clean-up calls that are 10 percent or less of the original pool balance that are exercisable at the option of the bank holding company are not recourse arrangements; and
<?page num="304"?></p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8.</inline> Liquidity facilities that provide liquidity support to ABCP (other than eligible ABCP liquidity facilities).</p>
<p style="-uslm-sgm:P">xiii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Residual interest</inline> means any on-balance sheet asset that represents an interest (including a beneficial interest) created by a transfer that qualifies as a sale (in accordance with generally accepted accounting principles) of financial assets, whether through a securitization or otherwise, and that exposes the bank holding company to credit risk directly or indirectly associated with the transferred assets that exceeds a pro rata share of the bank holding company's claim on the assets, whether through subordination provisions or other credit enhancement techniques. Residual interests generally include credit-enhancing I/Os, spread accounts, cash collateral accounts, retained subordinated interests, other forms of over-collateralization, and similar assets that function as a credit enhancement. Residual interests further include those exposures that, in substance, cause the bank holding company to retain the credit risk of an asset or exposure that had qualified as a residual interest before it was sold. Residual interests generally do not include interests purchased from a third party, except that purchased credit-enhancing I/Os are residual interests for purposes of this appendix.</p>
<p style="-uslm-sgm:P">xiv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Risk participation</inline> means a participation in which the originating party remains liable to the beneficiary for the full amount of an obligation (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.</inline>, a direct credit substitute) notwithstanding that another party has acquired a participation in that obligation.</p>
<p style="-uslm-sgm:P">xv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Securitization</inline> means the pooling and repackaging by a special purpose entity of assets or other credit exposures into securities that can be sold to investors. Securitization includes transactions that create stratified credit risk positions whose performance is dependent upon an underlying pool of credit exposures, including loans and commitments.</p>
<p style="-uslm-sgm:P">xvi. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sponsor</inline> means a bank holding company that establishes an ABCP program; approves the sellers permitted to participate in the program; approves the asset pools to be purchased by the program; or administers the program by monitoring the assets, arranging for debt placement, compiling monthly reports, or ensuring compliance with the program documents and with the program's credit and investment policy.</p>
<p style="-uslm-sgm:P">xvii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Structured finance program</inline> means a program where receivable interests and asset-backed securities issued by multiple participants are purchased by a special purpose entity that repackages those exposures into securities that can be sold to investors. Structured finance programs allocate credit risks, generally, between the participants and credit enhancement provided to the program.</p>
<p style="-uslm-sgm:P">xviii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Traded position</inline> means a position that is externally rated and is retained, assumed, or issued in connection with an asset securitization, where there is a reasonable expectation that, in the near future, the rating will be relied upon by unaffiliated investors to purchase the position; or an unaffiliated third party to enter into a transaction involving the position, such as a purchase, loan, or repurchase agreement.</p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit equivalent amounts and risk weight of recourse obligations and direct credit substitutes.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit equivalent amount.</inline> Except as otherwise provided in sections III.B.3.c. through f. and III.B.5. of this appendix, the credit-equivalent amount for a recourse obligation or direct credit substitute is the full amount of the credit-enhanced assets for which the bank holding company directly or indirectly retains or assumes credit risk multiplied by a 100 percent conversion factor.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Risk-weight factor.</inline> To determine the bank holding company's risk-weight factor for off-balance sheet recourse obligations and direct credit substitutes, the credit equivalent amount is assigned to the risk category appropriate to the obligor in the underlying transaction, after considering any associated guarantees or collateral. For a direct credit substitute that is an on-balance sheet asset (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> a purchased subordinated security), a bank holding company must calculate risk-weighted assets using the amount of the direct credit substitute and the full amount of the assets it supports, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> all the more senior positions in the structure. The treatment of direct credit substitutes that have been syndicated or in which risk participations have been conveyed or acquired is set forth in section III.D.1 of this appendix.</p>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Externally-rated positions: credit-equivalent amounts and risk weights of recourse obligations, direct credit substitutes, residual interests, and asset- and mortgage-backed securities (including asset-backed commercial paper)</inline>—i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Traded positions.</inline> With respect to a recourse obligation, direct credit substitute, residual interest (other than a credit-enhancing I/Ostrip) or asset- and mortgage-backed security (including asset-backed commercial paper) that is a traded position and that has received an external rating on a long-term position that is one grade below investment grade or better or a short-term rating that is investment grade, the bank holding company may multiply the face amount of the position by the appropriate risk weight, determined in accordance with the tables below. Stripped mortgage-backed securities and other similar instruments, such as interest-only or principal-only strips that are not credit enhancements, must be assigned to the 100 percent risk category. If a traded position has received more than one external rating, the lowest single rating will apply.
<?page num="305"?></p>
<xhtml:table cols="3" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c3,L2(,,0),s100,r50,12">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Long-term rating category </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Examples </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Risk weight<br style="-uslm-sgm:LI" />(In percent) </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Highest or second highest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">AAA, AA</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">20 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Third highest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">A</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">50 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Lowest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">BBB</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">100 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">One category below investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">BB</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">200</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<xhtml:table cols="3" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c3,L2,ns,s100,r50,12">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Short-term rating </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Examples </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Risk weight<br style="-uslm-sgm:LI" />(In percent) </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Highest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">A–1, P–1</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">20 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Second highest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">A–2, P–2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">50 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Lowest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">A–3, P–3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">100</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Non-traded positions.</inline> A recourse obligation, direct credit substitute, or residual interest (but not a credit-enhancing I/O strip) extended in connection with a securitization that is not a traded position may be assigned a risk weight in accordance with section III.B.3.c.i. of this appendix if: </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> It has been externally rated by more than one NRSRO; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> It has received an external rating on a long-term position that is one grade below investment grade or better or on a short-term position that is investment grade by all NRSROs providing a rating; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3.</inline> The ratings are publicly available; and </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4.</inline> The ratings are based on the same criteria used to rate traded positions. </p>
<p style="-uslm-sgm:P">If the ratings are different, the lowest rating will determine the risk category to which the recourse obligation, direct credit substitute, or residual interest will be assigned.</p>
<p style="-uslm-sgm:P">d. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Senior positions not externally rated.</inline> For a recourse obligation, direct credit substitute, residual interest, or asset-or mortgage-backed security that is not externally rated but is senior or preferred in all features to a traded position (including collateralization and maturity), a bank holding company may apply a risk weight to the face amount of the senior position in accordance with section III.B.3.c.i. of this appendix, based on the traded position, subject to any current or prospective supervisory guidance and the bank holding company satisfying the Federal Reserve that this treatment is appropriate. This section will apply only if the traded subordinated position provides substantive credit support to the unrated position until the unrated position matures. </p>
<p style="-uslm-sgm:P">e. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital requirement for residual interests</inline>—i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital requirement for credit-enhancing I/O strips.</inline> After applying the concentration limit to credit-enhancing I/O strips (both purchased and retained) in accordance with sections II.B.2.c. through e. of this appendix, a bank holding company must maintain risk-based capital for a credit-enhancing I/O strip (both purchased and retained), regardless of the external rating on that position, equal to the remaining amount of the credit-enhancing I/O (net of any existing associated deferred tax liability), even if the amount of risk-based capital required to be maintained exceeds the full risk-based capital requirement for the assets transferred. Transactions that, in substance, result in the retention of credit risk associated with a transferred credit-enhancing I/O strip will be treated as if the credit-enhancing I/O strip was retained by the bank holding company and not transferred.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Capital requirement for other residual interests. 1.</inline> If a residual interest does not meet the requirements of sections III.B.3.c. or d. of this appendix, a bank holding must maintain risk-based capital equal to the remaining amount of the residual interest that is retained on the balance sheet (net of any existing associated deferred tax liability), even if the amount of risk-based capital required to be maintained exceeds the full risk-based capital requirement for the assets transferred. Transactions that, in substance, result in the retention of credit risk associated with a transferred residual interest will be treated as if the residual interest was retained by the bank holding company and not transferred. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> Where the aggregate capital requirement for residual interests and other recourse obligations in connection with the same transfer of assets exceed the full risk-based capital requirement for those assets, a bank holding company must maintain risk-based capital equal to the greater of the risk-based capital requirement for the residual interest as calculated under section III.B.3.e.ii.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> of this appendix or the full risk-based capital requirement for the assets transferred.</p>
<p style="-uslm-sgm:P">f. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Positions that are not rated by an NRSRO.</inline> A position (but not a residual interest) maintained in connection with a securitization and that is not rated by a NRSRO may be risk-weighted based on the bank holding company's determination of the credit rating of the position, as specified in the table below, multiplied by the face amount of the position. In order to obtain this treatment, the bank holding company's system for determining the credit rating of the position must meet one of the three alternative standards set out in sections III.B.3.f.i. through III.B.3.f.iii. of this appendix.
<?page num="306"?></p>
<xhtml:table cols="3" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c3,L2,s100,r50,12">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Rating category </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Examples </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Risk weight<br style="-uslm-sgm:LI" />(In percent) </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Highest or second highest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">AAA, AA</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">100 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Third highest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">A</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">100 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Lowest investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">BBB</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">100 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">One category below investment grade</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">BB</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">200</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Internal risk rating used for asset-backed programs.</inline> A direct credit substitute (other than a purchased credit-enhancing I/O) is assumed in connection with an asset-backed commercial paper program sponsored by the bank holding company and the bank holding company is able to demonstrate to the satisfaction of the Federal Reserve, prior to relying upon its use, that the bank holding company's internal credit risk rating system is adequate. Adequate internal credit risk rating systems usually contain the following criteria: </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> The internal credit risk system is an integral part of the bank holding company's risk management system, which explicitly incorporates the full range of risks arising from a bank holding company's participation in securitization activities; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> Internal credit ratings are linked to measurable outcomes, such as the probability that the position will experience any loss, the position's expected loss given default, and the degree of variance in losses given default on that position; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3.</inline> The bank holding company's internal credit risk system must separately consider the risk associated with the underlying loans or borrowers, and the risk associated with the structure of a particular securitization transaction; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4.</inline> The bank holding company's internal credit risk system must identify gradations of risk among “pass” assets and other risk positions; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5.</inline> The bank holding company must have clear, explicit criteria that are used to classify assets into each internal risk grade, including subjective factors; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6.</inline> The bank holding company must have independent credit risk management or loan review personnel assigning or reviewing the credit risk ratings; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7.</inline> The bank holding company must have an internal audit procedure that periodically verifies that the internal credit risk ratings are assigned in accordance with the established criteria; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8.</inline> The bank holding company must monitor the performance of the internal credit risk ratings assigned to nonrated, nontraded direct credit substitutes over time to determine the appropriateness of the initial credit risk rating assignment and adjust individual credit risk ratings, or the overall internal credit risk ratings system, as needed; and </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9.</inline> The internal credit risk system must make credit risk rating assumptions that are consistent with, or more conservative than, the credit risk rating assumptions and methodologies of NRSROs. </p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Program Ratings.</inline> A direct credit substitute or recourse obligation (other than a residual interest) is assumed or retained in connection with a structured finance program and a NRSRO has reviewed the terms of the program and stated a rating for positions associated with the program. If the program has options for different combinations of assets, standards, internal credit enhancements and other relevant factors, and the NRSRO specifies ranges of rating categories to them, the bank holding company may apply the rating category that corresponds to the bank holding company's position. In order to rely on a program rating, the bank holding company must demonstrate to the Federal Reserve's satisfaction that the credit risk rating assigned to the program meets the same standards generally used by NRSROs for rating traded positions. The bank holding company must also demonstrate to the Federal Reserve's satisfaction that the criteria underlying the NRSRO's assignment of ratings for the program are satisfied for the particular position. If a bank holding company participates in a securitization sponsored by another party, the Federal Reserve may authorize the bank holding company to use this approach based on a programmatic rating obtained by the sponsor of the program.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Computer Program.</inline> The bank holding company is using an acceptable credit assessment computer program to determine the rating of a direct credit substitute or recourse obligation (but not residual interest) issued in connection with a structured finance program. A NRSRO must have developed the computer program, and the bank holding company must demonstrate to the Federal Reserve's satisfaction that ratings under the program correspond credibly and reliably with the rating of traded positions.</p>
<p style="-uslm-sgm:P">g. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitations on risk-based capital requirements</inline>—i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Low-level exposure.</inline> If the maximum contractual exposure to loss retained or assumed by a bank holding company in connection with a recourse obligation or a direct credit substitute is less than the effective risk-based capital requirement for the enhanced assets, the risk-based capital requirement is limited to the maximum contractual exposure, less any liability account established in accordance with generally accepted accounting principles. This limitation does <?page num="307"?>not apply when a bank holding company provides credit enhancement beyond any contractual obligation to support assets it has sold.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage-related securities or participation certificates retained in a mortgage loan swap.</inline> If a bank holding company holds a mortgage-related security or a participation certificate as a result of a mortgage loan swap with recourse, capital is required to support the recourse obligation plus the percentage of the mortgage-related security or participation certificate that is not covered by the recourse obligation. The total amount of capital required for the on-balance sheet asset and the recourse obligation, however, is limited to the capital requirement for the underlying loans, calculated as if the organization continued to hold these loans as on-balance sheet assets. </p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Related on-balance sheet assets.</inline> If a recourse obligation or direct credit substitute subject to section III.B.3. of this appendix also appears as a balance sheet asset, the balance sheet asset is not included in an organization's risk-weighted assets to the extent the value of the balance sheet asset is already included in the off-balance sheet credit equivalent amount for the recourse obligation or direct credit substitute, except in the case of loan servicing assets and similar arrangements with embedded recourse obligations or direct credit substitutes. In that case, both the on-balance sheet assets and the related recourse obligations and direct credit substitutes are incorporated into the risk-based capital calculation. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maturity.</inline> Maturity is generally not a factor in assigning items to risk categories with the exception of claims on non-OECD banks, commitments, and interest rate and foreign exchange rate contracts. Except for commitments, short-term is defined as one year or less <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">remaining</inline> maturity and long-term is defined as over one year <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">remaining</inline> maturity. In the case of commitments, short-term is defined as one year or less <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">original</inline> maturity and long-term is defined as over one year <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">original</inline> maturity.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Small Business Loans and Leases on Personal Property Transferred with Recourse.</inline> a. Notwithstanding other provisions of this appendix A, a qualifying banking organization that has transferred small business loans and leases on personal property (small business obligations) with recourse shall include in weighted-risk assets only the amount of retained recourse, provided two conditions are met. First, the transaction must be treated as a sale under GAAP and, second, the banking organization must establish pursuant to GAAP a non-capital reserve sufficient to meet the organization's reasonably estimated liability under the recourse arrangement. Only loans and leases to businesses that meet the criteria for a small business concern established by the Small Business Administration under section 3(a) of the Small Business Act are eligible for this capital treatment.</p>
<p style="-uslm-sgm:P">b. For purposes of this appendix A, a banking organization is qualifying if it meets the criteria for well capitalized or, by order of the Board, adequately capitalized, as those criteria are set forth in the Board's prompt corrective action regulation for state member banks (<ref href="/us/cfr/t12/s208.40">12 CFR 208.40</ref>). For purposes of determining whether an organization meets these criteria, its capital ratios must be calculated without regard to the capital treatment for transfers of small business obligations with recourse specified in section III.B.5.a. of this appendix A. The total outstanding amount of recourse retained by a qualifying banking organization on transfers of small business obligations receiving the preferential capital treatment cannot exceed 15 percent of the organization's total risk-based capital. By order, the Board may approve a higher limit.</p>
<p style="-uslm-sgm:P">c. If a bank holding company ceases to be qualifying or exceeds the 15 percent capital limitation, the preferential capital treatment will continue to apply to any transfers of small business obligations with recourse that were consummated during the time that the organization was qualifying and did not exceed the capital limit.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Asset-backed commercial paper programs.</inline> a. An asset-backed commercial paper (ABCP) program means a program that primarily issues externally rated commercial paper backed by assets or exposures held in a bankruptcy-remote, special purpose entity.</p>
<p style="-uslm-sgm:P">b. If a bank holding company has multiple overlapping exposures (such as a program-wide credit enhancement and multiple pool-specific liquidity facilities) to an ABCP program that is not consolidated for risk-based capital purposes, the bank holding company is not required to hold duplicative risk-based capital under this appendix against the overlapping position. Instead, the bank holding company should apply to the overlapping position the applicable risk-based capital treatment that results in the highest capital charge.</p>
<heading style="-uslm-sgm:HD2">C. Risk Weights</heading>
<p style="-uslm-sgm:P">Attachment III contains a listing of the risk categories, a summary of the types of assets assigned to each category and the risk weight associated with each category, that is, 0 percent, 20 percent, 50 percent, and 100 percent. A brief explanation of the components of each category follows.</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Category 1: zero percent.</inline> This category includes cash (domestic and foreign) owned and held in all offices of subsidiary depository institutions or in transit and gold bullion held in either a subsidiary depository institution's own vaults or in another's vaults on an allocated basis, to the extent it is offset <?page num="308"?>by gold bullion liabilities. <ref id="fnd3e18774" idref="fnd3e18789" style="-uslm-sgm:SU">36</ref> The category also includes all direct claims (including securities, loans, and leases) on, and the portions of claims that are directly and unconditionally guaranteed by, the central governments <ref id="fnd3e18778" idref="fnd3e18794" style="-uslm-sgm:SU">37</ref> of the OECD countries and U.S. Government agencies, <ref id="fnd3e18783" idref="fnd3e18800" style="-uslm-sgm:SU">38</ref> as well as all direct local currency claims on, and the portions of local currency claims that are directly and unconditionally guaranteed by, the central governments of non-OECD countries, to the extent that subsidiary depository institutions have liabilities booked in that currency. A claim is not considered to be unconditionally guaranteed by a central government if the validity of the guarantee is dependent upon some affirmative action by the holder or a third party. Generally, securities guaranteed by the U.S. Government or its agencies that are actively traded in financial markets, such as GNMA securities, are considered to be unconditionally guaranteed. </p>
<footnote id="fnd3e18789" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18774" style="-uslm-sgm:SU">36</ref> All other holdings of bullion are assigned to the 100 percent risk category.</p>
</content>
</footnote>
<footnote id="fnd3e18794" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18778" style="-uslm-sgm:SU">37</ref> A central government is defined to include departments and ministries, including the central bank, of the central government. The U.S. central bank includes the 12 Federal Reserve Banks, and stock held in these banks as a condition of membership is assigned to the zero percent risk category. The definition of central government does not include state, provincial, or local governments; or commercial enterprises owned by the central government. In addition, it does not include local government entities or commercial enterprises whose obligations are guaranteed by the central government, although any claims on such entities guaranteed by central governments are placed in the same general risk category as other claims guaranteed by central governments. OECD central governments are defined as central governments of the OECD-based group of countries; non-OECD central governments are defined as central governments of countries that do not belong to the OECD-based group of countries.</p>
</content>
</footnote>
<footnote id="fnd3e18800" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18783" style="-uslm-sgm:SU">38</ref> A U.S. Government agency is defined as an instrumentality of the U.S. Government whose obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. Government. Such agencies include the Government National Mortgage Association (GNMA), the Veterans Administration (VA), the Federal Housing Administration (FHA), the Export-Import Bank (Exim Bank), the Overseas Private Investment Corporation (OPIC), the Commodity Credit Corporation (CCC), and the Small Business Administration (SBA).</p>
</content>
</footnote>
<p style="-uslm-sgm:P">This category also includes claims collateralized by cash on deposit in the subsidiary lending institution or by securities issued or guaranteed by OECD central governments or U.S. government agencies for which a positive margin of collateral is maintained on a daily basis, fully taking into account any change in the banking organization's exposure to the obligor or counterparty under a claim in relation to the market value of the collateral held in support of that claim. </p>
<p style="-uslm-sgm:P">This category also includes ABCP (i) purchased by a bank holding company on or after <date date="2008-09-19">September 19, 2008</date>, from an SEC-registered open-end investment company that holds itself out as a money market mutual fund under SEC Rule 2a–7 (<ref href="/us/cfr/t17/s270.2a">17 CFR 270.2a</ref>–7) and (ii) pledged by the bank holding company to a Federal Reserve Bank to secure financing from the ABCP lending facility (AMLF) established by the Board on <date date="2008-09-19">September 19, 2008</date>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Category 2: 20 percent.</inline> a. This category includes cash items in the process of collection, both foreign and domestic; short-term claims (including demand deposits) on, and the portions of short-term claims that are guaranteed by, <ref id="fnd3e18812" idref="fnd3e18830" style="-uslm-sgm:SU">39</ref> U.S. depository institutions <ref id="fnd3e18816" idref="fnd3e18835" style="-uslm-sgm:SU">40</ref> and foreign banks <ref id="fnd3e18820" idref="fnd3e18843" style="-uslm-sgm:SU">41</ref>; and long-term claims on, and the portions of long-term claims that are guaranteed by, U.S. depository institutions and OECD banks. <ref id="fnd3e18825" idref="fnd3e18851" style="-uslm-sgm:SU">42</ref>
</p>
<footnote id="fnd3e18830" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18812" style="-uslm-sgm:SU">39</ref> Claims guaranteed by U.S. depository institutions and foreign banks include risk participations in both bankers acceptances and standby letters of credit, as well as participations in commitments, that are conveyed to U.S. depository institutions or foreign banks.</p>
</content>
</footnote>
<footnote id="fnd3e18835" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18816" style="-uslm-sgm:SU">40</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> footnote 9 of this appendix for the definition of a U.S. depository institution. For this purpose, the definition also includes U.S.-chartered depository institutions owned by foreigners. However, branches and agencies of foreign banks located in the U.S., as well as all bank holding companies, are excluded.</p>
</content>
</footnote>
<footnote id="fnd3e18843" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18820" style="-uslm-sgm:SU">41</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> footnote 10 of this appendix for the definition of a foreign bank. Foreign banks are distinguished as either OECD banks or non-OECD banks. OECD banks include banks and their branches (foreign and domestic) organized under the laws of countries (other than the United States) that belong to the OECD-based group of countries. Non-OECD banks include banks and their branches (foreign and domestic) organized under the laws of countries that do not belong to the OECD-based group of countries.</p>
</content>
</footnote>
<footnote id="fnd3e18851" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18825" style="-uslm-sgm:SU">42</ref> Long-term claims on, or guaranteed by, non-OECD banks and all claims on bank holding companies are assigned to the 100 percent risk category, as are holdings of bank-issued securities that qualify as capital of the issuing banks.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">b. This category also includes the portions of claims that are conditionally guaranteed <?page num="309"?>by OECD central governments and U.S. Government agencies, as well as the portions of local currency claims that are conditionally guaranteed by non-OECD central governments, to the extent that subsidiary depository institutions have liabilities booked in that currency. In addition, this category also includes claims on, and the portions of claims that are guaranteed by, U.S. government-sponsored <ref id="fnd3e18858" idref="fnd3e18867" style="-uslm-sgm:SU">43</ref> agencies and claims on, and the portions of claims guaranteed by, the International Bank for Reconstruction and Development (World Bank), the International Finance Corporation, the Interamerican Development Bank, the Asian Development Bank, the African Development Bank, the European Investment Bank, the European Bank for Reconstruction and Development, the Nordic Investment Bank, and other multilateral lending institutions or regional development banks in which the U.S. government is a shareholder or contributing member. General obligation claims on, or portions of claims guaranteed by the full faith and credit of, states or other political subdivisions of the U.S. or other countries of the OECD—based group are also assigned to this category. <ref id="fnd3e18862" idref="fnd3e18875" style="-uslm-sgm:SU">44</ref>
</p>
<footnote id="fnd3e18867" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18858" style="-uslm-sgm:SU">43</ref> For this purpose, U.S. government-sponsored agencies are defined as agencies originally established or chartered by the Federal government to serve public purposes specified by the U.S. Congress but whose obligations are <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not explicitly</inline> guaranteed by the full faith and credit of the U.S. government. These agencies include the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA), the Farm Credit System, the Federal Home Loan Bank System, and the Student Loan Marketing Association (SLMA). Claims on U.S. government-sponsored agencies include capital stock in a Federal Home Loan Bank that is held as a condition of membership in that Bank.</p>
</content>
</footnote>
<footnote id="fnd3e18875" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18862" style="-uslm-sgm:SU">44</ref> Claims on, or guaranteed by, states or other political subdivisions of countries that do not belong to the OECD-based group of countries are placed in the 100 percent risk category.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">c. This category also includes the portions of claims (including repurchase transactions) collateralized by cash on deposit in the subsidiary lending institution or by securities issued or guaranteed by OECD central governments or U.S. government agencies that do not qualify for the zero percent risk-weight category; collateralized by securities issued or guaranteed by U.S. government-sponsored agencies; or collateralized by securities issued by multilateral lending institutions or regional development banks in which the U.S. government is a shareholder or contributing member.</p>
<p style="-uslm-sgm:P">d. This category also includes claims <ref id="fnd3e18883" idref="fnd3e18893" style="-uslm-sgm:SU">45</ref> on, or guaranteed by, a qualifying securities firm <ref id="fnd3e18887" idref="fnd3e18898" style="-uslm-sgm:SU">46</ref> incorporated in the United States or other member of the OECD-based group of countries provided that: the qualifying securities firm has a long-term issuer credit rating, or a rating on at least one issue of long-term debt, in one of the three highest investment grade rating categories from a nationally recognized statistical rating organization; or the claim is guaranteed by the firm's parent company and the parent company has such a rating. If ratings are available from more than one rating agency, the lowest rating will be used to determine whether the rating requirement has been met. This category also includes a collateralized claim on a qualifying securities firm in such a country, without regard to satisfaction of the rating standard, provided the claim arises under a contract that: </p>
<footnote id="fnd3e18893" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18883" style="-uslm-sgm:SU">45</ref> Claims on a qualifying securities firm that are instruments the firm, or its parent company, uses to satisfy its applicable capital requirement are not eligible for this risk weight.</p>
</content>
</footnote>
<footnote id="fnd3e18898" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18887" style="-uslm-sgm:SU">46</ref> With regard to securities firms incorporated in the United States, qualifying securities firms are those securities firms that are broker-dealers registered with the Securities and Exchange Commission and are in compliance with the SEC's net capital rule, <ref href="/us/cfr/t17/s240.15c3">17 CFR 240.15c3</ref>–1. With regard to securities firms incorporated in other countries in the OECD-based group of countries, qualifying securities firms are those securities firms that a banking organization is able to demonstrate are subject to consolidated supervision and regulation (covering their direct and indirect subsidiaries, but not necessarily their parent organizations) comparable to that imposed on banks in OECD countries. Such regulation must include risk-based capital requirements comparable to those applied to banks under the Accord on International Convergence of Capital Measurement and Capital Standards (1988, as amended in 1998) (Basel Accord).</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(1) Is a reverse repurchase/repurchase agreement or securities lending/borrowing transaction executed under standard industry documentation; </p>
<p style="-uslm-sgm:P">(2) Is collateralized by debt or equity securities that are liquid and readily marketable; </p>
<p style="-uslm-sgm:P">(3) Is marked-to-market daily; </p>
<p style="-uslm-sgm:P">(4) Is subject to a daily margin maintenance requirement under the standard industry documentation; and </p>
<p style="-uslm-sgm:P">(5) Can be liquidated, terminated, or accelerated immediately in bankruptcy or similar proceeding, and the security or collateral agreement will not be stayed or avoided, <?page num="310"?>under applicable law of the relevant jurisdiction. <ref id="fnd3e18913" idref="fnd3e18918" style="-uslm-sgm:SU">47</ref>
</p>
<footnote id="fnd3e18918" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18913" style="-uslm-sgm:SU">47</ref> For example, a claim is exempt from the automatic stay in bankruptcy in the United States if it arises under a securities contract or repurchase agreement subject to section 555 or 559 of the Bankruptcy Code, respectively (<ref href="/us/usc/t11/s555">11 U.S.C. 555</ref> or 559), a qualified financial contract under section 11(e)(8) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1821/e/8">12 U.S.C. 1821(e)(8)</ref>), or a netting contract between financial institutions under sections 401–407 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (<ref href="/us/usc/t12/s4401–4407">12 U.S.C. 4401–4407</ref>), or the Board's Regulation EE (<ref href="/us/cfr/t12/p231">12 CFR Part 231</ref>).</p>
</content>
</footnote>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Category 3: 50 percent.</inline> This category includes loans fully secured by first liens <ref id="fnd3e18926" idref="fnd3e18946" style="-uslm-sgm:SU">48</ref> on 1- to 4-family residential properties, either owner-occupied or rented, or on multifamily residential properties,<ref id="fnd3e18930" idref="fnd3e18951" style="-uslm-sgm:SU">49</ref> that meet certain criteria.<ref id="fnd3e18934" idref="fnd3e18962" style="-uslm-sgm:SU">50</ref> Loans included in this category must have been made in accordance with prudent underwriting standards; <ref id="fnd3e18939" idref="fnd3e18967" style="-uslm-sgm:SU">51</ref> be performing in accordance with their original terms; and not be 90 days or more past due or carried in nonaccrual status. For purposes of this 50 percent risk weight category, a loan modified on a permanent or trial basis solely pursuant to the U.S. Department of Treasury's Home Affordable Mortgage Program will be considered to be performing in accordance with its original terms. The following additional criteria must also be applied to a loan secured by a multifamily residential property that is included in this category: all principal and interest payments on the loan must have been made on time for at least the year preceding placement in this category, or in the case where the existing property owner is refinancing a loan on that property, all principal and interest payments on the loan being refinanced must have been made on time for at least the year preceding placement in this category; amortization of the principal and interest must occur over a period of not more than 30 years and the minimum original maturity for repayment of principal must not be less than 7 years; and the annual net operating income (before debt service) generated by the property during its most recent fiscal year must not be less than 120 percent of the loan's current annual debt service (115 percent if the loan is based on a floating interest rate) or, in the case of a cooperative or other not-for-profit housing project, the property must generate sufficient cash flow to provide comparable protection to the institution. Also included in this category are privately-issued mortgage-backed securities provided that:</p>
<footnote id="fnd3e18946" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18926" style="-uslm-sgm:SU">48</ref> If a banking organization holds the first and junior lien(s) on a residential property and no other party holds an intervening lien, the transaction is treated as a single loan secured by a first lien for the purposes of determining the loan-to-value ratio and assigning a risk weight.</p>
</content>
</footnote>
<footnote id="fnd3e18951" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18930" style="-uslm-sgm:SU">49</ref> Loans that qualify as loans secured by 1- to 4-family residential properties or multifamily residential properties are listed in the instructions to the FR Y–9C Report. In addition, for risk-based capital purposes, loans secured by 1- to 4-family residential properties include loans to builders with substantial project equity for the construction of 1-to 4-family residences that have been presold under firm contracts to purchasers who have obtained firm commitments for permanent qualifying mortgage loans and have made substantial earnest money deposits. Such loans to builders will be considered prudently underwritten only if the bank holding company has obtained sufficient documentation that the buyer of the home intends to purchase the home (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> has a legally binding written sales contract) and has the ability to obtain a mortgage loan sufficient to purchase the home (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> has a firm written commitment for permanent financing of the home upon completion).</p>
</content>
</footnote>
<footnote id="fnd3e18962" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18934" style="-uslm-sgm:SU">50</ref> Residential property loans that do not meet all the specified criteria or that are made for the purpose of speculative property development are placed in the 100 percent risk category.</p>
</content>
</footnote>
<footnote id="fnd3e18967" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18939" style="-uslm-sgm:SU">51</ref> Prudent underwriting standards include a conservative ratio of the current loan balance to the value of the property. In the case of a loan secured by multifamily residential property, the loan-to-value ratio is not conservative if it exceeds 80 percent (75 percent if the loan is based on a floating interest rate). Prudent underwriting standards also dictate that a loan-to-value ratio used in the case of originating a loan to acquire a property would not be deemed conservative unless the value is based on the lower of the acquisition cost of the property or appraised (or if appropriate, evaluated) value. Otherwise, the loan-to-value ratio generally would be based upon the value of the property as determined by the most current appraisal, or if appropriate, the most current evaluation. All appraisals must be made in a manner consistent with the Federal banking agencies' real estate appraisal regulations and guidelines and with the banking organization's own appraisal guidelines.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(1) The structure of the security meets the criteria described in section III(B)(3) above;</p>
<p style="-uslm-sgm:P">(2) if the security is backed by a pool of conventional mortgages, on 1- to 4-family residential or multifamily residential properties, each underlying mortgage meets the criteria described above in this section for eligibility for the 50 percent risk category at the time the pool is originated;
<?page num="311"?></p>
<p style="-uslm-sgm:P">(3) If the security is backed by privately-issued mortgage-backed securities, each underlying security qualifies for the 50 percent risk category; and</p>
<p style="-uslm-sgm:P">(4) If the security is backed by a pool of multifamily residential mortgages, principal and interest payments on the security are not 30 days or more past due. Privately-issued mortgage-backed securities that do not meet these criteria or that do not qualify for a lower risk weight are generally assigned to the 100 percent risk category.</p>
<p style="-uslm-sgm:P">Also assigned to this category are <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">revenue</inline> (non-general obligation) bonds or similar obligations, including loans and leases, that are obligations of states or other political subdivisions of the U.S. (for example, municipal revenue bonds) or other countries of the OECD-based group, but for which the government entity is committed to repay the debt with revenues from the specific projects financed, rather than from general tax funds.</p>
<p style="-uslm-sgm:P">Credit equivalent amounts of derivative contracts involving standard risk obligors (that is, obligors whose loans or debt securities would be assigned to the 100 percent risk category) are included in the 50 percent category, unless they are backed by collateral or guarantees that allow them to be placed in a lower risk category. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Category 4: 100 percent.</inline> a. All assets not included in the categories above are assigned to this category, which comprises standard risk assets. The bulk of the assets typically found in a loan portfolio would be assigned to the 100 percent category.</p>
<p style="-uslm-sgm:P">b. This category includes long-term claims on, and the portions of long-term claims that are guaranteed by, non-OECD banks, and all claims on non-OECD central governments that entail some degree of transfer risk. <ref id="fnd3e18994" idref="fnd3e19004" style="-uslm-sgm:SU">52</ref> This category includes all claims on foreign and domestic private-sector obligors not included in the categories above (including loans to nondepository financial institutions and bank holding companies); claims on commercial firms owned by the public sector; customer liabilities to the organization on acceptances outstanding involving standard risk claims;<ref id="fnd3e18998" idref="fnd3e19009" style="-uslm-sgm:SU">53</ref> investments in fixed assets, premises, and other real estate owned; common and preferred stock of corporations, including stock acquired for debts previously contracted; all stripped mortgage-backed securities and similar instruments; and commercial and consumer loans (except those assigned to lower risk categories due to recognized guarantees or collateral and loans secured by residential property that qualify for a lower risk weight). This category also includes claims representing capital of a qualifying securities firm.</p>
<footnote id="fnd3e19004" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18994" style="-uslm-sgm:SU">52</ref> Such assets include all nonlocal currency claims on, and the portions of claims that are guaranteed by, non-OECD central governments and those portions of local currency claims on, or guaranteed by, non-OECD central governments that exceed the local currency liabilities held by subsidiary depository institutions.</p>
</content>
</footnote>
<footnote id="fnd3e19009" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e18998" style="-uslm-sgm:SU">53</ref> Customer liabilities on acceptances outstanding involving nonstandard risk claims, such as claims on U.S. depository institutions, are assigned to the risk category appropriate to the identity of the obligor or, if relevant, the nature of the collateral or guarantees backing the claims. Portions of acceptances conveyed as risk participations to U.S. depository institutions or foreign banks are assigned to the 20 percent risk category appropriate to short-term claims guaranteed by U.S. depository institutions and foreign banks.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">c. Also included in this category are industrial-development bonds and similar obligations issued under the auspices of states or political subdivisions of the OECD-based group of countries for the benefit of a private party or enterprise where that party or enterprise, not the government entity, is obligated to pay the principal and interest, and all obligations of states or political subdivisions of countries that do not belong to the OECD-based group. </p>
<p style="-uslm-sgm:P">d. The following assets also are assigned a risk weight of 100 percent if they have not been deducted from capital: investments in unconsolidated companies, joint ventures, or associated companies; instruments that qualify as capital issued by other banking organizations; and any intangibles, including those that may have been grandfathered into capital. </p>
<heading style="-uslm-sgm:HD2">D. Off-Balance Sheet Items</heading>
<p style="-uslm-sgm:P">The face amount of an off-balance sheet item is generally incorporated into risk-weighted assets in two steps. The face amount is first multiplied by a credit conversion factor, except for direct credit substitutes and recourse obligations as discussed in section III.D.1. of this appendix. The resultant credit equivalent amount is assigned to the appropriate risk category according to the obligor or, if relevant, the guarantor, the nature of any collateral, or external credit ratings. <ref id="fnd3e19020" idref="fnd3e19025" style="-uslm-sgm:SU">54</ref>
</p>
<footnote id="fnd3e19025" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19020" style="-uslm-sgm:SU">54</ref> The sufficiency of collateral and guarantees for off-balance-sheet items is determined by the market value of the collateral or the amount of the guarantee in relation to the face amount of the item, except for derivative contracts, for which this determination is generally made in relation to the credit equivalent amount. Collateral and guarantees are subject to the same provisions noted under section III.B of this appendix A.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Items with a 100 percent conversion factor.</inline> a. Except as otherwise provided in section <?page num="312"?>III.B.3. of this appendix, the full amount of an asset or transaction supported, in whole or in part, by a direct credit substitute or a recourse obligation. Direct credit substitutes and recourse obligations are defined in section III.B.3. of this appendix. </p>
<p style="-uslm-sgm:P">b. Sale and repurchase agreements and forward agreements. Forward agreements are legally binding contractual obligations to purchase assets with certain drawdown at a specified future date. Such obligations include forward purchases, forward forward deposits placed, <ref id="fnd3e19037" idref="fnd3e19043" style="-uslm-sgm:SU">55</ref> and partly-paid shares and securities; they do not include commitments to make residential mortgage loans or forward foreign exchange contracts. </p>
<footnote id="fnd3e19043" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19037" style="-uslm-sgm:SU">55</ref> Forward forward deposits accepted are treated as interest rate contracts.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">c. Securities lent by a banking organization are treated in one of two ways, depending upon whether the lender is at risk of loss. If a banking organization, as agent for a customer, lends the customer's securities and does not indemnify the customer against loss, then the transaction is excluded from the risk-based capital calculation. If, alternatively, a banking organization lends its own securities or, acting as agent for a customer, lends the customer's securities and indemnifies the customer against loss, the transaction is converted at 100 percent and assigned to the risk weight category appropriate to the obligor, or, if applicable, to any collateral delivered to the lending organization, or the independent custodian acting on the lending organization's behalf. Where a banking organization is acting as agent for a customer in a transaction involving the lending or sale of securities that is collateralized by cash delivered to the banking organization, the transaction is deemed to be collateralized by cash on deposit in a subsidiary depository institution for purposes of determining the appropriate risk-weight category, provided that any indemnification is limited to no more than the difference between the market value of the securities and the cash collateral received and any reinvestment risk associated with that cash collateral is borne by the customer. </p>
<p style="-uslm-sgm:P">d. In the case of direct credit substitutes in which a risk participation <ref id="fnd3e19051" idref="fnd3e19072" style="-uslm-sgm:SU">56</ref> has been conveyed, the full amount of the assets that are supported, in whole or in part, by the credit enhancement are converted to a credit equivalent amount at 100 percent. However, the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro rata</inline> share of the credit equivalent amount that has been conveyed through a risk participation is assigned to whichever risk category is lower: the risk category appropriate to the obligor, after considering any relevant guarantees or collateral, or the risk category appropriate to the institution acquiring the participation. <ref id="fnd3e19058" idref="fnd3e19077" style="-uslm-sgm:SU">57</ref> Any remainder is assigned to the risk category appropriate to the obligor, guarantor, or collateral. For example, the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro rata</inline> share of the full amount of the assets supported, in whole or in part, by a direct credit substitute conveyed as a risk participation to a U.S. domestic depository institution or foreign bank is assigned to the 20 percent risk category. <ref id="fnd3e19066" idref="fnd3e19082" style="-uslm-sgm:SU">58</ref>
</p>
<footnote id="fnd3e19072" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19051" style="-uslm-sgm:SU">56</ref> That is, a participation in which the originating banking organization remains liable to the beneficiary for the full amount of the direct credit substitute if the party that has acquired the participation fails to pay when the instrument is drawn.</p>
</content>
</footnote>
<footnote id="fnd3e19077" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19058" style="-uslm-sgm:SU">57</ref> A risk participation in bankers acceptances conveyed to other institutions is also assigned to the risk category appropriate to the institution acquiring the participation or, if relevant, the guarantor or nature of the collateral.</p>
</content>
</footnote>
<footnote id="fnd3e19082" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19066" style="-uslm-sgm:SU">58</ref> Risk participations with a remaining maturity of over one year that are conveyed to non-OECD banks are to be assigned to the 100 percent risk category, unless a lower risk category is appropriate to the obligor, guarantor, or collateral.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">e. In the case of direct credit substitutes in which a risk participation has been acquired, the acquiring banking organization's percentage share of the direct credit substitute is multiplied by the full amount of the assets that are supported, in whole or in part, by the credit enhancement and converted to a credit equivalent amount at 100 percent. The credit equivalent amount of an acquisition of a risk participation in a direct credit substitute is assigned to the risk category appropriate to the account party obligor or, if relevant, the nature of the collateral or guarantees. </p>
<p style="-uslm-sgm:P">f. In the case of direct credit substitutes that take the form of a syndication where each banking organization is obligated only for its pro rata share of the risk and there is no recourse to the originating banking organization, each banking organization will only include its pro rata share of the assets supported, in whole or in part, by the direct credit substitute in its risk-based capital calculation. <ref id="fnd3e19089" idref="fnd3e19095" style="-uslm-sgm:SU">59</ref>
</p>
<footnote id="fnd3e19095" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19089" style="-uslm-sgm:SU">59</ref> For example, if a banking organization has a 10 percent share of a $10 syndicated direct credit substitute that provides credit support to a $100 loan, then the banking organization's $1 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro rata</inline> share in the enhancement means that a $10 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro rata</inline> share of the loan is included in risk weighted assets.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Items with a 50 percent conversion factor.</inline> a. Transaction-related contingencies are converted at 50 percent. Such contingencies include bid bonds, performance bonds, warranties, standby letters of credit related to particular transactions, and performance standby letters of credit, as well as acquisitions of risk participation in performance standby <?page num="313"?>letters of credit. Peformance standby letters of credit represent obligations backing the performance of nonfinancial or commercial contracts or undertakings. To the extent permitted by law or regulation, performance standby letters of credit include arrangements backing, among other things, subcontractors' and suppliers' performance, labor and materials contracts, and construction bids.</p>
<p style="-uslm-sgm:P">b. The unused portion of commitments with an <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">original</inline> maturity exceeding one year, including underwriting commitments, and commercial and consumer credit commitments also are converted at 50 percent. Original maturity is defined as the length of time between the date the commitment is issued and the earliest date on which: (1) The banking organization can, at its option, unconditionally (without cause) cancel the commitment;<ref id="fnd3e19116" idref="fnd3e19122" style="-uslm-sgm:SU">60</ref> and (2) the banking organization is scheduled to (and as a normal practice actually does) review the facility to determine whether or not it should be extended. Such reviews must continue to be conducted at least annually for such a facility to qualify as a short-term commitment.</p>
<footnote id="fnd3e19122" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19116" style="-uslm-sgm:SU">60</ref> In the case of consumer home equity or mortgage lines of credit secured by liens on 1–4 family residential properties, the bank is deemed able to unconditionally cancel the commitment for the purpose of this criterion if, at its option, it can prohibit additional extensions of credit, reduce the credit line, and terminate the commitment to the full extent permitted by relevant Federal law.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">c.i. Commitments are defined as any legally binding arrangements that obligate a banking organization to extend credit in the form of loans or leases; to purchase loans, securities, or other assets; or to participate in loans and leases. They also include overdraft facilities, revolving credit, home equity and mortgage lines of credit, eligible ABCP liquidity facilities, and similar transactions. Normally, commitments involve a written contract or agreement and a commitment fee, or some other form of consideration. Commitments are included in weighted-risk assets regardless of whether they contain “material adverse change” clauses or other provisions that are intended to relieve the issuer of its funding obligation under certain conditions. In the case of commitments structured as syndications, where the banking organization is obligated solely for its <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro rata</inline> share, only the organization's proportional share of the syndicated commitment is taken into account in calculating the risk-based capital ratio.</p>
<p style="-uslm-sgm:P">ii. Banking organizations that are subject to the market risk rules are required to convert the notional amount of eligible ABCP liquidity facilities, in form or in substance, with an original maturity of over one year that are carried in the trading account at 50 percent to determine the appropriate credit equivalent amount even though those facilities are structured or characterized as derivatives or other trading book assets. Liquidity facilities that support ABCP, in form or in substance, (including those positions to which the market risk rules may not be applied as set forth in section 2(a) of appendix E of this part) that are not eligible ABCP liquidity facilities are to be considered recourse obligations or direct credit substitutes, and assessed the appropriate risk-based capital treatment in accordance with section III.B.3. of this appendix.</p>
<p style="-uslm-sgm:P">d. Once a commitment has been converted at 50 percent, any portion that has been conveyed to U.S. depository institutions or OECD banks as participations in which the originating banking organization retains the full obligation to the borrower if the participating bank fails to pay when the instrument is drawn, is assigned to the 20 percent risk category. This treatment is analogous to that accorded to conveyances of risk participations in standby letters of credit. The acquisition of a participation in a commitment by a banking organization is converted at 50 percent and assigned to the risk category appropriate to the account party obligor or, if relevant, the nature of the collateral or guarantees. </p>
<p style="-uslm-sgm:P">e. Revolving underwriting facilities (RUFs), note issuance facilities (NIFs), and other similar arrangements also are converted at 50 percent regardless of maturity. These are facilities under which a borrower can issue on a revolving basis short-term paper in its own name, but for which the underwriting organizations have a legally binding commitment either to purchase any notes the borrower is unable to sell by the roll-over date or to advance funds to the borrower. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Items with a 20 percent conversion factor.</inline> Short-term, self-liquidating trade-related contingencies which arise from the movement of goods are converted at 20 percent. Such contingencies generally include commercial letters of credit and other documentary letters of credit collateralized by the underlying shipments. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Items with a 10 percent conversion factor.</inline> a. Unused portions of eligible ABCP liquidity facilities with an original maturity of one year or less also are converted at 10 percent.</p>
<p style="-uslm-sgm:P">b. Banking organizations that are subject to the market risk rules are required to convert the notional amount of eligible ABCP liquidity facilities, in form or in substance, with an original maturity of one year or less that are carried in the trading account at 10 percent to determine the appropriate credit equivalent amount even though those facilities are structured or characterized as derivatives or other trading book assets. Liquidity facilities that support ABCP, in form <?page num="314"?>or in substance, (including those positions to which the market risk rules may not be applied as set forth in section 2(a) of appendix E of this part) that are not eligible ABCP liquidity facilities are to be considered recourse obligations or direct credit substitutes and assessed the appropriate risk-based capital requirement in accordance with section III.B.3. of this appendix.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Items with a zero percent conversion factor.</inline> These include unused portions of commitments (with the exception of eligible ABCP liquidity facilities) with an original maturity of one year or less, or which are unconditionally cancelable at any time, provided a separate credit decision is made before each drawing under the facility. Unused portions of lines of credit on retail credit cards and related plans are deemed to be short-term commitments if the banking organization has the unconditional right to cancel the line of credit at any time, in accordance with applicable law. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E. Derivative Contracts (Interest Rate, Exchange Rate, Commodity- (including precious metals) and Equity-Linked Contracts)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope.</inline> Credit equivalent amounts are computed for each of the following off-balance-sheet derivative contracts: </p>
<p style="-uslm-sgm:P">a. Interest Rate Contracts. These include single currency interest rate swaps, basis swaps, forward rate agreements, interest rate options purchased (including caps, collars, and floors purchased), and any other instrument linked to interest rates that gives rise to similar credit risks (including when-issued securities and forward forward deposits accepted). </p>
<p style="-uslm-sgm:P">b. Exchange Rate Contracts. These include cross-currency interest rate swaps, forward foreign exchange contracts, currency options purchased, and any other instrument linked to exchange rates that gives rise to similar credit risks. </p>
<p style="-uslm-sgm:P">c. Equity Derivative Contracts. These include equity-linked swaps, equity-linked options purchased, forward equity-linked contracts, and any other instrument linked to equities that gives rise to similar credit risks. </p>
<p style="-uslm-sgm:P">d. Commodity (including precious metal) Derivative Contracts. These include commodity-linked swaps, commodity-linked options purchased, forward commodity-linked contracts, and any other instrument linked to commodities that gives rise to similar credit risks. </p>
<p style="-uslm-sgm:P">e. Exceptions. Exchange rate contracts with an original maturity of fourteen or fewer calendar days and derivative contracts traded on exchanges that require daily receipt and payment of cash variation margin may be excluded from the risk-based ratio calculation. Gold contracts are accorded the same treatment as exchange rate contracts except that gold contracts with an original maturity of fourteen or fewer calendar days are included in the risk-based ratio calculation. Over-the-counter options purchased are included and treated in the same way as other derivative contracts. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculation of credit equivalent amounts.</inline> a. The credit equivalent amount of a derivative contract that is not subject to a qualifying bilateral netting contract in accordance with section III.E.3. of this appendix A is equal to the sum of (i) the current exposure (sometimes referred to as the replacement cost) of the contract; and (ii) an estimate of the potential future credit exposure of the contract. </p>
<p style="-uslm-sgm:P">b. The current exposure is determined by the mark-to-market value of the contract. If the mark-to-market value is positive, then the current exposure is equal to that mark-to-market value. If the mark-to-market value is zero or negative, then the current exposure is zero. Mark-to-market values are measured in dollars, regardless of the currency or currencies specified in the contract and should reflect changes in underlying rates, prices, and indices, as well as counterparty credit quality. </p>
<p style="-uslm-sgm:P">c. The potential future credit exposure of a contract, including a contract with a negative mark-to-market value, is estimated by multiplying the notional principal amount of the contract by a credit conversion factor. Banking organizations should use, subject to examiner review, the effective rather than the apparent or stated notional amount in this calculation. The credit conversion factors are: </p>
<xhtml:table cols="6" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c6,L2,s100,10,10,10,10,10">
<xhtml:caption>
<p style="-uslm-sgm:TTITLE">Conversion Factors </p>
<p style="-uslm-sgm:TDESC">[In percent] </p>
</xhtml:caption>
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Remaining maturity</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Interest rate</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Exchange rate and gold</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Equity</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Commodity, excluding precious metals</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Precious metals, except gold </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">One year or less</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">0.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7.0</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Over one to five years</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">0.5</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">12.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7.0 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Over five years</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1.5</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7.5</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">15.0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8.0</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<?page num="315"?>
<p style="-uslm-sgm:P">d. For a contract that is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the market value of the contract is zero, the remaining maturity is equal to the time until the next reset date. For an interest rate contract with a remaining maturity of more than one year that meets these criteria, the minimum conversion factor is 0.5 percent. </p>
<p style="-uslm-sgm:P">e. For a contract with multiple exchanges of principal, the conversion factor is multiplied by the number of remaining payments in the contract. A derivative contract not included in the definitions of interest rate, exchange rate, equity, or commodity contracts as set forth in section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.</inline>1. of this appendix A is subject to the same conversion factors as a commodity, excluding precious metals. </p>
<p style="-uslm-sgm:P">f. No potential future exposure is calculated for a single currency interest rate swap in which payments are made based upon two floating rate indices (a so called floating/floating or basis swap); the credit exposure on such a contract is evaluated solely on the basis of the mark-to-market value. </p>
<p style="-uslm-sgm:P">g. The Board notes that the conversion factors set forth above, which are based on observed volatilities of the particular types of instruments, are subject to review and modification in light of changing volatilities or market conditions. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Netting.</inline> a. For purposes of this appendix A, netting refers to the offsetting of positive and negative mark-to-market values when determining a current exposure to be used in the calculation of a credit equivalent amount. Any legally enforceable form of bilateral netting (that is, netting with a single counterparty) of derivative contracts is recognized for purposes of calculating the credit equivalent amount provided that: </p>
<p style="-uslm-sgm:P">i. The netting is accomplished under a written netting contract that creates a single legal obligation, covering all included individual contracts, with the effect that the banking organization would have a claim to receive, or obligation to pay, only the net amount of the sum of the positive and negative mark-to-market values on included individual contracts in the event that a counterparty, or a counterparty to whom the contract has been validly assigned, fails to perform due to any of the following events: default, insolvency, liquidation, or similar circumstances. </p>
<p style="-uslm-sgm:P">ii. The banking organization obtains a written and reasoned legal opinion(s) representing that in the event of a legal challenge—including one resulting from default, insolvency, liquidation, or similar circumstances—the relevant court and administrative authorities would find the banking organization's exposure to be the net amount under: </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> The law of the jurisdiction in which the counterparty is chartered or the equivalent location in the case of noncorporate entities, and if a branch of the counterparty is involved, then also under the law of the jurisdiction in which the branch is located; </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> The law that governs the individual contracts covered by the netting contract; and </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3.</inline> The law that governs the netting contract. </p>
<p style="-uslm-sgm:P">iii. The banking organization establishes and maintains procedures to ensure that the legal characteristics of netting contracts are kept under review in the light of possible changes in relevant law. </p>
<p style="-uslm-sgm:P">iv. The banking organization maintains in its files documentation adequate to support the netting of derivative contracts, including a copy of the bilateral netting contract and necessary legal opinions. </p>
<p style="-uslm-sgm:P">b. A contract containing a walkaway clause is not eligible for netting for purposes of calculating the credit equivalent amount. <ref id="fnd3e19281" idref="fnd3e19287" style="-uslm-sgm:SU">61</ref>
</p>
<footnote id="fnd3e19287" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19281" style="-uslm-sgm:SU">61</ref> A walkaway clause is a provision in a netting contract that permits a non-defaulting counterparty to make lower payments than it would make otherwise under the contract, or no payment at all, to a defaulter or to the estate of a defaulter, even if the defaulter or the estate of the defaulter is a net creditor under the contract.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">c. A banking organization netting individual contracts for the purpose of calculating credit equivalent amounts of derivative contracts represents that it has met the requirements of this appendix A and all the appropriate documents are in the banking organization's files and available for inspection by the Federal Reserve. The Federal Reserve may determine that a banking organization's files are inadequate or that a netting contract, or any of its underlying individual contracts, may not be legally enforceable under any one of the bodies of law described in section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.</inline>3.a.ii. of this appendix A. If such a determination is made, the netting contract may be disqualified from recognition for risk-based capital purposes or underlying individual contracts may be treated as though they are not subject to the netting contract. </p>
<p style="-uslm-sgm:P">d. The credit equivalent amount of contracts that are subject to a qualifying bilateral netting contract is calculated by adding (i) the current exposure of the netting contract (net current exposure) and (ii) the sum of the estimates of potential future credit exposures on all individual contracts subject to the netting contract (gross potential future exposure) adjusted to reflect the effects of the netting contract. <ref id="fnd3e19297" idref="fnd3e19302" style="-uslm-sgm:SU">62</ref>
</p>
<footnote id="fnd3e19302" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19297" style="-uslm-sgm:SU">62</ref> For purposes of calculating potential future credit exposure to a netting <?page num=""?>counterparty for foreign exchange contracts and other similar contracts in which notional principal is equivalent to cash flows, total notional principal is defined as the net receipts falling due on each value date in each currency.</p>
</content>
</footnote>
<?page num="316"?>
<p style="-uslm-sgm:P">e. The net current exposure is the sum of all positive and negative mark-to-market values of the individual contracts included in the netting contract. If the net sum of the mark-to-market values is positive, then the net current exposure is equal to that sum. If the net sum of the mark-to-market values is zero or negative, then the net current exposure is zero. The Federal Reserve may determine that a netting contract qualifies for risk-based capital netting treatment even though certain individual contracts included under the netting contract may not qualify. In such instances, the nonqualifying contracts should be treated as individual contracts that are not subject to the netting contract. </p>
<p style="-uslm-sgm:P">f. Gross potential future exposure, or A<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">gross</inline> is calculated by summing the estimates of potential future exposure (determined in accordance with section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.</inline>2 of this appendix A) for each individual contract subject to the qualifying bilateral netting contract. </p>
<p style="-uslm-sgm:P">g. The effects of the bilateral netting contract on the gross potential future exposure are recognized through the application of a formula that results in an adjusted add-on amount (A<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">net</inline>). The formula, which employs the ratio of net current exposure to gross current exposure (NGR), is expressed as: </p>
<?GPOvSpace 04?>
<p style="-uslm-sgm:FP-2">A<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">net</inline> = (0.4 × A<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">gross</inline>) + 0.6(NGR × A<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">gross</inline>) </p>
<?GPOvSpace 04?>
<p style="-uslm-sgm:P">h. The NGR may be calculated in accordance with either the counterparty-by-counterparty approach or the aggregate approach. </p>
<p style="-uslm-sgm:P">i. Under the counterparty-by-counterparty approach, the NGR is the ratio of the net current exposure for a netting contract to the gross current exposure of the netting contract. The gross current exposure is the sum of the current exposures of all individual contracts subject to the netting contract calculated in accordance with section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.</inline>2. of this appendix A. Net negative mark-to-market values for individual netting contracts with the same counterparty may not be used to offset net positive mark-to-market values for other netting contracts with the same counterparty. </p>
<p style="-uslm-sgm:P">ii. Under the aggregate approach, the NGR is the ratio of the sum of all of the net current exposures for qualifying bilateral netting contracts to the sum of all of the gross current exposures for those netting contracts (each gross current exposure is calculated in the same manner as in section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.</inline>3.h.i. of this appendix A). Net negative mark-to-market values for individual counterparties may not be used to offset net positive current exposures for other counterparties. </p>
<p style="-uslm-sgm:P">iii. A banking organization must use consistently either the counterparty-by-counterparty approach or the aggregate approach to calculate the NGR. Regardless of the approach used, the NGR should be applied individually to each qualifying bilateral netting contract to determine the adjusted add-on for that netting contract. </p>
<p style="-uslm-sgm:P">i. In the event a netting contract covers contracts that are normally excluded from the risk-based ratio calculation—for example, exchange rate contracts with an original maturity of fourteen or fewer calendar days or instruments traded on exchanges that require daily payment and receipt of cash variation margin—an institution may elect to either include or exclude all mark-to-market values of such contracts when determining net current exposure, provided the method chosen is applied consistently. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Risk Weights.</inline> Once the credit equivalent amount for a derivative contract, or a group of derivative contracts subject to a qualifying bilateral netting contract, has been determined, that amount is assigned to the risk category appropriate to the counterparty, or, if relevant, the guarantor or the nature of any collateral. <ref id="fnd3e19358" idref="fnd3e19364" style="-uslm-sgm:SU">63</ref> However, the maximum risk weight applicable to the credit equivalent amount of such contracts is 50 percent.</p>
<footnote id="fnd3e19364" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19358" style="-uslm-sgm:SU">63</ref> For derivative contracts, sufficiency of collateral or guarantees is generally determined by the market value of the collateral or the amount of the guarantee in relation to the credit equivalent amount. Collateral and guarantees are subject to the same provisions noted under section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">B.</inline> of this appendix A.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Avoidance of double counting.</inline> a. In certain cases, credit exposures arising from the derivative contracts covered by section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.</inline> of this appendix A may already be reflected, in part, on the balance sheet. To avoid double counting such exposures in the assessment of capital adequacy and, perhaps, assigning inappropriate risk weights, counterparty credit exposures arising from the derivative instruments covered by these guidelines may need to be excluded from balance sheet assets in calculating a banking organization's risk-based capital ratios. </p>
<p style="-uslm-sgm:P">b. Examples of the calculation of credit equivalent amounts for contracts covered under this section III.<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">E.</inline> are contained in Attachment V of this appendix A. </p>
<heading style="-uslm-sgm:HD1">IV. Minimum Supervisory Ratios and Standards</heading>
<p style="-uslm-sgm:P">The interim and final supervisory standards set forth below specify <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">minimum</inline> supervisory ratios based primarily on broad credit <?page num="317"?>risk considerations. As noted above, the risk-based ratio does not take explicit account of the quality of individual asset portfolios or the range of other types of risks to which banking organizations may be exposed, such as interest rate, liquidity, market or operational risks. For this reason, banking organizations are generally expected to operate with capital positions well above the minimum ratios.</p>
<p style="-uslm-sgm:P">Institutions with high or inordinate levels of risk are expected to operate well above minimum capital standards. Banking organizations experiencing or anticipating significant growth are also expected to maintain capital, including tangible capital positions, well above the minimum levels. For example, most such organizations generally have operated at capital levels ranging from 100 to 200 basis points above the stated minimums. Higher capital ratios could be required if warranted by the particular circumstances or risk profiles of individual banking organizations. In all cases, organizations should hold capital commensurate with the level and nature of all of the risks, including the volume and severity of problem loans, to which they are exposed.</p>
<p style="-uslm-sgm:P">Upon adoption of the risk-based framework, any organization that does not meet the interim or final supervisory ratios, or whose capital is otherwise considered inadequate, is expected to develop and implement a plan acceptable to the Federal Reserve for achieving an adequate level of capital consistent with the provisions of these guidelines or with the special circumstances affecting the individual organization. In addition, such organizations should avoid any actions, including increased risk-taking or unwarranted expansion, that would lower or further erode their capital positions.</p>
<heading style="-uslm-sgm:HD2">A. Minimum Risk-Based Ratio After Transition Period</heading>
<p style="-uslm-sgm:P">As reflected in Attachment VI, by year-end 1992, all bank holding companies <ref id="fnd3e19401" idref="fnd3e19407" style="-uslm-sgm:SU">64</ref> should meet a minimum ratio of qualifying total capital to weighted risk assets of 8 percent, of which at least 4.0 percentage points should be in the form of Tier 1 capital. For purposes of section IV.A., Tier 1 capital is defined as the sum of core capital elements less goodwill and other intangible assets required to be deducted in accordance with section II.B.1.b. of this appendix. The maximum amount of supplementary capital elements that qualifies as Tier 2 capital is limited to 100 percent of Tier 1 capital. In addition, the combined maximum amount of subordinated debt and intermediate-term preferred stock that qualifies as Tier 2 capital is limited to 50 percent of Tier 1 capital. The maximum amount of the allowance for loan and lease losses that qualifies as Tier 2 capital is limited to 1.25 percent of gross weighted risk assets. Allowances for loan and lease losses in excess of this limit may, of course, be maintained, but would not be included in an organization's total capital. The Federal Reserve will continue to require bank holding companies to maintain reserves at levels fully sufficient to cover losses inherent in their loan portfolios.</p>
<footnote id="fnd3e19407" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19401" style="-uslm-sgm:SU">64</ref> As noted in section I, bank holding companies with less than $500 million in consolidated assets would generally be exempt from the calculation and analysis of risk-based ratios on a consolidated holding company basis, subject to certain terms and conditions.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">Qualifying total capital is calculated by adding Tier 1 capital and Tier 2 capital (limited to 100 percent of Tier 1 capital) and then deducting from this sum certain investments in banking or finance subsidiaries that are not consolidated for accounting or supervisory purposes, reciprocal holdings of banking organizations' capital securities, or other items at the direction of the Federal Reserve. The conditions under which these deductions are to be made and the procedures for making the deductions are discussed above in section II(B).</p>
<heading style="-uslm-sgm:HD2">B. Transition Arrangements</heading>
<p style="-uslm-sgm:P">The transition period for implementing the risk-based capital standard ends on <date date="1992-12-31">December 31, 1992</date>. Initially, the risk-based capital guidelines do not establish a minimum level of capital. However, by year-end 1990, banking organizations are expected to meet a minimum interim target ratio for qualifying total capital to weighted risk assets of 7.25 percent, at least one-half of which should be in the form of Tier 1 capital. For purposes of meeting the 1990 interim target, the amount of loan loss reserves that may be included in capital is limited to 1.5 percent of weighted risk assets and up to 10 percent of an organization's Tier 1 capital may consist of supplementary capital elements. Thus, the 7.25 percent interim target ratio implies a minimum ratio of Tier 1 capital to weighted risk assets of 3.6 percent (one-half of 7.25) and a minimum ratio of core capital elements to weighted risk assets ratio of 3.25 percent (nine-tenths of the Tier 1 capital ratio).</p>
<p style="-uslm-sgm:P">Through year-end 1990, banking organizations have the option of complying with the minimum 7.25 percent year-end 1990 risk-based capital standard, in lieu of the minimum 5.5 percent primary and 6 percent total capital to total assets ratios set forth in appendix B of this part. In addition, as more fully set forth in appendix D to this part, banking organizations are expected to maintain a minimum ratio of Tier 1 capital to total assets during this transition period.
<?page num="318"?></p>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L1,p1,6/7,s50,10">
<xhtml:caption>
<p style="-uslm-sgm:TTITLE">Attachment I—Sample Calculation of Risk-Based Capital Ratio for Bank Holding Companies</p>
</xhtml:caption>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td colspan="2" style="-uslm-sgm:ENT; -uslm-sgm-I:I11">Example of a banking organization with $6,000 in total capital and the following assets and off-balance sheet items:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">Balance Sheet Assets:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Cash</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$5,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">U.S. Treasuries</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">20,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Balances at domestic banks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Loans secured by first liens on 1–4 family residential properties</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,s">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Loans to private corporations</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">65,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,d">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I04">Total Balance Sheet Assets</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$100,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">Off-Balance Sheet Items:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Standby letters of credit (“SLCs”) backing general obligation debt issues of U.S. municipalities (“GOs”)</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$10,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,s">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Long-term legally binding commitments to private corporations</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">20,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I04">Total Off/Balance Sheet Items</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$30,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td colspan="2" style="-uslm-sgm:ENT; -uslm-sgm-I:I11">This bank holding company's total capital to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total</inline> assets (leverage) ratio would be: ($6,000/$100,000) = 6.00%.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">To compute the bank holding company's weighted risk assets:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">1. Compute the credit equivalent amount of each off-balance sheet (“OBS”) item.</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<xhtml:table cols="6" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c6,L1,p1,6/7,s50,10,1,10,2,10">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">OBS item</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Face value</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED"> </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Conversion factor</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED"> </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Credit equivalent amount</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">SLCS backing municipal GOs</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$10,000</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> × </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1.00</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">=</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$10,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Long-term commitments to private corporations</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$20,000</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> × </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">0.50</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">=</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$10,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td colspan="2" style="-uslm-sgm:ENT; -uslm-sgm-I:I11">2. Multiply each balance sheet asset and the credit equivalent amount of each OBS item by the appropriate risk weight.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">0% Category:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Cash</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,s,n ">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">U.S. Treasuries</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">20,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,d,n ">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">25,000</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> × </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">0</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">=</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">0</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">20% Category:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Balances at domestic banks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,s">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Credit equivalent amounts of SLCs backing GOs of U.S. municipalities</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,d,n ">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">15,000</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> × </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">.20</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">=</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$3,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">50% Category:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,d,n ">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Loans secured by first liens on 1–4 family residential properties</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5,000</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> × </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">.50</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">=</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$2,500</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I11">100% Category:</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Loans to private corporations</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">65,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,s,n,n,n,n">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I03">Credit equivalent amounts of long-term commitments to private corporations</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW; -uslm-sgm-RUL:n,n,n,n,n,s">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$75,000</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> × </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1.00</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">=</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">75,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I04">Total Risk-weighted Assets</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">80,500</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td colspan="6" style="-uslm-sgm:ENT; -uslm-sgm-I:I11">This bank holding company's ratio of total capital to weighted risk assets (risk-based capital ratio) would be: ($6,000/$80,500) = 7.45%</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<heading style="-uslm-sgm:HD2">C. Optional Transition Provisions Related to the Implementation of Consolidation Requirements under FAS 167</heading>
<p style="-uslm-sgm:P">This section IV.C. provides optional transition provisions for a banking organization that is required for financial and regulatory reporting purposes, as a result of its implementation of Statement of Financial Accounting Standards No. 167, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amendments to FASB Interpretation No. 46(R)</inline> (FAS 167), to consolidate certain variable interest entities (VIEs) as defined under United States generally accepted accounting principles (GAAP). These transition provisions apply through the end of the fourth quarter following the date of a banking organization's implementation of FAS 167 (implementation date).</p>
<heading style="-uslm-sgm:HD3">1. Exclusion Period</heading>
<p style="-uslm-sgm:P">a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusion of risk-weighted assets for the first and second quarters.</inline> For the first two quarters after the implementation date (exclusion period), including for the two calendar quarter-end regulatory report dates within those quarters, a banking organization may exclude from risk-weighted assets:</p>
<p style="-uslm-sgm:P">i. Subject to the limitations in section IV.C.3, assets held by a VIE, provided that the following conditions are met:</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) The VIE existed prior to the implementation date,</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) The banking organization did not consolidate the VIE on its balance sheet for calendar quarter-end regulatory report dates prior to the implementation date,
<?page num="319"?></p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) The banking organization must consolidate the VIE on its balance sheet beginning as of the implementation date as a result of its implementation of FAS 167, and</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4</inline>) The banking organization excludes all assets held by VIEs described in paragraphs C.1.a.i. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) through (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) of this section IV.C.1.a.i; and</p>
<p style="-uslm-sgm:P">ii. Subject to the limitations in section IV.C.3, assets held by a VIE that is a consolidated ABCP program, provided that the following conditions are met:</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) The banking organization is the sponsor of the ABCP program,</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) Prior to the implementation date, the banking organization consolidated the VIE onto its balance sheet under GAAP and excluded the VIE's assets from the banking organization's risk-weighted assets, and</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) The banking organization chooses to exclude all assets held by ABCP program VIEs described in paragraphs (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) and (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) of this section IV.C.1.a.ii.</p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Risk-weighted assets during exclusion period.</inline> During the exclusion period, including the two calendar quarter-end regulatory report dates during the exclusion period, a banking organization adopting the optional provisions in section IV.C.1.a must calculate risk-weighted assets for its contractual exposures to the VIEs referenced in section IV.C.1.a on the implementation date and include this calculated amount in its risk-weighted assets. Such contractual exposures may include direct-credit substitutes, recourse obligations, residual interests, liquidity facilities, and loans.</p>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inclusion of allowance for loan and lease losses in tier 2 capital for the first and second quarters.</inline> During the exclusion period, including for the two calendar quarter-end regulatory report dates within the exclusion period, a banking organization that excludes VIE assets from risk-weighted assets pursuant to section IV.C.1.a may include in tier 2 capital the full amount of the allowance for loan and lease losses (ALLL) calculated as of the implementation date that is attributable to the assets it excludes pursuant to section IV.C.1.a (inclusion amount). The amount of ALLL includable in tier 2 capital in accordance with this paragraph shall not be subject to the limitations set forth in section II.A.2.a of this Appendix.</p>
<heading style="-uslm-sgm:HD3">2. Phase-In Period</heading>
<p style="-uslm-sgm:P">a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusion amount.</inline> For purposes of this section IV.C., <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">exclusion amount</inline> is defined as the amount of risk-weighted assets excluded in section IV.C.1.a as of the implementation date.</p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Risk-weighted assets for the third and fourth quarters.</inline> A banking organization that excludes assets of consolidated VIEs from risk-weighted assets pursuant to section IV.C.1.a. may, for the third and fourth quarters after the implementation date (phase-in period), including for the two calendar quarter-end regulatory report dates within those quarters, exclude from risk-weighted assets 50 percent of the exclusion amount, provided that the banking organization may not include in risk-weighted assets pursuant to this paragraph an amount less than the aggregate risk-weighted assets calculated pursuant to section IV.C.1.b.</p>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inclusion of ALLL in tier 2 capital for the third and fourth quarters.</inline> A banking organization that excludes assets of consolidated VIEs from risk-weighted assets pursuant to section IV.C.2.b. may, for the phase-in period, include in tier 2 capital 50 percent of the inclusion amount it included in tier 2 capital during the exclusion period, notwithstanding the limit on including ALLL in tier 2 capital in section II.A.2.a. of this Appendix.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Implicit recourse limitation.</inline> Notwithstanding any other provision in this section IV.C., assets held by a VIE to which the banking organization has provided recourse through credit enhancement beyond any contractual obligation to support assets it has sold may not be excluded from risk-weighted assets.</p>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/54/4209">54 FR 4209</ref>, <date date="1989-01-27">Jan. 27, 1989</date>]</source>
<editorialNote style="-uslm-sgm:EDNOTE">
<heading style="-uslm-sgm:HED">Editorial Note:</heading>
<p style="-uslm-sgm:P">For <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> citations affecting appendix A to part 225, see the List of CFR Sections Affected, which appears in the Finding Aids section of the printed volume and at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.govinfo.gov.</inline>
</p>
</editorialNote>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendix B to Part 225 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 225, App. C</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix C to Part 225—</num>
<heading style="-uslm-sgm:HED">Small Bank Holding Company and Savings and Loan Holding Company Policy Statement </heading>
<heading style="-uslm-sgm:HD3">Policy Statement on Assessment of Financial and Managerial Factors </heading>
<p style="-uslm-sgm:P">In acting on applications filed under the Bank Holding Company Act, the Board has adopted, and continues to follow, the principle that bank holding companies should serve as a source of strength for their subsidiary banks. When bank holding companies incur debt and rely upon the earnings of their subsidiary banks as the means of repaying such debt, a question arises as to the probable effect upon the financial condition of the holding company and its subsidiary bank or banks.</p>
<p style="-uslm-sgm:P">The Board believes that a high level of debt at the parent holding company impairs the ability of a bank holding company to provide financial assistance to its subsidiary bank(s) and, in some cases, the servicing requirements on such debt may be a significant drain on the resources of the bank(s). For these reasons, the Board has not favored the use of acquisition debt in the formation <?page num="320"?>of bank holding companies or in the acquisition of additional banks. Nevertheless, the Board has recognized that the transfer of ownership of small banks often requires the use of acquisition debt. The Board, therefore, has permitted the formation and expansion of small bank holding companies with debt levels higher than would be permitted for larger holding companies. Approval of these applications has been given on the condition that small bank holding companies demonstrate the ability to service acquisition debt without straining the capital of their subsidiary banks and, further, that such companies restore their ability to serve as a source of strength for their subsidiary banks within a relatively short period of time.</p>
<p style="-uslm-sgm:P">In the interest of continuing its policy of facilitating the transfer of ownership in banks without compromising bank safety and soundness, the Board has, as described below, adopted the following procedures and standards for the formation and expansion of small bank holding companies subject to this policy statement.</p>
<heading style="-uslm-sgm:HD1">1. Applicability of Policy Statement
</heading>
<p style="-uslm-sgm:P">This policy statement applies only to bank holding companies with <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> consolidated assets of less than $3 billion that (i) are not engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (ii) do not conduct significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank subsidiary; and (iii) do not have a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the Securities and Exchange Commission. The Board may in its discretion exclude any bank holding company, regardless of asset size, from the policy statement if such action is warranted for supervisory purposes.<ref id="fnd3e19783" idref="fnd3e19789" style="-uslm-sgm:SU">1</ref> With the exception of section 4 (Additional Application Requirements for Expedited/Waived Processing), the policy statement applies to savings and loan holding companies as if they were bank holding companies.</p>
<footnote id="fnd3e19789" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e19783" style="-uslm-sgm:SU">1</ref> [RESERVED].</p>
</content>
</footnote>
<p style="-uslm-sgm:P">While this policy statement primarily applies to the formation of small bank holding companies, it also applies to existing small bank holding companies that wish to acquire an additional bank or company and to transactions involving changes in control, stock redemptions, or other shareholder transactions. <ref id="fnd3e19794" idref="fnd3e19799" style="-uslm-sgm:SU">2</ref>
</p>
<footnote id="fnd3e19799" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19794" style="-uslm-sgm:SU">2</ref> The appropriate Reserve Bank should be contacted to determine the manner in which a specific situation may qualify for treatment under this policy statement.</p>
</content>
</footnote>
<heading style="-uslm-sgm:HD1">2. Ongoing Requirements </heading>
<p style="-uslm-sgm:P">The following guidelines must be followed on an ongoing basis for all organizations operating under this policy statement.</p>
<p style="-uslm-sgm:P">A. Reduction in parent company leverage: Small bank holding companies are to reduce their parent company debt consistent with the requirement that all debt be retired within 25 years of being incurred. The Board also expects that these bank holding companies reach a debt to equity ratio of .30:1 or less within 12 years of the incurrence of the debt. <ref id="fnd3e19809" idref="fnd3e19817" style="-uslm-sgm:SU">3</ref> The bank holding company must also <?page num="321"?>comply with debt servicing and other requirements imposed by its creditors.</p>
<footnote id="fnd3e19817" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19809" style="-uslm-sgm:SU">3</ref> The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">debt,</inline> as used in the ratio of debt to equity, means any borrowed funds (exclusive of short-term borrowings that arise out of current transactions, the proceeds of which are used for current transactions), and any securities issued by, or obligations of, the holding company that are the functional equivalent of borrowed funds.</p>
<p style="-uslm-sgm:P">Subordinated debt associated with trust preferred securities generally would be treated as debt for purposes of paragraphs 2.C., 3.A., 4.A.i., and 4.B.i. of this policy statement. A bank holding company, however, may exclude from debt an amount of subordinated debt associated with trust preferred securities up to 25 percent of the holding company's equity (as defined below) less goodwill on the parent company's balance sheet in determining compliance with the requirements of such paragraphs of the policy statement. In addition, a bank holding company subject to this policy statement that has not issued subordinated debt associated with a new issuance of trust preferred securities after <date date="2005-12-31">December 31, 2005</date>, may exclude from debt any subordinated debt associated with trust preferred securities until <date date="2010-12-31">December 31, 2010</date>. Bank holding companies subject to this policy statement also may exclude from debt until <date date="2010-12-31">December 31, 2010</date>, any subordinated debt associated with refinanced issuances of trust preferred securities originally issued on or prior to <date date="2005-12-31">December 31, 2005</date>, provided that the refinancing does not increase the bank holding company's outstanding amount of subordinated debt. Subordinated debt associated with trust preferred securities will not be included as debt in determining compliance with any other requirements of this policy statement.</p>
<p style="-uslm-sgm:P">In addition, notwithstanding any other provision of this policy statement and for purposes of compliance with paragraphs 2.C., 3.A., 4.A.i, and 4.B.i. of this policy statement, both a bank holding company that is organized in mutual form and a bank holding company that has made a valid election to be taxed under Subchapter S of Chapter 1 of the U.S. Internal Revenue Code may exclude from debt subordinated debentures issued to <?page num=""?>the United States Department of the Treasury under (i) the Troubled Asset Relief Program established by the Emergency Economic Stabilization Act of 2008, <ref href="/us/pl/110/343/dA">Division A of Public Law 110–343</ref>, <ref href="/us/stat/122/3765">122 Stat. 3765</ref> (2008), and (ii) the Small Business Lending Fund established by the Small Business Jobs Act of 2010, <ref href="/us/pl/111/240/tIV">title IV of Public Law 111–240</ref>, <ref href="/us/stat/124/2504">124 Stat. 2504</ref> (2010).</p>
<p style="-uslm-sgm:P">The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">equity,</inline> as used in the ratio of debt to equity, means the total stockholders' equity of the bank holding company as defined in accordance with generally accepted accounting principles. In determining the total amount of stockholders' equity, the bank holding company should account for its investments in the common stock of subsidiaries by the equity method of accounting.</p>
<p style="-uslm-sgm:P">Ordinarily the Board does not view redeemable preferred stock as a substitute for common stock in a small bank holding company. Nevertheless, to a limited degree and under certain circumstances, the Board will consider redeemable preferred stock as equity in the capital accounts of the holding company if the following conditions are met: (1) The preferred stock is redeemable only at the option of the issuer; and (2) the debt to equity ratio of the holding company would be at or remain below .30:1 following the redemption or retirement of any preferred stock. Preferred stock that is convertible into common stock of the holding company may be treated as equity. </p>
</content>
</footnote>
<p style="-uslm-sgm:P">B. Capital adequacy: Each insured depository subsidiary of a small bank holding company is expected to be well-capitalized. Any institution that is not well-capitalized is expected to become well-capitalized within a brief period of time.</p>
<p style="-uslm-sgm:P">C. Dividend restrictions: A small bank holding company whose debt to equity ratio is greater than 1.0:1 is not expected to pay corporate dividends until such time as it reduces its debt to equity ratio to 1.0:1 or less and otherwise meets the criteria set forth in <ref href="/us/cfr/t12/s225.14/c/1/ii">§§ 225.14(c)(1)(ii)</ref>, 225.14(c)(2), and 225.14(c)(7) of Regulation Y. <ref id="fnd3e19840" idref="fnd3e19845" style="-uslm-sgm:SU">4</ref>
</p>
<footnote id="fnd3e19845" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e19840" style="-uslm-sgm:SU">4</ref> Dividends may be paid by small bank holding companies with debt to equity at or below 1.0:1 and otherwise meeting the requirements of <ref href="/us/cfr/t12/s225.14/c/1/ii">§§ 225.14(c)(1)(ii)</ref>, 225.14(c)(2), and 225.14(c)(7) if the dividends are reasonable in amount, do not adversely affect the ability of the bank holding company to service its debt in an orderly manner, and do not adversely affect the ability of the subsidiary banks to be well-capitalized. It is expected that dividends will be eliminated if the holding company is (1) not reducing its debt consistent with the requirement that the debt to equity ratio be reduced to .30:1 within 12 years of consummation of the proposal or (2) not meeting the requirements of its loan agreement(s).</p>
</content>
</footnote>
<p style="-uslm-sgm:P">Small bank holding companies formed before the effective date of this policy statement may switch to a plan that adheres to the intent of this statement provided they comply with the requirements set forth above.</p>
<heading style="-uslm-sgm:HD1">3. Core Requirements for All Applicants </heading>
<p style="-uslm-sgm:P">In assessing applications or notices by organizations subject to this policy statement, the Board will continue to take into account a full range of financial and other information about the applicant, and its current and proposed subsidiaries, including the recent trend and stability of earnings, past and prospective growth, asset quality, the ability to meet debt servicing requirements without placing an undue strain on the resources of the bank(s), and the record and competency of management. In addition, the Board will require applicants to meet the following requirements:</p>
<p style="-uslm-sgm:P">A. Minimum down payment: The amount of acquisition debt should not exceed 75 percent of the purchase price of the bank(s) or company to be acquired. When the owner(s) of the holding company incurs debt to finance the purchase of the bank(s) or company, such debt will be considered acquisition debt even though it does not represent an obligation of the bank holding company, unless the owner(s) can demonstrate that such debt can be serviced without reliance on the resources of the bank(s) or bank holding company.</p>
<p style="-uslm-sgm:P">B. Ability to reduce parent company leverage: The bank holding company must clearly be able to reduce its debt to equity ratio and comply with its loan agreement(s) as set forth in paragraph 2A above.</p>
<p style="-uslm-sgm:P">Failure to meet the criteria in this section would normally result in denial of an application.</p>
<heading style="-uslm-sgm:HD1">4. Additional Application Requirements for Expedited/Waived Processing</heading>
<p style="-uslm-sgm:P">A. Expedited notices under <ref href="/us/cfr/t12/s225.14">§§ 225.14</ref> and 225.23 of Regulation Y: A small bank holding company proposal will be eligible for the expedited processing procedures set forth in <ref href="/us/cfr/t12/s225.14">§§ 225.14</ref> and 225.23 of Regulation Y if the bank holding company is in compliance with the ongoing requirements of this policy statement, the bank holding company meets the core requirements for all applicants noted above, and the following requirements are met: </p>
<p style="-uslm-sgm:P">i. The parent bank holding company has a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma</inline> debt to equity ratio of 1.0:1 or less. </p>
<p style="-uslm-sgm:P">ii. The bank holding company meets all of the criteria for expedited action set forth in <ref href="/us/cfr/t12/s225.14">§§ 225.14</ref> or 225.23 of Regulation Y.
<?page num="322"?></p>
<p style="-uslm-sgm:P">B. Waiver of stock redemption filing: A small bank holding company will be eligible for the stock redemption filing exception for well-capitalized bank holding companies contained in <ref href="/us/cfr/t12/s225.4/b/6">§ 225.4(b)(6)</ref> if the following requirements are met: </p>
<p style="-uslm-sgm:P">i. The parent bank holding company has a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pro forma d</inline>ebt to equity ratio of 1.0:1 or less. </p>
<p style="-uslm-sgm:P">ii. The bank holding company is in compliance with the ongoing requirements of this policy statement and meets the requirements of <ref href="/us/cfr/t12/s225.14/c/1/ii">§§ 225.14(c)(1)(ii)</ref>, 225.14(c)(2), and 225.14(c)(7) of Regulation Y.</p>
<source style="-uslm-sgm:CITA">[Reg. Y, <ref href="/us/fr/62/9343">62 FR 9343</ref>, <date date="1997-02-28">Feb. 28, 1997</date>, as amended at <ref href="/us/fr/71/9902">71 FR 9902</ref>, <date date="2006-02-28" role="amended">Feb. 28, 2006</date>; <ref href="/us/fr/74/26081">74 FR 26081</ref>, <date date="2009-06-01" role="amended">June 1, 2009</date>; <ref href="/us/fr/80/20158">80 FR 20158</ref>, <date date="2015-04-15" role="amended">Apr. 15, 2015</date>; <ref href="/us/fr/83/44199">83 FR 44199</ref>, <date date="2018-08-30" role="amended">Aug. 30, 2018</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendixes D–E to Part 225 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 225, App. F</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix F to Part 225—</num>
<heading style="-uslm-sgm:HED">Interagency Guidelines Establishing Information Security Standards </heading>
<heading style="-uslm-sgm:HD1">Table of Contents </heading>
<p style="-uslm-sgm:FP-1">I. Introduction </p>
<p style="-uslm-sgm:FP1-2">A. Scope </p>
<p style="-uslm-sgm:FP1-2">B. Preservation of Existing Authority </p>
<p style="-uslm-sgm:FP1-2">C. Definitions </p>
<p style="-uslm-sgm:FP-1">II. Standards for Safeguarding Customer Information </p>
<p style="-uslm-sgm:FP1-2">A. Information Security Program </p>
<p style="-uslm-sgm:FP1-2">B. Objectives </p>
<p style="-uslm-sgm:FP-1">III. Development and Implementation of Customer Information Security Program </p>
<p style="-uslm-sgm:FP1-2">A. Involve the Board of Directors </p>
<p style="-uslm-sgm:FP1-2">B. Assess Risk </p>
<p style="-uslm-sgm:FP1-2">C. Manage and Control Risk </p>
<p style="-uslm-sgm:FP1-2">D. Oversee Service Provider Arrangements </p>
<p style="-uslm-sgm:FP1-2">E. Adjust the Program </p>
<p style="-uslm-sgm:FP1-2">F. Report to the Board </p>
<p style="-uslm-sgm:FP1-2">G. Implement the Standards </p>
<heading style="-uslm-sgm:HD1">I. Introduction </heading>
<p style="-uslm-sgm:P">These Interagency Guidelines Establishing Information Security Standards (Guidelines) set forth standards pursuant to sections 501 and 505 of the Gramm-Leach-Bliley Act (<ref href="/us/usc/t15/s6801">15 U.S.C. 6801</ref> and 6805). These Guidelines address standards for developing and implementing administrative, technical, and physical safeguards to protect the security, confidentiality, and integrity of customer information. </p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope.</inline> The Guidelines apply to customer information maintained by or on behalf of bank holding companies and their nonbank subsidiaries or affiliates (except brokers, dealers, persons providing insurance, investment companies, and investment advisors), for which the Board has supervisory authority. </p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preservation of Existing Authority.</inline> These Guidelines do not in any way limit the authority of the Board to address unsafe or unsound practices, violations of law, unsafe or unsound conditions, or other practices. The Board may take action under these Guidelines independently of, in conjunction with, or in addition to, any other enforcement action available to the Board. </p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definitions.</inline> 1. Except as modified in the Guidelines, or unless the context otherwise requires, the terms used in these Guidelines have the same meanings as set forth in sections 3 and 39 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref> and 1831p–1). </p>
<p style="-uslm-sgm:P">2. For purposes of the Guidelines, the following definitions apply:</p>
<p style="-uslm-sgm:P">a. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board of directors,</inline> in the case of a branch or agency of a foreign bank, means the managing official in charge of the branch or agency. </p>
<p style="-uslm-sgm:P">b. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Customer</inline> means any customer of the bank holding company as defined in <ref href="/us/cfr/t12/s1016.3/i">§ 1016.3(i)</ref> of this chapter. </p>
<p style="-uslm-sgm:P">c. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Customer information</inline> means any record containing nonpublic personal information, as defined in <ref href="/us/cfr/t12/s1016.3/p">§ 1016.3(p)</ref> of this chapter, about a customer, whether in paper, electronic, or other form, that is maintained by or on behalf of the bank holding company. </p>
<p style="-uslm-sgm:P">d. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Customer information systems</inline> means any methods used to access, collect, store, use, transmit, protect, or dispose of customer information. </p>
<p style="-uslm-sgm:P">e. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Service provider</inline> means any person or entity that maintains, processes, or otherwise is permitted access to customer information through its provision of services directly to the bank holding company. </p>
<p style="-uslm-sgm:P">f. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsidiary</inline> means any company controlled by a bank holding company, except a broker, dealer, person providing insurance, investment company, investment advisor, insured depository institution, or subsidiary of an insured depository institution. </p>
<heading style="-uslm-sgm:HD1">II. Standards for Safeguarding Customer Information </heading>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information Security Program.</inline> Each bank holding company shall implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the size and complexity of the bank holding company and the nature and scope of its activities. While all parts of the bank holding company are not required to implement a uniform set of policies, all elements of the information security program must be coordinated. A bank holding company also shall ensure that each of its subsidiaries is subject to a comprehensive information security program. The bank holding company may fulfill this requirement either by including a subsidiary within the scope of the bank holding company's comprehensive information security program or by causing the subsidiary to implement a separate comprehensive information security program in <?page num="323"?>accordance with the standards and procedures in sections II and III of this appendix that apply to bank holding companies. </p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Objectives.</inline> A bank holding company's information security program shall be designed to: </p>
<p style="-uslm-sgm:P">1. Ensure the security and confidentiality of customer information; </p>
<p style="-uslm-sgm:P">2. Protect against any anticipated threats or hazards to the security or integrity of such information; and </p>
<p style="-uslm-sgm:P">3. Protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. </p>
<heading style="-uslm-sgm:HD1">III. Development and Implementation of Information Security Program </heading>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Involve the Board of Directors.</inline> The board of directors or an appropriate committee of the board of each bank holding company shall: </p>
<p style="-uslm-sgm:P">1. Approve the bank holding company's written information security program; and </p>
<p style="-uslm-sgm:P">2. Oversee the development, implementation, and maintenance of the bank holding company's information security program, including assigning specific responsibility for its implementation and reviewing reports from management. </p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assess Risk.</inline> Each bank holding company shall: </p>
<p style="-uslm-sgm:P">1. Identify reasonably foreseeable internal and external threats that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer information systems. </p>
<p style="-uslm-sgm:P">2. Assess the likelihood and potential damage of these threats, taking into consideration the sensitivity of customer information. </p>
<p style="-uslm-sgm:P">3. Assess the sufficiency of policies, procedures, customer information systems, and other arrangements in place to control risks. </p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manage and Control Risk.</inline> Each bank holding company shall: </p>
<p style="-uslm-sgm:P">1. Design its information security program to control the identified risks, commensurate with the sensitivity of the information as well as the complexity and scope of the bank holding company's activities. Each bank holding company must consider whether the following security measures are appropriate for the bank holding company and, if so, adopt those measures the bank holding company concludes are appropriate: </p>
<p style="-uslm-sgm:P">a. Access controls on customer information systems, including controls to authenticate and permit access only to authorized individuals and controls to prevent employees from providing customer information to unauthorized individuals who may seek to obtain this information through fraudulent means. </p>
<p style="-uslm-sgm:P">b. Access restrictions at physical locations containing customer information, such as buildings, computer facilities, and records storage facilities to permit access only to authorized individuals; </p>
<p style="-uslm-sgm:P">c. Encryption of electronic customer information, including while in transit or in storage on networks or systems to which unauthorized individuals may have access; </p>
<p style="-uslm-sgm:P">d. Procedures designed to ensure that customer information system modifications are consistent with the bank holding company's information security program; </p>
<p style="-uslm-sgm:P">e. Dual control procedures, segregation of duties, and employee background checks for employees with responsibilities for or access to customer information; </p>
<p style="-uslm-sgm:P">f. Monitoring systems and procedures to detect actual and attempted attacks on or intrusions into customer information systems; </p>
<p style="-uslm-sgm:P">g. Response programs that specify actions to be taken when the bank holding company suspects or detects that unauthorized individuals have gained access to customer information systems, including appropriate reports to regulatory and law enforcement agencies; and </p>
<p style="-uslm-sgm:P">h. Measures to protect against destruction, loss, or damage of customer information due to potential environmental hazards, such as fire and water damage or technological failures. </p>
<p style="-uslm-sgm:P">2. Train staff to implement the bank holding company's information security program. </p>
<p style="-uslm-sgm:P">3. Regularly test the key controls, systems and procedures of the information security program. The frequency and nature of such tests should be determined by the bank holding company's risk assessment. Tests should be conducted or reviewed by independent third parties or staff independent of those that develop or maintain the security programs. </p>
<p style="-uslm-sgm:P">D. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Oversee Service Provider Arrangements.</inline> Each bank holding company shall: </p>
<p style="-uslm-sgm:P">1. Exercise appropriate due diligence in selecting its service providers; </p>
<p style="-uslm-sgm:P">2. Require its service providers by contract to implement appropriate measures designed to meet the objectives of these Guidelines; and </p>
<p style="-uslm-sgm:P">3. Where indicated by the bank holding company's risk assessment, monitor its service providers to confirm that they have satisfied their obligations as required by paragraph D.2. As part of this monitoring, a bank holding company should review audits, summaries of test results, or other equivalent evaluations of its service providers. </p>
<p style="-uslm-sgm:P">E. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjust the Program.</inline> Each bank holding company shall monitor, evaluate, and adjust, as appropriate, the information security program in light of any relevant changes in technology, the sensitivity of its customer information, internal or external threats to information, and the bank holding company's own changing business arrangements, such as mergers and acquisitions, alliances <?page num="324"?>and joint ventures, outsourcing arrangements, and changes to customer information systems. </p>
<p style="-uslm-sgm:P">F. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Report to the Board.</inline> Each bank holding company shall report to its board or an appropriate committee of the board at least annually. This report should describe the overall status of the information security program and the bank holding company's compliance with these Guidelines. The reports should discuss material matters related to its program, addressing issues such as: risk assessment; risk management and control decisions; service provider arrangements; results of testing; security breaches or violations and management's responses; and recommendations for changes in the information security program. </p>
<p style="-uslm-sgm:P">G. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Implement the Standards.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective date.</inline> Each bank holding company must implement an information security program pursuant to these Guidelines by <date date="2001-07-01">July 1, 2001</date>. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Two-year grandfathering of agreements with service providers.</inline> Until <date date="2003-07-01">July 1, 2003</date>, a contract that a bank holding company has entered into with a service provider to perform services for it or functions on its behalf satisfies the provisions of section III.D., even if the contract does not include a requirement that the servicer maintain the security and confidentiality of customer information, as long as the bank holding company entered into the contract on or before <date date="2001-03-05">March 5, 2001</date>.</p>
<heading style="-uslm-sgm:HD1">Supplement A to Appendix F to Part 225—Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice</heading>
<heading style="-uslm-sgm:HD1">I. Background</heading>
<p style="-uslm-sgm:P">This Guidance <ref id="fnd3e20094" idref="fnd3e20104" style="-uslm-sgm:SU">1</ref> interprets section 501(b) of the Gramm-Leach-Bliley Act (“GLBA”) and the Interagency Guidelines Establishing Information Security Standards (the “Security Guidelines”) <ref id="fnd3e20098" idref="fnd3e20109" style="-uslm-sgm:SU">2</ref> and describes response programs, including customer notification procedures, that a financial institution should develop and implement to address unauthorized access to or use of customer information that could result in substantial harm or inconvenience to a customer. The scope of, and definitions of terms used in, this Guidance are identical to those of the Security Guidelines. For example, the term “customer information” is the same term used in the Security Guidelines, and means any record containing nonpublic personal information about a customer, whether in paper, electronic, or other form, maintained by or on behalf of the institution.</p>
<footnote id="fnd3e20104" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20094" style="-uslm-sgm:SU">1</ref> This Guidance is being jointly issued by the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).</p>
</content>
</footnote>
<footnote id="fnd3e20109" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20098" style="-uslm-sgm:SU">2</ref> <ref href="/us/cfr/t12/p30">12 CFR part 30</ref>, app. B (OCC); <ref href="/us/cfr/t12/p208">12 CFR part 208</ref>, app. D–2 and part 225, app. F (Board); <ref href="/us/cfr/t12/p364">12 CFR part 364</ref>, app. B (FDIC); and <ref href="/us/cfr/t12/p570">12 CFR part 570</ref>, app. B (OTS). The “Interagency Guidelines Establishing Information Security Standards” were formerly known as “The Interagency Guidelines Establishing Information Security Standards.”</p>
</content>
</footnote>
<heading style="-uslm-sgm:HD2">A. Interagency Security Guidelines</heading>
<p style="-uslm-sgm:P">Section 501(b) of the GLBA required the Agencies to establish appropriate standards for financial institutions subject to their jurisdiction that include administrative, technical, and physical safeguards, to protect the security and confidentiality of customer information. Accordingly, the Agencies issued Security Guidelines requiring every financial institution to have an information security program designed to:</p>
<p style="-uslm-sgm:P">1. Ensure the security and confidentiality of customer information;</p>
<p style="-uslm-sgm:P">2. Protect against any anticipated threats or hazards to the security or integrity of such information; and</p>
<p style="-uslm-sgm:P">3. Protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.</p>
<heading style="-uslm-sgm:HD2">B. Risk Assessment and Controls</heading>
<p style="-uslm-sgm:P">1. The Security Guidelines direct every financial institution to assess the following risks, among others, when developing its information security program:</p>
<p style="-uslm-sgm:P">a. Reasonably foreseeable internal and external threats that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer information systems;</p>
<p style="-uslm-sgm:P">b. The likelihood and potential damage of threats, taking into consideration the sensitivity of customer information; and</p>
<p style="-uslm-sgm:P">c. The sufficiency of policies, procedures, customer information systems, and other arrangements in place to control risks. <ref id="fnd3e20133" idref="fnd3e20138" style="-uslm-sgm:SU">3</ref>
</p>
<footnote id="fnd3e20138" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20133" style="-uslm-sgm:SU">3</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Security Guidelines, III.B.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">2. Following the assessment of these risks, the Security Guidelines require a financial institution to design a program to address the identified risks. The particular security measures an institution should adopt will depend upon the risks presented by the complexity and scope of its business. At a minimum, the financial institution is required to consider the specific security measures enumerated in the Security Guidelines, <ref id="fnd3e20146" idref="fnd3e20152" style="-uslm-sgm:SU">4</ref> and adopt those that are appropriate for the institution, including:</p>
<footnote id="fnd3e20152" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20146" style="-uslm-sgm:SU">4</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Security Guidelines, III.C.</p>
</content>
</footnote>
<?page num="325"?>
<p style="-uslm-sgm:P">a. Access controls on customer information systems, including controls to authenticate and permit access only to authorized individuals and controls to prevent employees from providing customer information to unauthorized individuals who may seek to obtain this information through fraudulent means;</p>
<p style="-uslm-sgm:P">b. Background checks for employees with responsibilities for access to customer information; and</p>
<p style="-uslm-sgm:P">c. Response programs that specify actions to be taken when the financial institution suspects or detects that unauthorized individuals have gained access to customer information systems, including appropriate reports to regulatory and law enforcement agencies. <ref id="fnd3e20165" idref="fnd3e20170" style="-uslm-sgm:SU">5</ref>
</p>
<footnote id="fnd3e20170" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20165" style="-uslm-sgm:SU">5</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Security Guidelines, III.C.</p>
</content>
</footnote>
<heading style="-uslm-sgm:HD2">C. Service Providers</heading>
<p style="-uslm-sgm:P">The Security Guidelines direct every financial institution to require its service providers by contract to implement appropriate measures designed to protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to any customer. <ref id="fnd3e20181" idref="fnd3e20186" style="-uslm-sgm:SU">6</ref>
</p>
<footnote id="fnd3e20186" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20181" style="-uslm-sgm:SU">6</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Security Guidelines, II.B. and III.D. Further, the Agencies note that, in addition to contractual obligations to a financial institution, a service provider may be required to implement its own comprehensive information security program in accordance with the Safeguards Rule promulgated by the Federal Trade Commission (“FTC”), <ref href="/us/cfr/t16/p314">16 CFR part 314</ref>.</p>
</content>
</footnote>
<heading style="-uslm-sgm:HD1">II. Response Program</heading>
<p style="-uslm-sgm:P">Millions of Americans, throughout the country, have been victims of identity theft. <ref id="fnd3e20196" idref="fnd3e20215" style="-uslm-sgm:SU">7</ref> Identity thieves misuse personal information they obtain from a number of sources, including financial institutions, to perpetrate identity theft. Therefore, financial institutions should take preventative measures to safeguard customer information against attempts to gain unauthorized access to the information. For example, financial institutions should place access controls on customer information systems and conduct background checks for employees who are authorized to access customer information. <ref id="fnd3e20200" idref="fnd3e20228" style="-uslm-sgm:SU">8</ref> However, every financial institution should also develop and implement a risk-based response program to address incidents of unauthorized access to customer information in customer information systems <ref id="fnd3e20204" idref="fnd3e20233" style="-uslm-sgm:SU">9</ref> that occur nonetheless. A response program should be a key part of an institution's information security program. <ref id="fnd3e20208" idref="fnd3e20244" style="-uslm-sgm:SU">10</ref> The program should be appropriate to the size and complexity of the institution and the nature and scope of its activities.</p>
<footnote id="fnd3e20215" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20196" style="-uslm-sgm:SU">7</ref> The FTC estimates that nearly 10 million Americans discovered they were victims of some form of identity theft in 2002. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> The Federal Trade Commission, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identity Theft Survey Report,</inline> (September 2003), available at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">http://www.ftc.gov/os/2003/09/synovatereport.pdf.</inline>
</p>
</content>
</footnote>
<footnote id="fnd3e20228" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20200" style="-uslm-sgm:SU">8</ref> Institutions should also conduct background checks of employees to ensure that the institution does not violate <ref href="/us/usc/t12/s1829">12 U.S.C. 1829</ref>, which prohibits an institution from hiring an individual convicted of certain criminal offenses or who is subject to a prohibition order under <ref href="/us/usc/t12/s1818/e/6">12 U.S.C. 1818(e)(6)</ref>.</p>
</content>
</footnote>
<footnote id="fnd3e20233" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20204" style="-uslm-sgm:SU">9</ref> Under the Guidelines, an institution's <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">customer information systems</inline> consist of all of the methods used to access, collect, store, use, transmit, protect, or dispose of customer information, including the systems maintained by its service providers. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Security Guidelines, I.C.2.d (I.C.2.c for OTS).</p>
</content>
</footnote>
<footnote id="fnd3e20244" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20208" style="-uslm-sgm:SU">10</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> FFIEC Information Technology Examination Handbook, Information Security Booklet, Dec. 2002 available at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">http://www.ffiec.gov/ffiecinfobase/html_pages/infosec_book_frame.htm.</inline> Federal Reserve SR 97–32, Sound Practice Guidance for Information Security for Networks, <date date="1997-12-04">Dec. 4, 1997</date>; OCC Bulletin 2000–14, “Infrastructure Threats—Intrusion Risks” (May 15, 2000), for additional guidance on preventing, detecting, and responding to intrusions into financial institution computer systems.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">In addition, each institution should be able to address incidents of unauthorized access to customer information in customer information systems maintained by its domestic and foreign service providers. Therefore, consistent with the obligations in the Guidelines that relate to these arrangements, and with existing guidance on this topic issued by the Agencies, <ref id="fnd3e20255" idref="fnd3e20261" style="-uslm-sgm:SU">11</ref> an institution's contract with its service provider should require the service provider to take appropriate actions to address incidents of unauthorized access to the financial institution's customer information, including notification to the institution as soon as possible of any such incident, to enable the institution to expeditiously implement its response program.</p>
<footnote id="fnd3e20261" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20255" style="-uslm-sgm:SU">11</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Federal Reserve SR Ltr. 00–04, Outsourcing of Information and Transaction Processing, <date date="2000-02-09">Feb. 9, 2000</date>; OCC Bulletin 2001–47, “Third-Party Relationships Risk Management Principles,” <date date="2001-11-01">Nov. 1, 2001</date>; FDIC FIL 68–99, Risk Assessment Tools and Practices for Information System Security, <date date="1999-07-07">July 7, 1999</date>; OTS Thrift Bulletin 82a, Third Party Arrangements, <date date="2004-09-01">Sept. 1, 2004</date>.</p>
</content>
</footnote>
<heading style="-uslm-sgm:HD2">A. Components of a Response Program</heading>
<p style="-uslm-sgm:P">1. At a minimum, an institution's response program should contain procedures for the following:
<?page num="326"?></p>
<p style="-uslm-sgm:P">a. Assessing the nature and scope of an incident, and identifying what customer information systems and types of customer information have been accessed or misused;</p>
<p style="-uslm-sgm:P">b. Notifying its primary Federal regulator as soon as possible when the institution becomes aware of an incident involving unauthorized access to or use of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">sensitive</inline> customer information, as defined below;</p>
<p style="-uslm-sgm:P">c. Consistent with the Agencies' Suspicious Activity Report (“SAR”) regulations, <ref id="fnd3e20282" idref="fnd3e20288" style="-uslm-sgm:SU">12</ref> notifying appropriate law enforcement authorities, in addition to filing a timely SAR in situations involving Federal criminal violations requiring immediate attention, such as when a reportable violation is ongoing;</p>
<footnote id="fnd3e20288" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20282" style="-uslm-sgm:SU">12</ref> An institution's obligation to file a SAR is set out in the Agencies' SAR regulations and Agency guidance. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s21.11">12 CFR 21.11</ref> (national banks, Federal branches and agencies); <ref href="/us/cfr/t12/s208.62">12 CFR 208.62</ref> (State member banks); <ref href="/us/cfr/t12/s211.5/k">12 CFR 211.5(k)</ref> (Edge and agreement corporations); <ref href="/us/cfr/t12/s211.24/f">12 CFR 211.24(f)</ref> (uninsured State branches and agencies of foreign banks); <ref href="/us/cfr/t12/s225.4/f">12 CFR 225.4(f)</ref> (bank holding companies and their nonbank subsidiaries); <ref href="/us/cfr/t12/p353">12 CFR part 353</ref> (State non-member banks); and <ref href="/us/cfr/t12/s563.180">12 CFR 563.180</ref> (savings associations). National banks must file SARs in connection with computer intrusions and other computer crimes. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> OCC Bulletin 2000–14, “Infrastructure Threats—Intrusion Risks” (May 15, 2000); Advisory Letter 97–9, “Reporting Computer Related Crimes” (November 19, 1997) (general guidance still applicable though instructions for new SAR form published in <ref href="/us/fr/65/1229">65 FR 1229</ref>, 1230 (January 7, 2000)). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> Federal Reserve SR 01–11, Identity Theft and Pretext Calling, <date date="2001-04-26">Apr. 26, 2001</date>; SR 97–28, Guidance Concerning Reporting of Computer Related Crimes by Financial Institutions, <date date="1997-11-06">Nov. 6, 1997</date>; FDIC FIL 48–2000, Suspicious Activity Reports, <date date="2000-07-14">July 14, 2000</date>; FIL 47–97, Preparation of Suspicious Activity Reports, <date date="1997-05-06">May 6, 1997</date>; OTS CEO Memorandum 139, Identity Theft and Pretext Calling, <date date="2001-05-04">May 4, 2001</date>; CEO Memorandum 126, New Suspicious Activity Report Form, <date date="2000-07-05">July 5, 2000</date>; <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">http://www.ots.treas.gov/BSA</inline> (for the latest SAR form and filing instructions required by OTS as of <date date="2003-07-01">July 1, 2003</date>).</p>
</content>
</footnote>
<p style="-uslm-sgm:P">d. Taking appropriate steps to contain and control the incident to prevent further unauthorized access to or use of customer information, for example, by monitoring, freezing, or closing affected accounts, while preserving records and other evidence;<ref id="fnd3e20305" idref="fnd3e20311" style="-uslm-sgm:SU">13</ref> and </p>
<footnote id="fnd3e20311" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20305" style="-uslm-sgm:SU">13</ref> 
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> FFIEC Information Technology Examination Handbook, Information Security Booklet, Dec. 2002, pp. 68–74.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">e. Notifying customers when warranted.</p>
<p style="-uslm-sgm:P">2. Where an incident of unauthorized access to customer information involves customer information systems maintained by an institution's service providers, it is the responsibility of the financial institution to notify the institution's customers and regulator. However, an institution may authorize or contract with its service provider to notify the institution's customers or regulator on its behalf.</p>
<heading style="-uslm-sgm:HD1">III. Customer Notice</heading>
<p style="-uslm-sgm:P">Financial institutions have an affirmative duty to protect their customers' information against unauthorized access or use. Notifying customers of a security incident involving the unauthorized access or use of the customer's information in accordance with the standard set forth below is a key part of that duty. Timely notification of customers is important to manage an institution's reputation risk. Effective notice also may reduce an institution's legal risk, assist in maintaining good customer relations, and enable the institution's customers to take steps to protect themselves against the consequences of identity theft. When customer notification is warranted, an institution may not forgo notifying its customers of an incident because the institution believes that it may be potentially embarrassed or inconvenienced by doing so.</p>
<heading style="-uslm-sgm:HD2">A. Standard for Providing Notice</heading>
<p style="-uslm-sgm:P">When a financial institution becomes aware of an incident of unauthorized access to sensitive customer information, the institution should conduct a reasonable investigation to promptly determine the likelihood that the information has been or will be misused. If the institution determines that misuse of its information about a customer has occurred or is reasonably possible, it should notify the affected customer as soon as possible. Customer notice may be delayed if an appropriate law enforcement agency determines that notification will interfere with a criminal investigation and provides the institution with a written request for the delay. However, the institution should notify its customers as soon as notification will no longer interfere with the investigation.</p>
<heading style="-uslm-sgm:HD3">1. Sensitive Customer Information</heading>
<p style="-uslm-sgm:P">Under the Guidelines, an institution must protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to any customer. Substantial harm or inconvenience is most likely to result from improper access to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">sensitive customer information</inline> because this type of information is most likely to be misused, as in the commission of identity theft. For purposes of this Guidance, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">sensitive customer information</inline> means a customer's name, address, or telephone number, in conjunction with the customer's social security number, driver's license number, account number, credit or debit card number, <?page num="327"?>or a personal identification number or password that would permit access to the customer's account. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sensitive customer information</inline> also includes any combination of components of customer information that would allow someone to log onto or access the customer's account, such as user name and password or password and account number.</p>
<heading style="-uslm-sgm:HD3">2. Affected Customers</heading>
<p style="-uslm-sgm:P">If a financial institution, based upon its investigation, can determine from its logs or other data precisely which customers' information has been improperly accessed, it may limit notification to those customers with regard to whom the institution determines that misuse of their information has occurred or is reasonably possible. However, there may be situations where the institution determines that a group of files has been accessed improperly, but is unable to identify which specific customers' information has been accessed. If the circumstances of the unauthorized access lead the institution to determine that misuse of the information is reasonably possible, it should notify all customers in the group.</p>
<heading style="-uslm-sgm:HD2">B. Content of Customer Notice</heading>
<p style="-uslm-sgm:P">1. Customer notice should be given in a clear and conspicuous manner. The notice should describe the incident in general terms and the type of customer information that was the subject of unauthorized access or use. It also should generally describe what the institution has done to protect the customers' information from further unauthorized access. In addition, it should include a telephone number that customers can call for further information and assistance. <ref id="fnd3e20353" idref="fnd3e20359" style="-uslm-sgm:SU">14</ref> The notice also should remind customers of the need to remain vigilant over the next twelve to twenty-four months, and to promptly report incidents of suspected identity theft to the institution. The notice should include the following additional items, when appropriate:</p>
<footnote id="fnd3e20359" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20353" style="-uslm-sgm:SU">14</ref> The institution should, therefore, ensure that it has reasonable policies and procedures in place, including trained personnel, to respond appropriately to customer inquiries and requests for assistance.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">a. A recommendation that the customer review account statements and immediately report any suspicious activity to the institution;</p>
<p style="-uslm-sgm:P">b. A description of fraud alerts and an explanation of how the customer may place a fraud alert in the customer's consumer reports to put the customer's creditors on notice that the customer may be a victim of fraud;</p>
<p style="-uslm-sgm:P">c. A recommendation that the customer periodically obtain credit reports from each nationwide credit reporting agency and have information relating to fraudulent transactions deleted;</p>
<p style="-uslm-sgm:P">d. An explanation of how the customer may obtain a credit report free of charge; and</p>
<p style="-uslm-sgm:P">e. Information about the availability of the FTC's online guidance regarding steps a consumer can take to protect against identity theft. The notice should encourage the customer to report any incidents of identity theft to the FTC, and should provide the FTC's Web site address and toll-free telephone number that customers may use to obtain the identity theft guidance and report suspected incidents of identity theft. <ref id="fnd3e20373" idref="fnd3e20378" style="-uslm-sgm:SU">15</ref>
</p>
<footnote id="fnd3e20378" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e20373" style="-uslm-sgm:SU">15</ref> Currently, the FTC Web site for the ID Theft brochure and the FTC Hotline phone number are <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">http://www.consumer.gov/idtheft</inline> and 1–877–IDTHEFT. The institution may also refer customers to any materials developed pursuant to section 151(b) of the FACT Act (educational materials developed by the FTC to teach the public how to prevent identity theft).</p>
</content>
</footnote>
<p style="-uslm-sgm:P">2. The Agencies encourage financial institutions to notify the nationwide consumer reporting agencies prior to sending notices to a large number of customers that include contact information for the reporting agencies.</p>
<heading style="-uslm-sgm:HD2">C. Delivery of Customer Notice</heading>
<p style="-uslm-sgm:P">Customer notice should be delivered in any manner designed to ensure that a customer can reasonably be expected to receive it. For example, the institution may choose to contact all customers affected by telephone or by mail, or by electronic mail for those customers for whom it has a valid e-mail address and who have agreed to receive communications electronically.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/66/8636">66 FR 8636</ref>, <date date="2001-02-01">Feb. 1, 2001</date>, as amended at <ref href="/us/fr/70/15751">70 FR 15751</ref>, 15753, <date date="2005-03-29" role="amended">Mar. 29, 2005</date>; <ref href="/us/fr/71/5780">71 FR 5780</ref>, <date date="2006-02-03" role="amended">Feb. 3, 2006</date>; <ref href="/us/fr/79/37167">79 FR 37167</ref>, <date date="2014-07-01" role="amended">July 1, 2014</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendix G to Part 225 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]</heading>
</content>
</appendix>
<?GPOvSpace P?>
</part>
<ear style="-uslm-sgm:EAR">Pt. 226</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p226">
<num value="226" style="-uslm-sgm:HED">PART 226—</num>
<heading style="-uslm-sgm:HED">TRUTH IN LENDING (REGULATION Z)</heading>
<toc style="-uslm-sgm:CONTENTS">
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p226/spA">Subpart A—</designator>
<label>General</label>
</headingItem>
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.1">226.1</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purpose, coverage, organization, enforcement, and liability.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.2">226.2</designator>
<label style="-uslm-sgm:SUBJECT">Definitions and rules of construction.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.3">226.3</designator>
<label style="-uslm-sgm:SUBJECT">Exempt transactions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.4">226.4</designator>
<label style="-uslm-sgm:SUBJECT">Finance charge.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p226/spB">Subpart B—</designator>
<label>Open-End Credit</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.5">226.5</designator>
<label style="-uslm-sgm:SUBJECT">General disclosure requirements.
<?page num="328"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.5">226.5a</designator>
<label style="-uslm-sgm:SUBJECT">Credit and charge card applications and solicitations.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.5">226.5b</designator>
<label style="-uslm-sgm:SUBJECT">Requirements for home equity plans.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.6">226.6</designator>
<label style="-uslm-sgm:SUBJECT">Account-opening disclosures.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.7">226.7</designator>
<label style="-uslm-sgm:SUBJECT">Periodic statement.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.8">226.8</designator>
<label style="-uslm-sgm:SUBJECT">Identifying transactions on periodic statements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.9">226.9</designator>
<label style="-uslm-sgm:SUBJECT">Subsequent disclosure requirements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.10">226.10</designator>
<label style="-uslm-sgm:SUBJECT">Payments.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.11">226.11</designator>
<label style="-uslm-sgm:SUBJECT">Treatment of credit balances; account termination.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.12">226.12</designator>
<label style="-uslm-sgm:SUBJECT">Special credit card provisions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.13">226.13</designator>
<label style="-uslm-sgm:SUBJECT">Billing error resolution.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.14">226.14</designator>
<label style="-uslm-sgm:SUBJECT">Determination of annual percentage rate.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.15">226.15</designator>
<label style="-uslm-sgm:SUBJECT">Right of rescission.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.16">226.16</designator>
<label style="-uslm-sgm:SUBJECT">Advertising.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p226/spC">Subpart C—</designator>
<label>Closed-End Credit</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.17">226.17</designator>
<label style="-uslm-sgm:SUBJECT">General disclosure requirements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.18">226.18</designator>
<label style="-uslm-sgm:SUBJECT">Content of disclosures.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.19">226.19</designator>
<label style="-uslm-sgm:SUBJECT">Certain mortgage and variable-rate transactions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.20">226.20</designator>
<label style="-uslm-sgm:SUBJECT">Subsequent disclosure requirements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.21">226.21</designator>
<label style="-uslm-sgm:SUBJECT">Treatment of credit balances.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.22">226.22</designator>
<label style="-uslm-sgm:SUBJECT">Determination of annual percentage rate.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.23">226.23</designator>
<label style="-uslm-sgm:SUBJECT">Right of rescission.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.24">226.24</designator>
<label style="-uslm-sgm:SUBJECT">Advertising.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p226/spD">Subpart D—</designator>
<label>Miscellaneous</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.25">226.25</designator>
<label style="-uslm-sgm:SUBJECT">Record retention.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.26">226.26</designator>
<label style="-uslm-sgm:SUBJECT">Use of annual percentage rate in oral disclosures.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.27">226.27</designator>
<label style="-uslm-sgm:SUBJECT">Language of disclosures.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.28">226.28</designator>
<label style="-uslm-sgm:SUBJECT">Effect on State laws.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.29">226.29</designator>
<label style="-uslm-sgm:SUBJECT">State exemptions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.30">226.30</designator>
<label style="-uslm-sgm:SUBJECT">Limitation on rates.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p226/spE">Subpart E—</designator>
<label>Special Rules for Certain Home Mortgage Transactions</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.31">226.31</designator>
<label style="-uslm-sgm:SUBJECT">General rules. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.32">226.32</designator>
<label style="-uslm-sgm:SUBJECT">Requirements for certain closed-end home mortgages. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.33">226.33</designator>
<label style="-uslm-sgm:SUBJECT">Requirements for reverse mortgages. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.34">226.34</designator>
<label style="-uslm-sgm:SUBJECT">Prohibited acts or practices in connection with credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.35">226.35</designator>
<label style="-uslm-sgm:SUBJECT">Prohibited acts or practices in connection with higher-priced mortgage loans.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.36">226.36</designator>
<label style="-uslm-sgm:SUBJECT">Prohibited acts or practices in connection with credit secured by a dwelling.</label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.37-226.38">226.37–226.38</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.39">226.39</designator>
<label style="-uslm-sgm:SUBJECT">Mortgage transfer disclosures.</label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.40-226.41">226.40–226.41</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.42">226.42</designator>
<label style="-uslm-sgm:SUBJECT">Valuation independence.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.43">226.43</designator>
<label style="-uslm-sgm:SUBJECT">Appraisals for higher-priced mortgage loans.</label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.44-226.45">226.44–226.45</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p226/spF">Subpart F—</designator>
<label>Special Rules for Private Education Loans</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.46">226.46</designator>
<label style="-uslm-sgm:SUBJECT">Special disclosure requirements for private education loans.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.47">226.47</designator>
<label style="-uslm-sgm:SUBJECT">Content of disclosures.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.48">226.48</designator>
<label style="-uslm-sgm:SUBJECT">Limitations on private education loans.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p226/spG">Subpart G—</designator>
<label>Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.51">226.51</designator>
<label style="-uslm-sgm:SUBJECT">Ability to pay.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.52">226.52</designator>
<label style="-uslm-sgm:SUBJECT">Limitations on fees.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.53">226.53</designator>
<label style="-uslm-sgm:SUBJECT">Allocation of payments.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.54">226.54</designator>
<label style="-uslm-sgm:SUBJECT">Limitations on the imposition of finance charges.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.55">226.55</designator>
<label style="-uslm-sgm:SUBJECT">Limitations on increasing annual percentage rates, fees, and charges.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.56">226.56</designator>
<label style="-uslm-sgm:SUBJECT">Requirements for over-the-limit transactions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.57">226.57</designator>
<label style="-uslm-sgm:SUBJECT">Reporting and marketing rules for college student open-end credit.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.58">226.58</designator>
<label style="-uslm-sgm:SUBJECT">Internet posting of credit card agreements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s226.59">226.59</designator>
<label style="-uslm-sgm:SUBJECT">Reevaluation of rate increases.</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appA">Appendix A to Part 226—</designator>
<label>Effect on State Laws</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appB">Appendix B to Part 226—</designator>
<label>State Exemptions</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appC">Appendix C to Part 226—</designator>
<label>Issuance of Staff Interpretations</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appD">Appendix D to Part 226—</designator>
<label>Multiple Advance Construction Loans</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appE">Appendix E to Part 226—</designator>
<label>Rules for Card Issuers That Bill on a Transaction-by-Transaction Basis</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appF">Appendix F to Part 226—</designator>
<label>Optional Annual Percentage Rate Computations for Creditors Offering Open-End Plans Subject to the Requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref></label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appG">Appendix G to Part 226—</designator>
<label>Open-End Model Forms and Clauses</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appH">Appendix H to Part 226—</designator>
<label>Closed-End Model Forms and Clauses</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appI">Appendix I to Part 226—</designator>
<label>Federal Enforcement Agencies</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appJ">Appendix J to Part 226—</designator>
<label>Annual Percentage Rate Computations For Closed-End Credit Transactions</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appK">Appendix K to Part 226—</designator>
<label>Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appL">Appendix L to Part 226—</designator>
<label>Assumed Loan Periods for Computations of Total Annual Loan Cost Rates</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appM1">Appendix M1 to Part 226—</designator>
<label>Repayment Disclosures</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appM2">Appendix M2 to Part 226—</designator>
<label>Sample Calculations of Repayment Disclosures</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appN">Appendix N to Part 226—</designator>
<label>Higher-Priced Mortgage Loan Appraisal Safe Harbor Review</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/appO">Appendix O to Part 226—</designator>
<label>Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules
<?page num="329"?></label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p226/spG/supI">Supplement I to Part 226—</designator>
<label>Official Staff Interpretations</label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t12/s3806">12 U.S.C. 3806</ref>; <ref href="/us/usc/t15/s1604">15 U.S.C. 1604</ref>, 1637(c)(5), 1639(l), and 1639h; <ref href="/us/pl/111/24">Pub. L. 111–24</ref>, section 2, <ref href="/us/stat/123/1734">123 Stat. 1734</ref>; <ref href="/us/pl/111/203">Pub. L. 111–203</ref>, <ref href="/us/stat/124/1376">124 Stat. 1376</ref>.</authority>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, unless otherwise noted.
</source>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spA">
<num value="A" style="-uslm-sgm:HED">Subpart A—</num>
<heading style="-uslm-sgm:HED">General
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.1">
<num value="226.1" style="-uslm-sgm:SECTNO">§ 226.1</num>
<heading style="-uslm-sgm:SUBJECT">Authority, purpose, coverage, organization, enforcement, and liability.</heading>
<paragraph identifier="/us/cfr/t12/s226.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority.</heading>
<content> This regulation, known as Regulation Z, is issued by the Board of Governors of the Federal Reserve System to implement the federal Truth in Lending Act, which is contained in title I of the Consumer Credit Protection Act, as amended (<ref href="/us/usc/t15/s1601">15 U.S.C. 1601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). This regulation also implements title XII, section 1204 of the Competitive Equality Banking Act of 1987 (<ref href="/us/pl/100/86">Pub. L. 100–86</ref>, <ref href="/us/stat/101/552">101 Stat. 552</ref>). Information-collection requirements contained in this regulation have been approved by the Office of Management and Budget under the provisions of <ref href="/us/usc/t44/s3501">44 U.S.C. 3501</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline> and have been assigned OMB No. 7100–0199.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purpose.</heading>
<content> The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also includes substantive protections. It gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. The regulation does not generally govern charges for consumer credit, except that several provisions in Subpart G set forth special rules addressing certain charges applicable to credit card accounts under an open-end (not home-secured) consumer credit plan. The regulation requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer's dwelling. It also imposes limitations on home-equity plans that are subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> and mortgages that are subject to the requirements of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. The regulation prohibits certain acts or practices in connection with credit secured by a dwelling in <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>, and credit secured by a consumer's principal dwelling in <ref href="/us/cfr/t12/s226.35">§ 226.35</ref>. The regulation also regulates certain practices of creditors who extend private education loans as defined in <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Coverage.</heading>
<paragraph identifier="/us/cfr/t12/s226.1/c/1" class="inline">
<num value="1"> (1)</num>
<chapeau> In general, this regulation applies to each individual or business that offers or extends credit when four conditions are met:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.1/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The credit is offered or extended to consumers;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> The offering or extension of credit is done regularly; <ref id="fnd3e20738" idref="fnd3e20743" style="-uslm-sgm:SU">1</ref>
</p>
<footnote id="fnd3e20743" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e20738" style="-uslm-sgm:SU">1</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The credit is subject to a finance charge or is payable by a written agreement in more than four installments; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The credit is primarily for personal, family, or household purposes.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If a credit card is involved, however, certain provisions apply even if the credit is not subject to a finance charge, or is not payable by a written agreement in more than four installments, or if the credit card is to be used for business purposes.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> In addition, certain requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> apply to persons who are not creditors but who provide applications for home-equity plans to consumers.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Furthermore, certain requirements of <ref href="/us/cfr/t12/s226.57">§ 226.57</ref> apply to institutions of higher education.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Organization.</heading>
<chapeau> The regulation is divided into subparts and appendices as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.1/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Subpart A contains general information. It sets forth:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.1/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The authority, purpose, coverage, and organization of the regulation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The definitions of basic terms;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The transactions that are exempt from coverage; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The method of determining the finance charge.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Subpart B contains the rules for open-end credit. It requires that account-opening disclosures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and solicitations and for home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> and <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, respectively. It also describes special <?page num="330"?>rules that apply to credit card transactions, treatment of payments and credit balances, procedures for resolving credit billing errors, annual percentage rate calculations, rescission requirements, and advertising.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentages rate calculations, rescission requirements, and advertising.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Subpart D contains rules on oral disclosures, disclosures in languages other than English, record retention, effect on state laws, state exemptions, and rate limitations.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for closed-end loans that have rates or fees above specified amounts. Section 226.33 requires special disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with closed-end mortgage transactions that are subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. Section 226.35 prohibits specific acts and practices in connection with closed-end higher-priced mortgage loans, as defined in <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref>. Section 226.36 prohibits specific acts and practices in connection with an extension of credit secured by a dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Subpart F relates to private education loans. It contains rules on disclosures, limitations on changes in terms after approval, the right to cancel the loan, and limitations on co-branding in the marketing of private education loans.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Subpart G relates to credit card accounts under an open-end (not home-secured) consumer credit plan (except for <ref href="/us/cfr/t12/s226.57/c">§ 226.57(c)</ref>, which applies to all open-end credit plans). Section 226.51 contains rules on evaluation of a consumer's ability to make the required payments under the terms of an account. Section 226.52 limits the fees that a consumer can be required to pay with respect to an open-end (not home-secured) consumer credit plan during the first year after account opening. Section 226.53 contains rules on allocation of payments in excess of the minimum payment. Section 226.54 sets forth certain limitations on the imposition of finance charges as the result of a loss of a grace period. Section 226.55 contains limitations on increases in annual percentage rates, fees, and charges for credit card accounts. Section 226.56 prohibits the assessment of fees or charges for over-the-limit transactions unless the consumer affirmatively consents to the creditor's payment of over-the-limit transactions. Section 226.57 sets forth rules for reporting and marketing of college student open-end credit. Section 226.58 sets forth requirements for the Internet posting of credit card accounts under an open-end (not home-secured) consumer credit plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/d/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total-annual-loan-cost rates for reverse mortgage transactions.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.1/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Enforcement and liability.</heading>
<content> Section 108 of the act contains the administrative enforcement provisions. Sections 112, 113, 130, 131, and 134 contain provisions relating to liability for failure to comply with the requirements of the act and the regulation. Section 1204 (c) of title XII of the Competitive Equality Banking Act of 1987, <ref href="/us/pl/100/86">Public Law 100–86</ref>, <ref href="/us/stat/101/552">101 Stat. 552</ref>, incorporates by reference administrative enforcement and civil liability provisions of sections 108 and 130 of the act.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7792">75 FR 7792</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/75/58533">75 FR 58533</ref>, <date date="2010-09-24" role="amended">Sept. 24, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s226.2">
<num value="226.2" style="-uslm-sgm:SECTNO">§ 226.2</num>
<heading style="-uslm-sgm:SUBJECT">Definitions and rules of construction.</heading>
<content>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definitions.</inline> For purposes of this regulation, the following definitions apply:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Act</inline> means the Truth in Lending Act (<ref href="/us/usc/t15/s1601">15 U.S.C. 1601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Advertisement</inline> means a commercial message in any medium that promotes, directly or indirectly, a credit transaction.</p>
<p style="-uslm-sgm:P" role="reserved">(3) [Reserved] <ref id="fnd3e20821" idref="fnd3e20826" style="-uslm-sgm:SU">2</ref>
</p>
<footnote id="fnd3e20826" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e20821" style="-uslm-sgm:SU">2</ref> [Reserved]</p>
</content>
</footnote>
<?page num="331"?>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Billing cycle</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">cycle</inline> means the interval between the days or dates of regular periodic statements. These intervals shall be equal and no longer than a quarter of a year. An interval will be considered equal if the number of days in the cycle does not vary more than four days from the regular day or date of the periodic statement.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board</inline> means the Board of Governors of the Federal Reserve System.</p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business day</inline> means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under <ref href="/us/cfr/t12/s226.15">§§ 226.15</ref> and 226.23, and for purposes of <ref href="/us/cfr/t12/s226.19/a/1/ii">§§ 226.19(a)(1)(ii)</ref>, 226.19(a)(2), 226.31, and 226.46(d)(4), the term means all calendar days except Sundays and the legal public holidays specified in <ref href="/us/usc/t5/s6103/a">5 U.S.C. 6103(a)</ref>, such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.</p>
<p style="-uslm-sgm:P">(7) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuer</inline> means a person that issues a credit card or that person's agent with respect to the card.</p>
<p style="-uslm-sgm:P">(8) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cardholder</inline> means a natural person to whom a credit card is issued for consumer credit purposes, or a natural person who has agreed with the card issuer to pay consumer credit obligations arising from the issuance of a credit card to another natural person. For purposes of <ref href="/us/cfr/t12/s226.12/a">§ 226.12(a)</ref> and (b), the term includes any person to whom a credit card is issued for any purpose, including business, commercial or agricultural use, or a person who has agreed with the card issuer to pay obligations arising from the issuance of such a credit card to another person.</p>
<p style="-uslm-sgm:P">(9) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cash price</inline> means the price at which a creditor, in the ordinary course of business, offers to sell for cash property or service that is the subject of the transaction. At the creditor's option, the term may include the price of accessories, services related to the sale, service contracts and taxes and fees for license, title, and registration. The term does not include any finance charge.</p>
<p style="-uslm-sgm:P">(10) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Closed-end credit</inline> means consumer credit other than “open-end credit” as defined in this section.</p>
<p style="-uslm-sgm:P">(11) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer</inline> means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under <ref href="/us/cfr/t12/s226.15">§§ 226.15</ref> and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.</p>
<p style="-uslm-sgm:P">(12) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer credit</inline> means credit offered or extended to a consumer primarily for personal, family, or household purposes.</p>
<p style="-uslm-sgm:P">(13) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consummation</inline> means the time that a consumer becomes contractually obligated on a credit transaction.</p>
<p style="-uslm-sgm:P">(14) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit</inline> means the right to defer payment of debt or to incur debt and defer its payment.</p>
<p style="-uslm-sgm:P">(15)(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card</inline> means any card, plate, or other single credit device that may be used from time to time to obtain credit.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card account under an open-end (not home-secured) consumer credit plan</inline> means any open-end credit account that is accessed by a credit card, except:</p>
<p style="-uslm-sgm:P">(A) A home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> that is accessed by a credit card; or</p>
<p style="-uslm-sgm:P">(B) An overdraft line of credit that is accessed by a debit card or an account number.</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charge card</inline> means a credit card on an account for which no periodic rate is used to compute a finance charge.</p>
<p style="-uslm-sgm:P">(16) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit sale</inline> means a sale in which the seller is a creditor. The term includes a bailment or lease (unless terminable without penalty at any time by the consumer) under which the consumer—</p>
<p style="-uslm-sgm:P">(i) Agrees to pay as compensation for use a sum substantially equivalent to, or in excess of, the total value of the property and service involved; and</p>
<p style="-uslm-sgm:P">(ii) Will become (or has the option to become), for no additional consideration or for nominal consideration, the owner of the property upon compliance with the agreement.</p>
<p style="-uslm-sgm:P">(17) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor</inline> means:
<?page num="332"?></p>
<p style="-uslm-sgm:P">(i) A person who regularly extends consumer credit <ref id="fnd3e20926" idref="fnd3e20932" style="-uslm-sgm:SU">3</ref> that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.</p>
<footnote id="fnd3e20932" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e20926" style="-uslm-sgm:SU">3</ref> [Reserved]</p>
</content>
</footnote>
<p style="-uslm-sgm:P">(ii) For purposes of <ref href="/us/cfr/t12/s226.4/c/8">§§ 226.4(c)(8)</ref> (Discounts), 226.9(d) (Finance charge imposed at time of transaction), and 226.12(e) (Prompt notification of returns and crediting of refunds), a person that honors a credit card.</p>
<p style="-uslm-sgm:P">(iii) For purposes of subpart B, any card issuer that extends either open-end credit or credit that is not subject to a finance charge and is not payable by written agreement in more than four installments.</p>
<p style="-uslm-sgm:P">(iv) For purposes of subpart B (except for the credit and charge card disclosures contained in <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> and 226.9(e) and (f), the finance charge disclosures contained in <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> and (b)(3)(i) and <ref href="/us/cfr/t12/s226.7/a/4">§ 226.7(a)(4)</ref> through (7) and (b)(4) through (6) and the right of rescission set forth in <ref href="/us/cfr/t12/s226.15">§ 226.15</ref>) and subpart C, any card issuer that extends closed-end credit that is subject to a finance charge or is payable by written agreement in more than four installments.</p>
<p style="-uslm-sgm:P">(v) A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>) more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> or one or more such credit extensions through a mortgage broker.</p>
<p style="-uslm-sgm:P">(18) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Downpayment</inline> means an amount, including the value of property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction. A deferred portion of a downpayment may be treated as part of the downpayment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to a finance charge.</p>
<p style="-uslm-sgm:P">(19) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dwelling</inline> means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.</p>
<p style="-uslm-sgm:P">(20) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end credit</inline> means consumer credit extended by a creditor under a plan in which:</p>
<p style="-uslm-sgm:P">(i) The creditor reasonably contemplates repeated transactions;</p>
<p style="-uslm-sgm:P">(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and</p>
<p style="-uslm-sgm:P">(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.</p>
<p style="-uslm-sgm:P">(21) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic rate</inline> means a rate of finance charge that is or may be imposed by a creditor on a balance for a day, week, month, or other subdivision of a year.</p>
<p style="-uslm-sgm:P">(22) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person</inline> means a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust, or government unit.</p>
<p style="-uslm-sgm:P">(23) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prepaid finance charge</inline> means any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time.</p>
<p style="-uslm-sgm:P">(24) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Residential mortgage transaction</inline> means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling.</p>
<p style="-uslm-sgm:P">(25) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security interest</inline> means an interest in property that secures performance of a consumer credit obligation and that is recognized by state or federal law. It does not include incidental interests such as interests in proceeds, <?page num="333"?>accessions, additions, fixtures, insurance proceeds (whether or not the creditor is a loss payee or beneficiary), premium rebates, or interests in after-acquired property. For purposes of disclosures under <ref href="/us/cfr/t12/s226.6">§§ 226.6</ref> and 226.18, the term does not include an interest that arises solely by operation of law. However, for purposes of the right of rescission under <ref href="/us/cfr/t12/s226.15">§§ 226.15</ref> and 226.23, the term does include interests that arise solely by operation of law.</p>
<p style="-uslm-sgm:P">(26) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State</inline> means any state, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rules of construction.</inline> For purposes of this regulation, the following rules of construction apply:</p>
<p style="-uslm-sgm:P">(1) Where appropriate, the singular form of a word includes the plural form and plural includes singular.</p>
<p style="-uslm-sgm:P">(2) Where the words <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">obligation</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">transaction</inline> are used in the regulation, they refer to a consumer credit obligation or transaction, depending upon the context. Where the word <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">credit</inline> is used in the regulation, it means <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">consumer credit</inline> unless the context clearly indicates otherwise.</p>
<p style="-uslm-sgm:P">(3) Unless defined in this regulation, the words used have the meanings given to them by state law or contract.</p>
<p style="-uslm-sgm:P">(4) Footnotes have the same legal effect as the text of the regulation.</p>
<p style="-uslm-sgm:P">(5) Where the word <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline> is used in this regulation to describe disclosure requirements, it refers to a numerical amount.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7793">75 FR 7793</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/22998">76 FR 22998</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.3">
<num value="226.3" style="-uslm-sgm:SECTNO">§ 226.3</num>
<heading style="-uslm-sgm:SUBJECT">Exempt transactions.</heading>
<chapeau>
<p style="-uslm-sgm:P">This regulation does not apply to the following: <ref id="fnd3e21037" idref="fnd3e21042" style="-uslm-sgm:SU">4</ref>
</p>
<footnote id="fnd3e21042" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e21037" style="-uslm-sgm:SU">4</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.3/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Business, commercial, agricultural, or organizational credit.</heading>
<paragraph identifier="/us/cfr/t12/s226.3/a/1" class="inline">
<num value="1"> (1)</num>
<content> An extension of credit primarily for a business, commercial or agricultural purpose.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Credit over applicable threshold amount—</heading>
<paragraph identifier="/us/cfr/t12/s226.3/b/1" class="inline">
<num value="1">(1) </num>
<heading>Exemption—</heading>
<paragraph identifier="/us/cfr/t12/s226.3/b/1/i" class="inline">
<num value="i">(i) </num>
<heading>Requirements.</heading>
<chapeau> An extension of credit in which the amount of credit extended exceeds the applicable threshold amount or in which there is an express written commitment to extend credit in excess of the applicable threshold amount, unless the extension of credit is:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.3/b/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Secured by any real property, or by personal property used or expected to be used as the principal dwelling of the consumer; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/b/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A private education loan as defined in <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Annual adjustments.</heading>
<content> The threshold amount in paragraph (b)(1)(i) of this section is adjusted annually to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable. See the official staff commentary to this paragraph (b) for the threshold amount applicable to a specific extension of credit or express written commitment to extend credit.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Transition rule for open-end accounts exempt prior to <date date="2011-07-21">July 21, 2011</date>.</heading>
<chapeau> An open-end account that is exempt on <date date="2011-07-20">July 20, 2011</date> based on an express written commitment to extend credit in excess of $25,000 remains exempt until <date date="2011-12-31">December 31, 2011</date> unless:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.3/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The creditor takes a security interest in any real property, or in personal property used or expected to be used as the principal dwelling of the consumer; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor reduces the express written commitment to extend credit to $25,000 or less.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Public utility credit.</heading>
<content> An extension of credit that involves public utility services provided through pipe, wire, other connected facilities, or radio or similar transmission (including extensions of such facilities), if the charges for service, delayed payment, or any discounts for prompt payment are filed with or regulated by any government unit. The financing of durable goods or home improvements by a public utility is not exempt.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Securities or commodities accounts.</heading>
<content> Transactions in securities or commodities accounts in which credit is extended by a broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Home fuel budget plans.</heading>
<content> An installment agreement for the purchase of home fuels in which no finance charge is imposed.
<?page num="334"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Student loan programs.</heading>
<content> Loans made, insured, or guaranteed pursuant to a program authorized by title IV of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1070">20 U.S.C. 1070</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.3/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Employer-sponsored retirement plans.</heading>
<content> An extension of credit to a participant in an employer-sponsored retirement plan qualified under Section 401(a) of the Internal Revenue Code, a tax-sheltered annuity under Section 403(b) of the Internal Revenue Code, or an eligible governmental deferred compensation plan under Section 457(b) of the Internal Revenue Code (<ref href="/us/usc/t26/s401/a">26 U.S.C. 401(a)</ref>; <ref href="/us/usc/t26/s403/b">26 U.S.C. 403(b)</ref>; <ref href="/us/usc/t26/s457/b">26 U.S.C. 457(b)</ref>), provided that the extension of credit is comprised of fully vested funds from such participant's account and is made in compliance with the Internal Revenue Code (<ref href="/us/usc/t26/s1">26 U.S.C. 1</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7794">75 FR 7794</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/18362">76 FR 18362</ref>, <date date="2011-04-04" role="amended">Apr. 4, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.4">
<num value="226.4" style="-uslm-sgm:SECTNO">§ 226.4</num>
<heading style="-uslm-sgm:SUBJECT">Finance charge.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.4/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definition.</heading>
<content>
<p> The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges by third parties.</inline> The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor:</p>
<p style="-uslm-sgm:P">(i) Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or</p>
<p style="-uslm-sgm:P">(ii) Retains a portion of the third-party charge, to the extent of the portion retained.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special rule; closing agent charges.</inline> Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor—</p>
<p style="-uslm-sgm:P">(i) Requires the particular services for which the consumer is charged;</p>
<p style="-uslm-sgm:P">(ii) Requires the imposition of the charge; or</p>
<p style="-uslm-sgm:P">(iii) Retains a portion of the third-party charge, to the extent of the portion retained.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special rule; mortgage broker fees.</inline> Fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Examples of finance charges.</heading>
<chapeau> The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Interest, time price differential, and any amount payable under an add-on or discount system of additional charges.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Points, loan fees, assumption fees, finder's fees, and similar charges.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Appraisal, investigation, and credit report fees.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer's default or other credit loss.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Charges imposed on a creditor by another person for purchasing or accepting a consumer's obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/9" style="-uslm-sgm:P">
<num value="9">(9)</num>
<content> Discounts for the purpose of inducing payment by a means other than the use of credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/b/10" style="-uslm-sgm:P">
<num value="10">(10)</num>
<content> Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a <?page num="335"?>credit transaction, whether or not the coverage is insurance under applicable law.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Charges excluded from the finance charge.</heading>
<chapeau> The following charges are not finance charges:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Application fees charged to all applicants for credit, whether or not credit is actually extended.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Seller's points.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for an extension of credit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Real-estate related fees.</heading>
<chapeau> The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/c/7/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/7/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Notary and credit-report fees.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/7/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/7/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/c/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> Discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section 167(b) of the Act.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Insurance and debt cancellation and debt suspension coverage—</heading>
<paragraph identifier="/us/cfr/t12/s226.4/d/1" class="inline">
<num value="1">(1) </num>
<heading>Voluntary credit insurance premiums.</heading>
<chapeau> Premiums for credit life, accident, health, or loss-of-income insurance may be excluded from the finance charge if the following conditions are met:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The insurance coverage is not required by the creditor, and this fact is disclosed in writing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The premium for the initial term of insurance coverage is disclosed in writing. If the term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under <ref href="/us/cfr/t12/s226.17/g">§ 226.17(g)</ref>, and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph, except as provided in paragraph (d)(4) of this section. Any consumer in the transaction may sign or initial the request.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Property insurance premiums.</heading>
<chapeau>
<p> Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, including single interest insurance if the insurer waives all right of subrogation against the consumer,<ref id="fnd3e21234" idref="fnd3e21240" style="-uslm-sgm:SU">5</ref> may be excluded from the finance charge if the following conditions are met:</p>
<footnote id="fnd3e21240" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e21234" style="-uslm-sgm:SU">5</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content>
<p> The insurance coverage may be obtained from a person of the consumer's choice,<ref id="fnd3e21245" idref="fnd3e21251" style="-uslm-sgm:SU">6</ref> and this fact is disclosed. (A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer.)</p>
<footnote id="fnd3e21251" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e21245" style="-uslm-sgm:SU">6</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under <ref href="/us/cfr/t12/s226.17/g">§ 226.17(g)</ref>, and certain closed-end credit transactions involving an insurance plan that limits <?page num="336"?>the total amount of indebtedness subject to coverage.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Voluntary debt cancellation or debt suspension fees.</heading>
<chapeau> Charges or premiums paid for debt cancellation coverage for amounts exceeding the value of the collateral securing the obligation or for debt cancellation or debt suspension coverage in the event of the loss of life, health, or income or in case of accident may be excluded from the finance charge, whether or not the coverage is insurance, if the following conditions are met:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The debt cancellation or debt suspension agreement or coverage is not required by the creditor, and this fact is disclosed in writing;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The fee or premium for the initial term of coverage is disclosed in writing. If the term of coverage is less than the term of the credit transaction, the term of coverage also shall be disclosed. The fee or premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under <ref href="/us/cfr/t12/s226.17/g">§ 226.17(g)</ref>, and certain closed-end credit transactions involving a debt cancellation agreement that limits the total amount of indebtedness subject to coverage;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The following are disclosed, as applicable, for debt suspension coverage: That the obligation to pay loan principal and interest is only suspended, and that interest will continue to accrue during the period of suspension.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The consumer signs or initials an affirmative written request for coverage after receiving the disclosures specified in this paragraph, except as provided in paragraph (d)(4) of this section. Any consumer in the transaction may sign or initial the request.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Telephone purchases.</heading>
<chapeau> If a consumer purchases credit insurance or debt cancellation or debt suspension coverage for an open-end (not home-secured) plan by telephone, the creditor must make the disclosures under paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through (iii) of this section, as applicable, orally. In such a case, the creditor shall:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/d/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Maintain evidence that the consumer, after being provided the disclosures orally, affirmatively elected to purchase the insurance or coverage; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Mail the disclosures under paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through (iii) of this section, as applicable, within three business days after the telephone purchase.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Certain security interest charges.</heading>
<chapeau> If itemized and disclosed, the following charges may be excluded from the finance charge:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.4/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed the fees described in paragraph (e)(1) of this section that otherwise would be payable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Taxes on security instruments.</heading>
<content> Any tax levied on security instruments or on documents evidencing indebtedness if the payment of such taxes is a requirement for recording the instrument securing the evidence of indebtedness.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.4/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Prohibited offsets.</heading>
<content> Interest, dividends, or other income received or to be received by the consumer on deposits or investments shall not be deducted in computing the finance charge. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7794">75 FR 7794</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spB">
<num value="B" style="-uslm-sgm:HED">Subpart B—</num>
<heading style="-uslm-sgm:HED">Open-End Credit
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.5">
<num value="226.5" style="-uslm-sgm:SECTNO">§ 226.5</num>
<heading style="-uslm-sgm:SUBJECT">General disclosure requirements.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Form of disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a/1" class="inline">
<num value="1"> (1) </num>
<heading>General.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a/1/i" class="inline">
<num value="i"> (i)</num>
<content> The creditor shall make the disclosures required by this subpart clearly and conspicuously.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau>
<p> The creditor shall make the disclosures required by this subpart in writing,<ref id="fnd3e21321" idref="fnd3e21331" style="-uslm-sgm:SU">7</ref> in a form that the consumer may keep,<ref id="fnd3e21325" idref="fnd3e21336" style="-uslm-sgm:SU">8</ref> except that:</p>
<footnote id="fnd3e21331" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e21321" style="-uslm-sgm:SU">7</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e21336" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e21325" style="-uslm-sgm:SU">8</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/a/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The following disclosures need not be written: Disclosures under <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref> of charges that are imposed as part of an open-end (not home-secured) plan that are not required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref> and related disclosures of charges under <?page num="337"?><ref href="/us/cfr/t12/s226.9/c/2/iii/B">§ 226.9(c)(2)(iii)(B)</ref>; disclosures under <ref href="/us/cfr/t12/s226.9/c/2/vi">§ 226.9(c)(2)(vi)</ref>; disclosures under <ref href="/us/cfr/t12/s226.9/d">§ 226.9(d)</ref> when a finance charge is imposed at the time of the transaction; and disclosures under <ref href="/us/cfr/t12/s226.56/b/1/i">§ 226.56(b)(1)(i)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The following disclosures need not be in a retainable form: Disclosures that need not be written under paragraph (a)(1)(ii)(A) of this section; disclosures for credit and charge card applications and solicitations under <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>; home-equity disclosures under <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref>; the alternative summary billing-rights statement under <ref href="/us/cfr/t12/s226.9/a/2">§ 226.9(a)(2)</ref>; the credit and charge card renewal disclosures required under <ref href="/us/cfr/t12/s226.9/e">§ 226.9(e)</ref>; and the payment requirements under <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>, except as provided in <ref href="/us/cfr/t12/s226.7/b/13">§ 226.7(b)(13)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). The disclosures required by <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref>, 226.5b, and 226.16 may be provided to the consumer in electronic form without regard to the consumer consent or other provisions of the E-Sign Act in the circumstances set forth in those sections.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Terminology.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/i" class="inline">
<num value="i"> (i)</num>
<content> Terminology used in providing the disclosures required by this subpart shall be consistent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> For home-equity plans subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate,</inline> when required to be disclosed with a corresponding amount or percentage rate, shall be more conspicuous than any other required disclosure.<ref id="fnd3e21363" idref="fnd3e21370" style="-uslm-sgm:SU">9</ref> The terms need not be more conspicuous when used for periodic statement disclosures under <ref href="/us/cfr/t12/s226.7/a/4">§ 226.7(a)(4)</ref> and for advertisements under <ref href="/us/cfr/t12/s226.16">§ 226.16</ref>.</p>
<footnote id="fnd3e21370" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e21363" style="-uslm-sgm:SU">9</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If disclosures are required to be presented in a tabular format pursuant to paragraph (a)(3) of this section, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">penalty APR</inline> shall be used, as applicable. The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">penalty APR</inline> need not be used in reference to the annual percentage rate that applies with the loss of a promotional rate, assuming the annual percentage rate that applies is not greater than the annual percentage rate that would have applied at the end of the promotional period; or if the annual percentage rate that applies with the loss of a promotional rate is a variable rate, the annual percentage rate is calculated using the same index and margin as would have been used to calculate the annual percentage rate that would have applied at the end of the promotional period. If credit insurance or debt cancellation or debt suspension coverage is required as part of the plan, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">required</inline> shall be used and the program shall be identified by its name. If an annual percentage rate is required to be presented in a tabular format pursuant to paragraph (a)(3)(i) or (a)(3)(iii) of this section, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">fixed,</inline> or a similar term, may not be used to describe such rate unless the creditor also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Specific formats.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/i" class="inline">
<num value="i"> (i)</num>
<content> Certain disclosures for credit and charge card applications and solicitations must be provided in a tabular format in accordance with the requirements of <ref href="/us/cfr/t12/s226.5a/a/2">§ 226.5a(a)(2)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Certain disclosures for home-equity plans must precede other disclosures and must be given in accordance with the requirements of <ref href="/us/cfr/t12/s226.5b/a">§ 226.5b(a)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Certain account-opening disclosures must be provided in a tabular format in accordance with the requirements of <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Certain disclosures provided on periodic statements must be grouped together in accordance with the requirements of <ref href="/us/cfr/t12/s226.7/b/6">§ 226.7(b)(6)</ref> and (b)(13).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Certain disclosures provided on periodic statements must be given in accordance with the requirements of <ref href="/us/cfr/t12/s226.7/b/12">§ 226.7(b)(12)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Certain disclosures accompanying checks that access a credit card account must be provided in a tabular format in accordance with the requirements of <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Certain disclosures provided in a change-in-terms notice must be provided in a tabular format in accordance with the requirements of <ref href="/us/cfr/t12/s226.9/c/2/iv/D">§ 226.9(c)(2)(iv)(D)</ref>.
<?page num="338"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> Certain disclosures provided when a rate is increased due to delinquency, default or as a penalty must be provided in a tabular format in accordance with the requirements of <ref href="/us/cfr/t12/s226.9/g/3/ii">§ 226.9(g)(3)(ii)</ref>.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Time of disclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/b/1" class="inline">
<num value="1">(1) </num>
<heading>Account-opening disclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/i" class="inline">
<num value="i">(i) </num>
<heading>General rule.</heading>
<content> The creditor shall furnish account-opening disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> before the first transaction is made under the plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Charges imposed as part of an open-end (not home-secured) plan.</heading>
<content> Charges that are imposed as part of an open-end (not home-secured) plan and are not required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref> may be disclosed after account opening but before the consumer agrees to pay or becomes obligated to pay for the charge, provided they are disclosed at a time and in a manner that a consumer would be likely to notice them. This provision does not apply to charges imposed as part of a home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Telephone purchases.</heading>
<chapeau> Disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> may be provided as soon as reasonably practicable after the first transaction if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The first transaction occurs when a consumer contacts a merchant by telephone to purchase goods and at the same time the consumer accepts an offer to finance the purchase by establishing an open-end plan with the merchant or third-party creditor;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The merchant or third-party creditor permits consumers to return any goods financed under the plan and provides consumers with a sufficient time to reject the plan and return the goods free of cost after the merchant or third-party creditor has provided the written disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The consumer's right to reject the plan and return the goods is disclosed to the consumer as a part of the offer to finance the purchase.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Membership fees—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iv/A" class="inline">
<num value="A">(A) </num>
<heading>General.</heading>
<content> In general, a creditor may not collect any fee before account-opening disclosures are provided. A creditor may collect, or obtain the consumer's agreement to pay, membership fees, including application fees excludable from the finance charge under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref>, before providing account-opening disclosures if, after receiving the disclosures, the consumer may reject the plan and have no obligation to pay these fees (including application fees) or any other fee or charge. A membership fee for purposes of this paragraph has the same meaning as a fee for the issuance or availability of credit described in <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref>. If the consumer rejects the plan, the creditor must promptly refund the membership fee if it has been paid, or take other action necessary to ensure the consumer is not obligated to pay that fee or any other fee or charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iv/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Home-equity plans.</heading>
<content> Creditors offering home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> are not subject to the requirements of paragraph (b)(1)(iv)(A) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Application fees.</heading>
<content> A creditor may collect an application fee excludable from the finance charge under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref> before providing account-opening disclosures. However, if a consumer rejects the plan after receiving account-opening disclosures, the consumer must have no obligation to pay such an application fee, or if the fee was paid, it must be refunded. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.5/b/1/iv/A">§ 226.5(b)(1)(iv)(A)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Periodic statements—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i" class="inline">
<num value="i">(i) </num>
<heading>Statement required.</heading>
<chapeau> The creditor shall mail or deliver a periodic statement as required by <ref href="/us/cfr/t12/s226.7">§ 226.7</ref> for each billing cycle at the end of which an account has a debit or credit balance of more than $1 or on which a finance charge has been imposed. A periodic statement need not be sent for an account if the creditor deems it uncollectible, if delinquency collection proceedings have been instituted, if the creditor has charged off the account in accordance with loan-loss provisions and will not charge any additional fees or interest on the account, or if furnishing the statement would violate federal law.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/A" style="-uslm-sgm:P">
<num value="A">(A) </num>
<heading>Credit card accounts under an open-end (not home-secured) consumer credit plan.</heading>
<chapeau> For credit card accounts under an open-end (not home-secured) consumer credit plan, a card issuer must adopt reasonable procedures designed to ensure that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/A/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Periodic statements are mailed or delivered at least 21 days prior to the payment due date disclosed on the <?page num="339"?>statement pursuant to <ref href="/us/cfr/t12/s226.7/b/11/i/A">§ 226.7(b)(11)(i)(A)</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/A/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The card issuer does not treat as late for any purpose a required minimum periodic payment received by the card issuer within 21 days after mailing or delivery of the periodic statement disclosing the due date for that payment.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Open-end consumer credit plans.</heading>
<chapeau> For accounts under an open-end consumer credit plan, a creditor must adopt reasonable procedures designed to ensure that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> If a grace period applies to the account:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Periodic statements are mailed or delivered at least 21 days prior to the date on which the grace period expires; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor does not impose finance charges as a result of the loss of the grace period if a payment that satisfies the terms of the grace period is received by the creditor within 21 days after mailing or delivery of the periodic statement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Regardless of whether a grace period applies to the account:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Periodic statements are mailed or delivered at least 14 days prior to the date on which the required minimum periodic payment must be received in order to avoid being treated as late for any purpose; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor does not treat as late for any purpose a required minimum periodic payment received by the creditor within 14 days after mailing or delivery of the periodic statement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i/B/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> For purposes of paragraph (b)(2)(ii)(B) of this section, “grace period” means a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate.<ref id="fnd3e21522" idref="fnd3e21527" style="-uslm-sgm:SU">10</ref>
</p>
<footnote id="fnd3e21527" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e21522" style="-uslm-sgm:SU">10</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Credit and charge card application and solicitation disclosures.</heading>
<content> The card issuer shall furnish the disclosures for credit and charge card applications and solicitations in accordance with the timing requirements of <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Home-equity plans.</heading>
<content> Disclosures for home-equity plans shall be made in accordance with the timing requirements of <ref href="/us/cfr/t12/s226.5b/b">§ 226.5b(b)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Basis of disclosures and use of estimates.</heading>
<content> Disclosures shall reflect the terms of the legal obligation between the parties. If any information necessary for accurate disclosure is unknown to the creditor, it shall make the disclosure based on the best information reasonably available and shall state clearly that the disclosure is an estimate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Multiple creditors; multiple consumers.</heading>
<content> If the credit plan involves more than one creditor, only one set of disclosures shall be given, and the creditors shall agree among themselves which creditor must comply with the requirements that this regulation imposes on any or all of them. If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the account. If the right of rescission under <ref href="/us/cfr/t12/s226.15">§ 226.15</ref> is applicable, however, the disclosures required by <ref href="/us/cfr/t12/s226.6">§§ 226.6</ref> and 226.15(b) shall be made to each consumer having the right to rescind.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Effect of subsequent events.</heading>
<content> If a disclosure becomes inaccurate because of an event that occurs after the creditor mails or delivers the disclosures, the resulting inaccuracy is not a violation of this regulation, although new disclosures may be required under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7796">75 FR 7796</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/22998">76 FR 22998</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.5">
<num value="226.5" style="-uslm-sgm:SECTNO">§ 226.5a</num>
<heading style="-uslm-sgm:SUBJECT">Credit and charge card applications and solicitations.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rules.</heading>
<chapeau> The card issuer shall provide the disclosures required under this section on or with a solicitation or an application to open a credit or charge card account.</chapeau>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.5/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Definition of solicitation.</heading>
<content> For purposes of this section, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">solicitation</inline> means an offer by the card issuer to open a credit or charge card account that does not require the consumer to complete an application. A “firm offer of credit” as defined in section 603(l) of the Fair Credit Reporting Act (<ref href="/us/usc/t15/s1681a/l">15 U.S.C. 1681a(l)</ref>) for a credit or charge card is a solicitation for purposes of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Form of disclosures; tabular format.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/i" class="inline">
<num value="i"> (i)</num>
<content> The disclosures in paragraphs (b)(1) through (5) (except for (b)(1)(iv)(B)) and (b)(7) through (15) of this section made pursuant to paragraph (c), (d)(2), (e)(1) <?page num="340"?>or (f) of this section generally shall be in the form of a table with headings, content, and format substantially similar to any of the applicable tables found in G–10 in appendix G to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The table described in paragraph (a)(2)(i) of this section shall contain only the information required or permitted by this section. Other information may be presented on or with an application or solicitation, provided such information appears outside the required table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Disclosures required by paragraphs (b)(1)(iv)(B), (b)(1)(iv)(C) and (b)(6) of this section must be placed directly beneath the table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> When a tabular format is required, any annual percentage rate required to be disclosed pursuant to paragraph (b)(1) of this section, any introductory rate required to be disclosed pursuant to paragraph (b)(1)(ii) of this section, any rate that will apply after a premium initial rate expires required to be disclosed under paragraph (b)(1)(iii) of this section, and any fee or percentage amounts or maximum limits on fee amounts disclosed pursuant to paragraphs (b)(2), (b)(4), (b)(8) through (b)(13) of this section must be disclosed in bold text. However, bold text shall not be used for: The amount of any periodic fee disclosed pursuant to paragraph (b)(2) of this section that is not an annualized amount; and other annual percentage rates or fee amounts disclosed in the table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> For an application or a solicitation that is accessed by the consumer in electronic form, the disclosures required under this section may be provided to the consumer in electronic form on or with the application or solicitation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/vi/A" class="inline">
<num value="A">(A)</num>
<content> Except as provided in paragraph (a)(2)(vi)(B) of this section, the table described in paragraph (a)(2)(i) of this section must be provided in a prominent location on or with an application or a solicitation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2/vi/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the table described in paragraph (a)(2)(i) of this section is provided electronically, it must be provided in close proximity to the application or solicitation.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Fees based on a percentage.</heading>
<content> If the amount of any fee required to be disclosed under this section is determined on the basis of a percentage of another amount, the percentage used and the identification of the amount against which the percentage is applied may be disclosed instead of the amount of the fee.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Fees that vary by state.</heading>
<content> Card issuers that impose fees referred to in paragraphs (b)(8) through (12) of this section that vary by state may, at the issuer's option, disclose in the table required by paragraph (a)(2)(i) of this section: the specific fee applicable to the consumer's account; or the range of the fees, if the disclosure includes a statement that the amount of the fee varies by state and refers the consumer to a disclosure provided with the table where the amount of the fee applicable to the consumer's account is disclosed. A card issuer may not list fees for multiple states in the table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Exceptions.</heading>
<chapeau> This section does not apply to:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/a/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Home-equity plans accessible by a credit or charge card that are subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/5/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Lines of credit accessed solely by account numbers;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/5/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Additions of a credit or charge card to an existing open-end plan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/5/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> General purpose applications unless the application, or material accompanying it, indicates that it can be used to open a credit or charge card account; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/5/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Consumer-initiated requests for applications.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Required disclosures.</heading>
<chapeau> The card issuer shall disclose the items in this paragraph on or with an application or a solicitation in accordance with the requirements of paragraphs (c), (d), (e)(1) or (f) of this section. A credit card issuer shall disclose all applicable items in this paragraph except for paragraph (b)(7) of this section. A charge card issuer shall disclose the applicable items in paragraphs (b)(2), (4), (7) through (12), and (15) of this section.
<?page num="341"?></chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Annual percentage rate.</heading>
<chapeau> Each periodic rate that may be used to compute the finance charge on an outstanding balance for purchases, a cash advance, or a balance transfer, expressed as an annual percentage rate (as determined by <ref href="/us/cfr/t12/s226.14/b">§ 226.14(b)</ref>). When more than one rate applies for a category of transactions, the range of balances to which each rate is applicable shall also be disclosed. The annual percentage rate for purchases disclosed pursuant to this paragraph shall be in at least 16-point type, except for the following: Oral disclosures of the annual percentage rate for purchases; or a penalty rate that may apply upon the occurrence of one or more specific events.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Variable rate information.</heading>
<content> If a rate disclosed under paragraph (b)(1) of this section is a variable rate, the card issuer shall also disclose the fact that the rate may vary and how the rate is determined. In describing how the applicable rate will be determined, the card issuer must identify the type of index or formula that is used in setting the rate. The value of the index and the amount of the margin that are used to calculate the variable rate shall not be disclosed in the table. A disclosure of any applicable limitations on rate increases shall not be included in the table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Discounted initial rate.</heading>
<content> If the initial rate is an introductory rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/ii">§ 226.16(g)(2)(ii)</ref>, the card issuer must disclose in the table the introductory rate, the time period during which the introductory rate will remain in effect, and must use the term “introductory” or “intro” in immediate proximity to the introductory rate. The card issuer also must disclose the rate that would otherwise apply to the account pursuant to paragraph (b)(1) of this section. Where the rate is not tied to an index or formula, the card issuer must disclose the rate that will apply after the introductory rate expires. In a variable-rate account, the card issuer must disclose a rate based on the applicable index or formula in accordance with the accuracy requirements set forth in paragraphs (c)(2), (d)(3), or (e)(4) of this section, as applicable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Premium initial rate.</heading>
<content> If the initial rate is temporary and is higher than the rate that will apply after the temporary rate expires, the card issuer must disclose the premium initial rate pursuant to paragraph (b)(1) of this section and the time period during which the premium initial rate will remain in effect. Consistent with paragraph (b)(1) of this section, the premium initial rate for purchases must be in at least 16-point type. The issuer must also disclose in the table the rate that will apply after the premium initial rate expires, in at least 16-point type.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Penalty rates—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iv/A" class="inline">
<num value="A">(A) </num>
<heading>In general.</heading>
<content> Except as provided in paragraph (b)(1)(iv)(B) and (C) of this section, if a rate may increase as a penalty for one or more events specified in the account agreement, such as a late payment or an extension of credit that exceeds the credit limit, the card issuer must disclose pursuant to this paragraph (b)(1) the increased rate that may apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iv/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Introductory rates.</heading>
<content> If the issuer discloses an introductory rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/ii">§ 226.16(g)(2)(ii)</ref>, in the table or in any written or electronic promotional materials accompanying applications or solicitations subject to paragraph (c) or (e) of this section, the issuer must briefly disclose directly beneath the table the circumstances, if any, under which the introductory rate may be revoked, and the type of rate that will apply after the introductory rate is revoked.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/iv/C" style="-uslm-sgm:P">
<num value="C">(C) </num>
<heading>Employee preferential rates.</heading>
<content> If a card issuer discloses in the table a preferential annual percentage rate for which only employees of the card issuer, employees of a third party, or other individuals with similar affiliations with the card issuer or third party, such as executive officers, directors, or principal shareholders are eligible, the card issuer must briefly disclose directly beneath the table the circumstances under which such preferential rate may be revoked, and the rate that will apply after such preferential rate is revoked.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Rates that depend on consumer's creditworthiness.</heading>
<content> If a rate cannot be determined at the time disclosures are given because the rate depends, at least <?page num="342"?>in part, on a later determination of the consumer's creditworthiness, the card issuer must disclose the specific rates or the range of rates that could apply and a statement that the rate for which the consumer may qualify at account opening will depend on the consumer's creditworthiness, and other factors if applicable. If the rate that depends, at least in part, on a later determination of the consumer's creditworthiness is a penalty rate, as described in paragraph (b)(1)(iv) of this section, the card issuer at its option may disclose the highest rate that could apply, instead of disclosing the specific rates or the range of rates that could apply.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi) </num>
<heading>APRs that vary by state.</heading>
<content> Issuers imposing annual percentage rates that vary by state may, at the issuer's option, disclose in the table: the specific annual percentage rate applicable to the consumer's account; or the range of the annual percentage rates, if the disclosure includes a statement that the annual percentage rate varies by state and refers the consumer to a disclosure provided with the table where the annual percentage rate applicable to the consumer's account is disclosed. A card issuer may not list annual percentage rates for multiple states in the table.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Fees for issuance or availability.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/i" class="inline">
<num value="i"> (i)</num>
<content> Any annual or other periodic fee that may be imposed for the issuance or availability of a credit or charge card, including any fee based on account activity or inactivity; how frequently it will be imposed; and the annualized amount of the fee.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any non-periodic fee that relates to opening an account. A card issuer must disclose that the fee is a one-time fee.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Fixed finance charge; minimum interest charge.</heading>
<content> Any fixed finance charge and a brief description of the charge. Any minimum interest charge if it exceeds $1.00 that could be imposed during a billing cycle, and a brief description of the charge. The $1.00 threshold amount shall be adjusted periodically by the Board to reflect changes in the Consumer Price Index. The Board shall calculate each year a price level adjusted minimum interest charge using the Consumer Price Index in effect on June 1 of that year. When the cumulative change in the adjusted minimum value derived from applying the annual Consumer Price level to the current minimum interest charge threshold has risen by a whole dollar, the minimum interest charge will be increased by $1.00. The issuer may, at its option, disclose in the table minimum interest charges below this threshold.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Transaction charges.</heading>
<content> Any transaction charge imposed by the card issuer for the use of the card for purchases.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Grace period.</heading>
<content> The date by which or the period within which any credit extended for purchases may be repaid without incurring a finance charge due to a periodic interest rate and any conditions on the availability of the grace period. If no grace period is provided, that fact must be disclosed. If the length of the grace period varies, the card issuer may disclose the range of days, the minimum number of days, or the average number of days in the grace period, if the disclosure is identified as a range, minimum, or average. In disclosing in the tabular format a grace period that applies to all types of purchases, the phrase “How to Avoid Paying Interest on Purchases” shall be used as the heading for the row describing the grace period. If a grace period is not offered on all types of purchases, in disclosing this fact in the tabular format, the phrase “Paying Interest” shall be used as the heading for the row describing this fact.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Balance computation method.</heading>
<content> The name of the balance computation method listed in paragraph (g) of this section that is used to determine the balance for purchases on which the finance charge is computed, or an explanation of the method used if it is not listed. In determining which balance computation method to disclose, the card issuer shall assume that credit extended for purchases will not be repaid within the grace period, if any.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Statement on charge card payments.</heading>
<content> A statement that charges incurred by use of the charge card are due when the periodic statement is received.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Cash advance fee.</heading>
<content> Any fee imposed for an extension of credit in the form of cash or its equivalent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Late payment fee.</heading>
<content> Any fee imposed for a late payment.
<?page num="343"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Over-the-limit fee.</heading>
<content> Any fee imposed for exceeding a credit limit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/11" style="-uslm-sgm:P">
<num value="11">(11) </num>
<heading>Balance transfer fee.</heading>
<content> Any fee imposed to transfer an outstanding balance.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/12" style="-uslm-sgm:P">
<num value="12">(12) </num>
<heading>Returned-payment fee.</heading>
<content> Any fee imposed by the card issuer for a returned payment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/13" style="-uslm-sgm:P">
<num value="13">(13) </num>
<heading>Required insurance, debt cancellation or debt suspension coverage.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/b/13/i" class="inline">
<num value="i"> (i)</num>
<content> A fee for insurance described in <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> or debt cancellation or suspension coverage described in <ref href="/us/cfr/t12/s226.4/b/10">§ 226.4(b)(10)</ref>, if the insurance or debt cancellation or suspension coverage is required as part of the plan; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/13/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A cross reference to any additional information provided about the insurance or coverage accompanying the application or solicitation, as applicable.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/14" style="-uslm-sgm:P">
<num value="14">(14) </num>
<heading>Available credit.</heading>
<content> If a card issuer requires fees for the issuance or availability of credit described in paragraph (b)(2) of this section, or requires a security deposit for such credit, and the total amount of those required fees and/or security deposit that will be imposed and charged to the account when the account is opened is 15 percent or more of the minimum credit limit for the card, a card issuer must disclose the available credit remaining after these fees or security deposit are debited to the account, assuming that the consumer receives the minimum credit limit. In determining whether the 15 percent threshold test is met, the issuer must only consider fees for issuance or availability of credit, or a security deposit, that are required. If fees for issuance or availability are optional, these fees should not be considered in determining whether the disclosure must be given. Nonetheless, if the 15 percent threshold test is met, the issuer in providing the disclosure must disclose the amount of available credit calculated by excluding those optional fees, and the available credit including those optional fees. This paragraph does not apply with respect to fees or security deposits that are not debited to the account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b/15" style="-uslm-sgm:P">
<num value="15">(15) </num>
<heading>Web site reference.</heading>
<content> A reference to the Web site established by the Board and a statement that consumers may obtain on the Web site information about shopping for and using credit cards.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Direct mail and electronic applications and solicitations—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/c/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<content> The card issuer shall disclose the applicable items in paragraph (b) of this section on or with an application or solicitation that is mailed to consumers or provided to consumers in electronic form.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Accuracy.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/c/2/i" class="inline">
<num value="i"> (i)</num>
<content> Disclosures in direct mail applications and solicitations must be accurate as of the time the disclosures are mailed. An accurate variable annual percentage rate is one in effect within 60 days before mailing.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Disclosures provided in electronic form must be accurate as of the time they are sent, in the case of disclosures sent to a consumer's e-mail address, or as of the time they are viewed by the public, in the case of disclosures made available at a location such as a card issuer's Web site. An accurate variable annual percentage rate provided in electronic form is one in effect within 30 days before it is sent to a consumer's e-mail address, or viewed by the public, as applicable.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Telephone applications and solicitations—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/d/1" class="inline">
<num value="1">(1) </num>
<heading>Oral disclosure.</heading>
<content> The card issuer shall disclose orally the information in paragraphs (b)(1) through (7) and (b)(14) of this section, to the extent applicable, in a telephone application or solicitation initiated by the card issuer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Alternative disclosure.</heading>
<chapeau> The oral disclosure under paragraph (d)(1) of this section need not be given if the card issuer either:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/i/A" class="inline">
<num value="A">(A)</num>
<content> Does not impose a fee described in paragraph (b)(2) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Imposes such a fee but provides the consumer with a right to reject the plan consistent with <ref href="/us/cfr/t12/s226.5/b/1/iv">§ 226.5(b)(1)(iv)</ref>; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The card issuer discloses in writing within 30 days after the consumer requests the card (but in no event later than the delivery of the card) the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The applicable information in paragraph (b) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> As applicable, the fact that the consumer has the right to reject the plan and not be obligated to pay fees described in paragraph (b)(2) or any <?page num="344"?>other fees or charges until the consumer has used the account or made a payment on the account after receiving a billing statement.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Accuracy.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/d/3/i" class="inline">
<num value="i"> (i)</num>
<content> The oral disclosures under paragraph (d)(1) of this section must be accurate as of the time they are given.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The alternative disclosures under paragraph (d)(2) of this section generally must be accurate as of the time they are mailed or delivered. A variable annual percentage rate is one that is accurate if it was:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/d/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> In effect at the time the disclosures are mailed or delivered; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In effect as of a specified date (which rate is then updated from time to time, but no less frequently than each calendar month).</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Applications and solicitations made available to general public.</heading>
<chapeau> The card issuer shall provide disclosures, to the extent applicable, on or with an application or solicitation that is made available to the general public, including one contained in a catalog, magazine, or other generally available publication. The disclosures shall be provided in accordance with paragraph (e)(1) or (e)(2) of this section.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/e/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Disclosure of required credit information.</heading>
<chapeau> The card issuer may disclose in a prominent location on the application or solicitation the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The applicable information in paragraph (b) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The date the required information was printed, including a statement that the required information was accurate as of that date and is subject to change after that date; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that the consumer should contact the card issuer for any change in the required information since it was printed, and a toll-free telephone number or a mailing address for that purpose.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>No disclosure of credit information.</heading>
<chapeau> If none of the items in paragraph (b) of this section is provided on or with the application or solicitation, the card issuer may state in a prominent location on the application or solicitation the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> There are costs associated with the use of the card; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The consumer may contact the card issuer to request specific information about the costs, along with a toll-free telephone number and a mailing address for that purpose.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Prompt response to requests for information.</heading>
<content> Upon receiving a request for any of the information referred to in this paragraph, the card issuer shall promptly and fully disclose the information requested.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Accuracy.</heading>
<content> The disclosures given pursuant to paragraph (e)(1) of this section must be accurate as of the date of printing. A variable annual percentage rate is accurate if it was in effect within 30 days before printing.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>In-person applications and solicitations.</heading>
<content> A card issuer shall disclose the information in paragraph (b) of this section, to the extent applicable, on or with an application or solicitation that is initiated by the card issuer and given to the consumer in person. A card issuer complies with the requirements of this paragraph if the issuer provides disclosures in accordance with paragraph (c)(1) or (e)(1) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Balance computation methods defined.</heading>
<chapeau> The following methods may be described by name. Methods that differ due to variations such as the allocation of payments, whether the finance charge begins to accrue on the transaction date or the date of posting the transaction, the existence or length of a grace period, and whether the balance is adjusted by charges such as late payment fees, annual fees and unpaid finance charges do not constitute separate balance computation methods.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<paragraph identifier="/us/cfr/t12/s226.5/g/1/i" class="inline">
<num value="i">(i) </num>
<heading>Average daily balance (including new purchases).</heading>
<content> This balance is figured by adding the outstanding balance (including new purchases and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/g/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Average daily balance (excluding new purchases).</heading>
<content> This balance is figured by adding the outstanding balance (excluding new purchases and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Adjusted balance.</heading>
<content> This balance is figured by deducting payments and credits made during the billing cycle from the outstanding balance at the beginning of the billing cycle.
<?page num="345"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/g/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Previous balance.</heading>
<content> This balance is the outstanding balance at the beginning of the billing cycle.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/g/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Daily balance.</heading>
<content> For each day in the billing cycle, this balance is figured by taking the beginning balance each day, adding any new purchases, and subtracting any payment and credits.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7797">75 FR 7797</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/75/37568">75 FR 37568</ref>, <date date="2010-06-26" role="amended">June 26, 2010</date>; <ref href="/us/fr/76/22999">76 FR 22999</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.5">
<num value="226.5" style="-uslm-sgm:SECTNO">§ 226.5b </num>
<heading style="-uslm-sgm:SUBJECT">Requirements for home equity plans. </heading>
<chapeau style="-uslm-sgm:P">The requirements of this section apply to open-end credit plans secured by the consumer's dwelling. For purposes of this section, an annual percentage rate is the annual percentage rate corresponding to the periodic rate as determined under <ref href="/us/cfr/t12/s226.14/b">§ 226.14(b)</ref>. </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Form of disclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.5/a/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<content> The disclosures required by paragraph (d) of this section shall be made clearly and conspicuously and shall be grouped together and segregated from all unrelated information. The disclosures may be provided on the application form or on a separate form. The disclosure described in paragraph (d)(4)(iii), the itemization of third-party fees described in paragraph (d)(8), and the variable-rate information described in paragraph (d)(12) of this section may be provided separately from the other required disclosures. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Precedence of certain disclosures.</heading>
<content> The disclosures described in paragraph (d)(1) through (4)(ii) of this section shall precede the other required disclosures. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> For an application that is accessed by the consumer in electronic form, the disclosures required under this section may be provided to the consumer in electronic form on or with the application.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Time of disclosures.</heading>
<content>
<p> The disclosures and brochure required by paragraphs (d) and (e) of this section shall be provided at the time an application is provided to the consumer. <ref id="fnd3e21913" idref="fnd3e21919" style="-uslm-sgm:SU">10a</ref>
</p>
<footnote id="fnd3e21919" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e21913" style="-uslm-sgm:SU">10a</ref> The disclosures and the brochure may be delivered or placed in the mail not later than three business days following receipt of a consumer's application in the case of applications contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Duties of third parties—</heading>
<content>Persons other than the creditor who provide applications to consumers for home equity plans must provide the brochure required under paragraph (e) of this section at the time an application is provided. If such persons have the disclosures required under paragraph (d) of this section for a creditor's home equity plan, they also shall provide the disclosures at such time. <sup style="-uslm-sgm:SU">10a</sup>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Content of disclosures.</heading>
<chapeau> The creditor shall provide the following disclosures, as applicable: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/d/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Retention of information.</heading>
<content> A statement that the consumer should make or otherwise retain a copy of the disclosures. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Conditions for disclosed terms.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/i" class="inline">
<num value="i"> (i)</num>
<content> A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that, if a disclosed term changes (other than a change due to fluctuations in the index in a variable-rate plan) prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Security interest and risk to home.</heading>
<content> A statement that the creditor will acquire a security interest in the consumer's dwelling and that loss of the dwelling may occur in the event of default. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Possible actions by creditor.</heading>
<paragraph identifier="/us/cfr/t12/s226.5/d/4/i" class="inline">
<num value="i"> (i)</num>
<content> A statement that, under certain conditions, the creditor may terminate the plan and require payment of the outstanding balance in full in a single payment and impose fees upon termination; prohibit additional extensions of credit or reduce the credit limit; and, as specified in the initial agreement, implement certain changes in the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that the consumer may receive, upon request, information about the conditions under which such actions may occur.
<?page num="346"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> In lieu of the disclosure required under paragraph (d)(4)(ii) of this section, a statement of such conditions. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Payment terms.</heading>
<chapeau> The payment terms of the plan, including: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/d/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The length of the draw period and any repayment period. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> An explanation of how the minimum periodic payment will be determined and the timing of the payments. If paying only the minimum periodic payments may not repay any of the principal or may repay less than the outstanding balance, a statement of this fact, as well as a statement that a balloon payment may result. <ref id="fnd3e21972" idref="fnd3e21977" style="-uslm-sgm:SU">10b</ref>
</p>
<footnote id="fnd3e21977" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e21972" style="-uslm-sgm:SU">10b</ref> A balloon payment results if paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time, and the consumer must repay the entire outstanding balance at such time.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content>
<p> An example, based on a $10,000 outstanding balance and a recent annual percentage rate, <ref id="fnd3e21982" idref="fnd3e21989" style="-uslm-sgm:SU">10c</ref> showing the minimum periodic payment, any balloon payment, and the time it would take to repay the $10,000 outstanding balance if the consumer made only those payments and obtained no additional extensions of credit. </p>
<footnote id="fnd3e21989" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e21982" style="-uslm-sgm:SU">10c</ref> For fixed-rate plans, a recent annual percentage rate is a rate that has been in effect under the plan within the twelve months preceding the date the disclosures are provided to the consumer. For variable-rate plans, a recent annual percentage rate is the most recent rate provided in the historical example described in paragraph (d)(12)(xi) of this section or a rate that has been in effect under the plan since the date of the most recent rate in the table.</p>
</content>
</footnote>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">If different payment terms may apply to the draw and any repayment period, or if different payment terms may apply within either period, the disclosures shall reflect the different payment terms. </p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Annual percentage rate.</heading>
<content> For fixed-rate plans, a recent annual percentage rate <sup style="-uslm-sgm:SU">10c</sup> imposed under the plan and a statement that the rate does not include costs other than interest. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Fees imposed by creditor.</heading>
<content> An itemization of any fees imposed by the creditor to open, use, or maintain the plan, stated as a dollar amount or percentage, and when such fees are payable. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Fees imposed by third parties to open a plan.</heading>
<content> A good faith estimate, stated as a single dollar amount or range, of any fees that may be imposed by persons other than the creditor to open the plan, as well as a statement that the consumer may receive, upon request, a good faith itemization of such fees. In lieu of the statement, the itemization of such fees may be provided. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Negative amortization.</heading>
<content> A statement that negative amortization may occur and that negative amortization increases the principal balance and reduces the consumer's equity in the dwelling. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Transaction requirements.</heading>
<content> Any limitations on the number of extensions of credit and the amount of credit that may be obtained during any time period, as well as any minimum outstanding balance and minimum draw requirements, stated as dollar amounts or percentages. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/11" style="-uslm-sgm:P">
<num value="11">(11) </num>
<heading>Tax implications.</heading>
<content> A statement that the consumer should consult a tax advisor regarding the deductibility of interest and charges under the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12" style="-uslm-sgm:P">
<num value="12">(12) </num>
<heading>Disclosures for variable-rate plans.</heading>
<chapeau> For a plan in which the annual percentage rate is variable, the following disclosures, as applicable: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The fact that the annual percentage rate, payment, or term may change due to the variable-rate feature. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that the annual percentage rate does not include costs other than interest. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The index used in making rate adjustments and a source of information about the index. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> An explanation of how the annual percentage rate will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> A statement that the consumer should ask about the current index value, margin, discount or premium, and annual percentage rate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> A statement that the initial annual percentage rate is not based on the index and margin used to make later rate adjustments, and the period of time such initial rate will be in effect. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> The frequency of changes in the annual percentage rate.
<?page num="347"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> Any rules relating to changes in the index value and the annual percentage rate and resulting changes in the payment amount, including, for example, an explanation of payment limitations and rate carryover. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<content> A statement of any annual or more frequent periodic limitations on changes in the annual percentage rate (or a statement that no annual limitation exists), as well as a statement of the maximum annual percentage rate that may be imposed under each payment option. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/x" style="-uslm-sgm:P">
<num value="x">(x)</num>
<content> The minimum periodic payment required when the maximum annual percentage rate for each payment option is in effect for a $10,000 outstanding balance, and a statement of the earliest date or time the maximum rate may be imposed. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/xi" style="-uslm-sgm:P">
<num value="xi">(xi)</num>
<content> An historical example, based on a $10,000 extension of credit, illustrating how annual percentage rates and payments would have been affected by index value changes implemented according to the terms of the plan. The historical example shall be based on the most recent 15 years of index values (selected for the same time period each year) and shall reflect all significant plan terms, such as negative amortization, rate carryover, rate discounts, and rate and payment limitations, that would have been affected by the index movement during the period. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/d/12/xii" style="-uslm-sgm:P">
<num value="xii">(xii)</num>
<content> A statement that rate information will be provided on or with each periodic statement. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Brochure.</heading>
<content> The home equity brochure published by the Board or a suitable substitute shall be provided. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Limitations on home equity plans.</heading>
<chapeau> No creditor may, by contract or otherwise: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Change the annual percentage rate unless: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Such change is based on an index that is not under the creditor's control; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Such index is available to the general public. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Terminate a plan and demand repayment of the entire outstanding balance in advance of the original term (except for reverse mortgage transactions that are subject to paragraph (f)(4) of this section) unless:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> There is fraud or material misrepresentation by the consumer in connection with the plan; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The consumer fails to meet the repayment terms of the agreement for any outstanding balance;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Any action or inaction by the consumer adversely affects the creditor's security for the plan, or any right of the creditor in such security; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Federal law dealing with credit extended by a depository institution to its executive officers specifically requires that as a condition of the plan the credit shall become due and payable on demand, provided that the creditor includes such a provision in the initial agreement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> Change any term, except that a creditor may: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Provide in the initial agreement that it may prohibit additional extensions of credit or reduce the credit limit during any period in which the maximum annual percentage rate is reached. A creditor also may provide in the initial agreement that specified changes will occur if a specified event takes place (for example, that the annual percentage rate will increase a specified amount if the consumer leaves the creditor's employment).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Change the index and margin used under the plan if the original index is no longer available, the new index has an historical movement substantially similar to that of the original index, and the new index and margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the original index became unavailable. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Make a specified change if the consumer specifically agrees to it in writing at that time. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Make a change that will unequivocally benefit the consumer throughout the remainder of the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Make an insignificant change to terms. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<chapeau> Prohibit additional extensions of credit or reduce the credit limit applicable to an agreement during any period in which: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/vi/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The value of the dwelling that secures the plan declines significantly below the dwelling's appraised value for purposes of the plan;
<?page num="348"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/vi/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The creditor reasonably believes that the consumer will be unable to fulfill the repayment obligations under the plan because of a material change in the consumer's financial circumstances; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/vi/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The consumer is in default of any material obligation under the agreement; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/vi/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The creditor is precluded by government action from imposing the annual percentage rate provided for in the agreement; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/vi/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> The priority of the creditor's security interest is adversely affected by government action to the extent that the value of the security interest is less than 120 percent of the credit line; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/3/vi/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> The creditor is notified by its regulatory agency that continued advances constitute an unsafe and unsound practice.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> For reverse mortgage transactions that are subject to <ref href="/us/cfr/t12/s226.33">§ 226.33</ref>, terminate a plan and demand repayment of the entire outstanding balance in advance of the original term except: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.5/f/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> In the case of default; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the consumer transfers title to the property securing the note; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If the consumer ceases using the property securing the note as the primary dwelling; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/f/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Upon the consumer's death.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Refund of fees.</heading>
<content> A creditor shall refund all fees paid by the consumer to anyone in connection with an application if any term required to be disclosed under paragraph (d) of this section changes (other than a change due to fluctuations in the index in a variable-rate plan) before the plan is opened and, as a result, the consumer elects not to open the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.5/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Imposition of nonrefundable fees.</heading>
<content>
<p> Neither a creditor nor any other person may impose a nonrefundable fee in connection with an application until three business days after the consumer receives the disclosures and brochure required under this section. <ref id="fnd3e22135" idref="fnd3e22140" style="-uslm-sgm:SU">10d</ref>
</p>
<footnote id="fnd3e22140" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e22135" style="-uslm-sgm:SU">10d</ref> If the disclosures and brochure are mailed to the consumer, the consumer is considered to have received them three business days after they are mailed.</p>
</content>
</footnote>
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/54/24686">54 FR 24686</ref>, <date date="1989-06-09">June 9, 1989</date>, as amended at <ref href="/us/fr/55/38312">55 FR 38312</ref>, <date date="1990-09-18" role="amended">Sept. 18, 1990</date>; <ref href="/us/fr/55/42148">55 FR 42148</ref>, <date date="1990-10-17" role="amended">Oct. 17, 1990</date>; <ref href="/us/fr/57/34681">57 FR 34681</ref>, <date date="1992-08-06" role="amended">Aug. 6, 1992</date>; <ref href="/us/fr/60/15471">60 FR 15471</ref>, <date date="1995-03-24" role="amended">Mar. 24, 1995</date>; <ref href="/us/fr/66/17338">66 FR 17338</ref>, <date date="2001-03-30" role="amended">Mar. 30, 2001</date>; <ref href="/us/fr/72/63474">72 FR 63474</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.6">
<num value="226.6" style="-uslm-sgm:SECTNO">§ 226.6</num>
<heading style="-uslm-sgm:SUBJECT">Account-opening disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.6/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Rules affecting home-equity plans.</heading>
<chapeau> The requirements of this paragraph (a) apply only to home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>. A creditor shall disclose the items in this section, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Finance charge.</heading>
<chapeau> The circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists within which any credit extended may be repaid without incurring a finance charge. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge when payment is received after the time period's expiration.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable,<ref id="fnd3e22164" idref="fnd3e22174" style="-uslm-sgm:SU">11</ref> and the corresponding annual percentage rate.<ref id="fnd3e22168" idref="fnd3e22179" style="-uslm-sgm:SU">12</ref> If a creditor offers a variable-rate plan, the creditor shall also disclose: the circumstances under which the rate(s) may increase; any limitations on the increase; and the effect(s) of an increase. When different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates shall apply shall also be disclosed. A creditor is not required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies.</p>
<footnote id="fnd3e22174" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22164" style="-uslm-sgm:SU">11</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e22179" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22168" style="-uslm-sgm:SU">12</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> An explanation of the method used to determine the balance on which the finance charge may be computed.
<?page num="349"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content>
<p> An explanation of how the amount of any finance charge will be determined,<ref id="fnd3e22187" idref="fnd3e22193" style="-uslm-sgm:SU">13</ref> including a description of how any finance charge other than the periodic rate will be determined.</p>
<footnote id="fnd3e22193" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22187" style="-uslm-sgm:SU">13</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Other charges.</heading>
<content> The amount of any charge other than a finance charge that may be imposed as part of the plan, or an explanation of how the charge will be determined.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Home-equity plan information.</heading>
<chapeau> The following disclosures described in <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref>, as applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/a/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A statement of the conditions under which the creditor may take certain action, as described in <ref href="/us/cfr/t12/s226.5b/d/4/i">§ 226.5b(d)(4)(i)</ref>, such as terminating the plan or changing the terms.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The payment information described in <ref href="/us/cfr/t12/s226.5b/d/5/i">§ 226.5b(d)(5)(i)</ref> and (ii) for both the draw period and any repayment period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that negative amortization may occur as described in <ref href="/us/cfr/t12/s226.5b/d/9">§ 226.5b(d)(9)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A statement of any transaction requirements as described in <ref href="/us/cfr/t12/s226.5b/d/10">§ 226.5b(d)(10)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> A statement regarding the tax implications as described in <ref href="/us/cfr/t12/s226.5b/d/11">§ 226.5b(d)(11)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> A statement that the annual percentage rate imposed under the plan does not include costs other than interest as described in <ref href="/us/cfr/t12/s226.5b/d/6">§ 226.5b(d)(6)</ref> and (d)(12)(ii).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/3/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> The variable-rate disclosures described in <ref href="/us/cfr/t12/s226.5b/d/12/viii">§ 226.5b(d)(12)(viii)</ref>, (d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well as the disclosure described in <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref>, unless the disclosures provided with the application were in a form the consumer could keep and included a representative payment example for the category of payment option chosen by the consumer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Security interests.</heading>
<content> The fact that the creditor has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Statement of billing rights.</heading>
<content> A statement that outlines the consumer's rights and the creditor's responsibilities under <ref href="/us/cfr/t12/s226.12/c">§§ 226.12(c)</ref> and 226.13 and that is substantially similar to the statement found in Model Form G–3 or, at the creditor's option, G–3(A), in appendix G to this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Rules affecting open-end (not home-secured) plans.</heading>
<chapeau> The requirements of paragraph (b) of this section apply to plans other than home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Form of disclosures; tabular format for open-end (not home-secured) plans.</heading>
<chapeau> Creditors must provide the account-opening disclosures specified in paragraph (b)(2)(i) through (b)(2)(v) (except for (b)(2)(i)(D)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>)) and (b)(2)(vii) through (b)(2)(xiv) of this section in the form of a table with the headings, content, and format substantially similar to any of the applicable tables in G–17 in appendix G.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/1/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Highlighting.</heading>
<content> In the table, any annual percentage rate required to be disclosed pursuant to paragraph (b)(2)(i) of this section; any introductory rate permitted to be disclosed pursuant to paragraph (b)(2)(i)(B) or required to be disclosed under paragraph (b)(2)(i)(F) of this section, any rate that will apply after a premium initial rate expires permitted to be disclosed pursuant to paragraph (b)(2)(i)(C) or required to be disclosed pursuant to paragraph (b)(2)(i)(F), and any fee or percentage amounts or maximum limits on fee amounts disclosed pursuant to paragraphs (b)(2)(ii), (b)(2)(iv), (b)(2)(vii) through (b)(2)(xii) of this section must be disclosed in bold text. However, bold text shall not be used for: The amount of any periodic fee disclosed pursuant to paragraph (b)(2) of this section that is not an annualized amount; and other annual percentage rates or fee amounts disclosed in the table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Location.</heading>
<content> Only the information required or permitted by paragraphs (b)(2)(i) through (v) (except for (b)(2)(i)(D)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>)) and (b)(2)(vii) through (xiv) of this section shall be in the table. Disclosures required by paragraphs (b)(2)(i)(D)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>), (b)(2)(i)(D)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>), (b)(2)(vi), and (b)(2)(xv) of this section shall be placed directly below the table. Disclosures required by paragraphs (b)(3) through (5) of this section that are not otherwise required to be in the table and other information may be presented with the account agreement or account-opening disclosure statement, provided such information appears outside the required table.
<?page num="350"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Fees that vary by state.</heading>
<content> Creditors that impose fees referred to in paragraphs (b)(2)(vii) through (b)(2)(xi) of this section that vary by state and that provide the disclosures required by paragraph (b) of this section in person at the time the open-end (not home-secured) plan is established in connection with financing the purchase of goods or services may, at the creditor's option, disclose in the account-opening table the specific fee applicable to the consumer's account, or the range of the fees, if the disclosure includes a statement that the amount of the fee varies by state and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the amount of the fee applicable to the consumer's account is disclosed. A creditor may not list fees for multiple states in the account-opening summary table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Fees based on a percentage.</heading>
<content> If the amount of any fee required to be disclosed under this section is determined on the basis of a percentage of another amount, the percentage used and the identification of the amount against which the percentage is applied may be disclosed instead of the amount of the fee.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Required disclosures for account-opening table for open-end (not home-secured) plans.</heading>
<chapeau> A creditor shall disclose the items in this section, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Annual percentage rate.</heading>
<chapeau> Each periodic rate that may be used to compute the finance charge on an outstanding balance for purchases, a cash advance, or a balance transfer, expressed as an annual percentage rate (as determined by <ref href="/us/cfr/t12/s226.14/b">§ 226.14(b)</ref>). When more than one rate applies for a category of transactions, the range of balances to which each rate is applicable shall also be disclosed. The annual percentage rate for purchases disclosed pursuant to this paragraph shall be in at least 16-point type, except for the following: A penalty rate that may apply upon the occurrence of one or more specific events.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/A" style="-uslm-sgm:P">
<num value="A">(A) </num>
<heading>Variable-rate information.</heading>
<content> If a rate disclosed under paragraph (b)(2)(i) of this section is a variable rate, the creditor shall also disclose the fact that the rate may vary and how the rate is determined. In describing how the applicable rate will be determined, the creditor must identify the type of index or formula that is used in setting the rate. The value of the index and the amount of the margin that are used to calculate the variable rate shall not be disclosed in the table. A disclosure of any applicable limitations on rate increases or decreases shall not be included in the table.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Discounted initial rates.</heading>
<content> If the initial rate is an introductory rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/ii">§ 226.16(g)(2)(ii)</ref>, the creditor must disclose the rate that would otherwise apply to the account pursuant to paragraph (b)(2)(i) of this section. Where the rate is not tied to an index or formula, the creditor must disclose the rate that will apply after the introductory rate expires. In a variable-rate account, the creditor must disclose a rate based on the applicable index or formula in accordance with the accuracy requirements of paragraph (b)(4)(ii)(G) of this section. Except as provided in paragraph (b)(2)(i)(F) of this section, the creditor is not required to, but may disclose in the table the introductory rate along with the rate that would otherwise apply to the account if the creditor also discloses the time period during which the introductory rate will remain in effect, and uses the term “introductory” or “intro” in immediate proximity to the introductory rate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/C" style="-uslm-sgm:P">
<num value="C">(C) </num>
<heading>Premium initial rate.</heading>
<content> If the initial rate is temporary and is higher than the rate that will apply after the temporary rate expires, the creditor must disclose the premium initial rate pursuant to paragraph (b)(2)(i) of this section. Consistent with paragraph (b)(2)(i) of this section, the premium initial rate for purchases must be in at least 16-point type. Except as provided in paragraph (b)(2)(i)(F) of this section, the creditor is not required to, but may disclose in the table the rate that will apply after the premium initial rate expires if the creditor also discloses the time period during which the premium initial rate will remain in effect. If the creditor also discloses in the table the rate that will apply after the premium initial rate for purchases expires, that rate also must be in at least 16-point type.
<?page num="351"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/D" style="-uslm-sgm:P">
<num value="D">(D) </num>
<heading>Penalty rates—</heading>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/D/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Except as provided in paragraph (b)(2)(i)(D)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) and (b)(2)(i)(D)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) of this section, if a rate may increase as a penalty for one or more events specified in the account agreement, such as a late payment or an extension of credit that exceeds the credit limit, the creditor must disclose pursuant to paragraph (b)(2)(i) of this section the increased rate that may apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect. If more than one penalty rate may apply, the creditor at its option may disclose the highest rate that could apply, instead of disclosing the specific rates or the range of rates that could apply.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/D/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Introductory rates.</heading>
<content> If the creditor discloses in the table an introductory rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/ii">§ 226.16(g)(2)(ii)</ref>, creditors must briefly disclose directly beneath the table the circumstances under which the introductory rate may be revoked, and the rate that will apply after the introductory rate is revoked.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/D/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Employee preferential rates.</heading>
<content> If a creditor discloses in the table a preferential annual percentage rate for which only employees of the creditor, employees of a third party, or other individuals with similar affiliations with the creditor or third party, such as executive officers, directors, or principal shareholders are eligible, the creditor must briefly disclose directly beneath the table the circumstances under which such preferential rate may be revoked, and the rate that will apply after such preferential rate is revoked.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/E" style="-uslm-sgm:P">
<num value="E">(E) </num>
<heading>Point of sale where APRs vary by state or based on creditworthiness.</heading>
<chapeau> Creditors imposing annual percentage rates that vary by state or based on the consumer's creditworthiness and providing the disclosures required by paragraph (b) of this section in person at the time the open-end (not home-secured) plan is established in connection with financing the purchase of goods or services may, at the creditor's option, disclose pursuant to paragraph (b)(2)(i) of this section in the account-opening table:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/E/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The specific annual percentage rate applicable to the consumer's account; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/E/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The range of the annual percentage rates, if the disclosure includes a statement that the annual percentage rate varies by state or will be determined based on the consumer's creditworthiness and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the annual percentage rate applicable to the consumer's account is disclosed. A creditor may not list annual percentage rates for multiple states in the account-opening table.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/F" style="-uslm-sgm:P">
<num value="F">(F) </num>
<heading>Credit card accounts under an open-end (not home-secured) consumer credit plan.</heading>
<chapeau> Notwithstanding paragraphs (b)(2)(i)(B) and (b)(2)(i)(C) of this section, for credit card accounts under an open-end (not home-secured) plan, issuers must disclose in the table—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/F/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Any introductory rate as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/ii">§ 226.16(g)(2)(ii)</ref> that would apply to the account, consistent with the requirements of paragraph (b)(2)(i)(B) of this section, and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/i/F/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any rate that would apply upon the expiration of a premium initial rate, consistent with the requirements of paragraph (b)(2)(i)(C) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Fees for issuance or availability.</heading>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/ii/A" class="inline">
<num value="A"> (A)</num>
<content> Any annual or other periodic fee that may be imposed for the issuance or availability of an open-end plan, including any fee based on account activity or inactivity; how frequently it will be imposed; and the annualized amount of the fee.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Any non-periodic fee that relates to opening the plan. A creditor must disclose that the fee is a one-time fee.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Fixed finance charge; minimum interest charge.</heading>
<content> Any fixed finance charge and a brief description of the charge. Any minimum interest charge if it exceeds $1.00 that could be imposed during a billing cycle, and a brief description of the charge. The $1.00 threshold amount shall be adjusted periodically by the Board to reflect changes in the Consumer Price Index. The Board shall calculate each year a price level adjusted minimum interest charge using the Consumer Price Index in effect on the June 1 of that year. When the cumulative change in the adjusted minimum value derived from applying the <?page num="352"?>annual Consumer Price level to the current minimum interest charge threshold has risen by a whole dollar, the minimum interest charge will be increased by $1.00. The creditor may, at its option, disclose in the table minimum interest charges below this threshold.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Transaction charges.</heading>
<content> Any transaction charge imposed by the creditor for use of the open-end plan for purchases.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Grace period.</heading>
<content> The date by which or the period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate and any conditions on the availability of the grace period. If no grace period is provided, that fact must be disclosed. If the length of the grace period varies, the creditor may disclose the range of days, the minimum number of days, or the average number of the days in the grace period, if the disclosure is identified as a range, minimum, or average. In disclosing in the tabular format a grace period that applies to all features on the account, the phrase “How to Avoid Paying Interest” shall be used as the heading for the row describing the grace period. If a grace period is not offered on all features of the account, in disclosing this fact in the tabular format, the phrase “Paying Interest” shall be used as the heading for the row describing this fact.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi) </num>
<heading>Balance computation method.</heading>
<content> The name of the balance computation method listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> that is used to determine the balance on which the finance charge is computed for each feature, or an explanation of the method used if it is not listed, along with a statement that an explanation of the method(s) required by paragraph (b)(4)(i)(D) of this section is provided with the account-opening disclosures. In determining which balance computation method to disclose, the creditor shall assume that credit extended will not be repaid within any grace period, if any.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii) </num>
<heading>Cash advance fee.</heading>
<content> Any fee imposed for an extension of credit in the form of cash or its equivalent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/viii" style="-uslm-sgm:P">
<num value="viii">(viii) </num>
<heading>Late payment fee.</heading>
<content> Any fee imposed for a late payment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/ix" style="-uslm-sgm:P">
<num value="ix">(ix) </num>
<heading>Over-the-limit fee.</heading>
<content> Any fee imposed for exceeding a credit limit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/x" style="-uslm-sgm:P">
<num value="x">(x) </num>
<heading>Balance transfer fee.</heading>
<content> Any fee imposed to transfer an outstanding balance.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/xi" style="-uslm-sgm:P">
<num value="xi">(xi) </num>
<heading>Returned-payment fee.</heading>
<content> Any fee imposed by the creditor for a returned payment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/xii" style="-uslm-sgm:P">
<num value="xii">(xii) </num>
<heading>Required insurance, debt cancellation or debt suspension coverage.</heading>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/xii/A" class="inline">
<num value="A"> (A)</num>
<content> A fee for insurance described in <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> or debt cancellation or suspension coverage described in <ref href="/us/cfr/t12/s226.4/b/10">§ 226.4(b)(10)</ref>, if the insurance, or debt cancellation or suspension coverage is required as part of the plan; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/xii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A cross reference to any additional information provided about the insurance or coverage, as applicable.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/xiii" style="-uslm-sgm:P">
<num value="xiii">(xiii) </num>
<heading>Available credit.</heading>
<content> If a creditor requires fees for the issuance or availability of credit described in paragraph (b)(2)(ii) of this section, or requires a security deposit for such credit, and the total amount of those required fees and/or security deposit that will be imposed and charged to the account when the account is opened is 15 percent or more of the minimum credit limit for the plan, a creditor must disclose the available credit remaining after these fees or security deposit are debited to the account. The determination whether the 15 percent threshold is met must be based on the minimum credit limit for the plan. However, the disclosure provided under this paragraph must be based on the actual initial credit limit provided on the account. In determining whether the 15 percent threshold test is met, the creditor must only consider fees for issuance or availability of credit, or a security deposit, that are required. If fees for issuance or availability are optional, these fees should not be considered in determining whether the disclosure must be given. Nonetheless, if the 15 percent threshold test is met, the creditor in providing the disclosure must disclose the amount of available credit calculated by excluding those optional fees, and the available credit including those optional fees. The creditor shall also disclose that the consumer has the right to reject the plan and not be obligated to pay those fees or any other fee or charges until the consumer has used the account or made a payment on the account after receiving a periodic statement. This paragraph does not <?page num="353"?>apply with respect to fees or security deposits that are not debited to the account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/xiv" style="-uslm-sgm:P">
<num value="xiv">(xiv) </num>
<heading>Web site reference.</heading>
<content> For issuers of credit cards that are not charge cards, a reference to the Web site established by the Board and a statement that consumers may obtain on the Web site information about shopping for and using credit cards.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/2/xv" style="-uslm-sgm:P">
<num value="xv">(xv) </num>
<heading>Billing error rights reference.</heading>
<content> A statement that information about consumers' right to dispute transactions is included in the account-opening disclosures.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Disclosure of charges imposed as part of open-end (not home-secured) plans.</heading>
<chapeau> A creditor shall disclose, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> For charges imposed as part of an open-end (not home-secured) plan, the circumstances under which the charge may be imposed, including the amount of the charge or an explanation of how the charge is determined. For finance charges, a statement of when the charge begins to accrue and an explanation of whether or not any time period exists within which any credit that has been extended may be repaid without incurring the charge. If such a time period is provided, a creditor may, at its option and without disclosure, elect not to impose a finance charge when payment is received after the time period expires.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Charges imposed as part of the plan are:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Finance charges identified under <ref href="/us/cfr/t12/s226.4/a">§ 226.4(a)</ref> and <ref href="/us/cfr/t12/s226.4/b">§ 226.4(b)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Charges resulting from the consumer's failure to use the plan as agreed, except amounts payable for collection activity after default, attorney's fees whether or not automatically imposed, and post-judgment interest rates permitted by law.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Taxes imposed on the credit transaction by a state or other governmental body, such as documentary stamp taxes on cash advances.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Charges for which the payment, or nonpayment, affect the consumer's access to the plan, the duration of the plan, the amount of credit extended, the period for which credit is extended, or the timing or method of billing or payment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/ii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Charges imposed for terminating a plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/ii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> Charges for voluntary credit insurance, debt cancellation or debt suspension.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> Charges that are not imposed as part of the plan include:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A charge for a package of services that includes an open-end credit feature, if the fee is required whether or not the open-end credit feature is included and the non-credit services are not merely incidental to the credit feature.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/3/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Charges under <ref href="/us/cfr/t12/s226.4/e">§ 226.4(e)</ref> disclosed as specified.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Disclosure of rates for open-end (not home-secured) plans.</heading>
<chapeau> A creditor shall disclose, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> For each periodic rate that may be used to calculate interest:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/i/A" style="-uslm-sgm:P">
<num value="A">(A) </num>
<heading>Rates.</heading>
<content> The rate, expressed as a periodic rate and a corresponding annual percentage rate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Range of balances.</heading>
<content> The range of balances to which the rate is applicable; however, a creditor is not required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/i/C" style="-uslm-sgm:P">
<num value="C">(C) </num>
<heading>Type of transaction.</heading>
<content> The type of transaction to which the rate applies, if different rates apply to different types of transactions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/i/D" style="-uslm-sgm:P">
<num value="D">(D) </num>
<heading>Balance computation method.</heading>
<content> An explanation of the method used to determine the balance to which the rate is applied.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Variable-rate accounts.</heading>
<chapeau> For interest rate changes that are tied to increases in an index or formula (variable-rate accounts) specifically set forth in the account agreement:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The fact that the annual percentage rate may increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> How the rate is determined, including the margin.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The circumstances under which the rate may increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The frequency with which the rate may increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Any limitation on the amount the rate may change.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> The effect(s) of an increase.
<?page num="354"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/G" style="-uslm-sgm:P">
<num value="G">(G)</num>
<content> Except as specified in paragraph (b)(4)(ii)(H) of this section, a rate is accurate if it is a rate as of a specified date and this rate was in effect within the last 30 days before the disclosures are provided.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/ii/H" style="-uslm-sgm:P">
<num value="H">(H)</num>
<content> Creditors imposing annual percentage rates that vary according to an index that is not under the creditor's control that provide the disclosures required by paragraph (b) of this section in person at the time the open-end (not home-secured) plan is established in connection with financing the purchase of goods or services may disclose in the table a rate, or range of rates to the extent permitted by <ref href="/us/cfr/t12/s226.6/b/2/i/E">§ 226.6(b)(2)(i)(E)</ref>, that was in effect within the last 90 days before the disclosures are provided, along with a reference directing the consumer to the account agreement or other disclosure provided with the account-opening table where an annual percentage rate applicable to the consumer's account in effect within the last 30 days before the disclosures are provided is disclosed.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Rate changes not due to index or formula.</heading>
<chapeau> For interest rate changes that are specifically set forth in the account agreement and not tied to increases in an index or formula:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The initial rate (expressed as a periodic rate and a corresponding annual percentage rate) required under paragraph (b)(4)(i)(A) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> How long the initial rate will remain in effect and the specific events that cause the initial rate to change.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The rate (expressed as a periodic rate and a corresponding annual percentage rate) that will apply when the initial rate is no longer in effect and any limitation on the time period the new rate will remain in effect.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/iii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The balances to which the new rate will apply.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/4/iii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> The balances to which the current rate at the time of the change will apply.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Additional disclosures for open-end (not home-secured) plans.</heading>
<chapeau> A creditor shall disclose, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.6/b/5/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Voluntary credit insurance, debt cancellation or debt suspension.</heading>
<content> The disclosures in <ref href="/us/cfr/t12/s226.4/d/1/i">§§ 226.4(d)(1)(i)</ref> and (d)(1)(ii) and (d)(3)(i) through (d)(3)(iii) if the creditor offers optional credit insurance or debt cancellation or debt suspension coverage that is identified in <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> or (b)(10).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Security interests.</heading>
<content> The fact that the creditor has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.6/b/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Statement of billing rights.</heading>
<content> A statement that outlines the consumer's rights and the creditor's responsibilities under <ref href="/us/cfr/t12/s226.12/c">§§ 226.12(c)</ref> and 226.13 and that is substantially similar to the statement found in Model Form G–3(A) in appendix G to this part.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7800">75 FR 7800</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/75/37568">75 FR 37568</ref>, <date date="2010-06-26" role="amended">June 26, 2010</date>; <ref href="/us/fr/76/22999">76 FR 22999</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.7">
<num value="226.7" style="-uslm-sgm:SECTNO">§ 226.7</num>
<heading style="-uslm-sgm:SUBJECT">Periodic statement.</heading>
<chapeau style="-uslm-sgm:P">The creditor shall furnish the consumer with a periodic statement that discloses the following items, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Rules affecting home-equity plans.</heading>
<chapeau> The requirements of paragraph (a) of this section apply only to home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>. Alternatively, a creditor subject to this paragraph may, at its option, comply with any of the requirements of paragraph (b) of this section; however, any creditor that chooses not to provide a disclosure under paragraph (a)(7) of this section must comply with paragraph (b)(6) of this section.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Previous balance.</heading>
<content> The account balance outstanding at the beginning of the billing cycle.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Identification of transactions.</heading>
<content> An identification of each credit transaction in accordance with <ref href="/us/cfr/t12/s226.8">§ 226.8</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Credits.</heading>
<content> Any credit to the account during the billing cycle, including the amount and the date of crediting. The date need not be provided if a delay in accounting does not result in any finance or other charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Periodic rates.</heading>
<paragraph identifier="/us/cfr/t12/s226.7/a/4/i" class="inline">
<num value="i"> (i)</num>
<content>
<p> Except as provided in paragraph (a)(4)(ii) of this section, each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable,<ref id="fnd3e22595" idref="fnd3e22607" style="-uslm-sgm:SU">14</ref> and the corresponding annual percentage rate.<ref id="fnd3e22599" idref="fnd3e22612" style="-uslm-sgm:SU">15</ref> If no finance charge is imposed when the outstanding balance is less than a certain <?page num="355"?>amount, the creditor is not required to disclose that fact, or the balance below which no finance charge will be imposed. If different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates apply shall also be disclosed. For variable-rate plans, the fact that the periodic rate(s) may vary.</p>
<footnote id="fnd3e22607" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22595" style="-uslm-sgm:SU">14</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e22612" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22599" style="-uslm-sgm:SU">15</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Exception.</heading>
<content> An annual percentage rate that differs from the rate that would otherwise apply and is offered only for a promotional period need not be disclosed except in periods in which the offered rate is actually applied.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Balance on which finance charge computed.</heading>
<content> The amount of the balance to which a periodic rate was applied and an explanation of how that balance was determined. When a balance is determined without first deducting all credits and payments made during the billing cycle, the fact and the amount of the credits and payments shall be disclosed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Amount of finance charge and other charges.</heading>
<chapeau> Creditors may comply with paragraphs (a)(6) of this section, or with paragraph (b)(6) of this section, at their option.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/a/6/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Finance charges.</heading>
<content> The amount of any finance charge debited or added to the account during the billing cycle, using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge.</inline> The components of the finance charge shall be individually itemized and identified to show the amount(s) due to the application of any periodic rates and the amounts(s) of any other type of finance charge. If there is more than one periodic rate, the amount of the finance charge attributable to each rate need not be separately itemized and identified.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Other charges.</heading>
<content> The amounts, itemized and identified by type, of any charges other than finance charges debited to the account during the billing cycle.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Annual percentage rate.</heading>
<content> At a creditor's option, when a finance charge is imposed during the billing cycle, the annual percentage rate(s) determined under <ref href="/us/cfr/t12/s226.14/c">§ 226.14(c)</ref> using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate.</inline>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Grace period.</heading>
<content> The date by which or the time period within which the new balance or any portion of the new balance must be paid to avoid additional finance charges. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge if payment is received after the time period's expiration.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Address for notice of billing errors.</heading>
<content> The address to be used for notice of billing errors. Alternatively, the address may be provided on the billing rights statement permitted by <ref href="/us/cfr/t12/s226.9/a/2">§ 226.9(a)(2)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/a/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Closing date of billing cycle; new balance.</heading>
<content> The closing date of the billing cycle and the account balance outstanding on that date.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Rules affecting open-end (not home-secured) plans.</heading>
<chapeau> The requirements of paragraph (b) of this section apply only to plans other than home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Previous balance.</heading>
<content> The account balance outstanding at the beginning of the billing cycle.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Identification of transactions.</heading>
<content> An identification of each credit transaction in accordance with <ref href="/us/cfr/t12/s226.8">§ 226.8</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Credits.</heading>
<content> Any credit to the account during the billing cycle, including the amount and the date of crediting. The date need not be provided if a delay in crediting does not result in any finance or other charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Periodic rates.</heading>
<paragraph identifier="/us/cfr/t12/s226.7/b/4/i" class="inline">
<num value="i"> (i)</num>
<content> Except as provided in paragraph (b)(4)(ii) of this section, each periodic rate that may be used to compute the interest charge expressed as an annual percentage rate and using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual Percentage Rate,</inline> along with the range of balances to which it is applicable. If no interest charge is imposed when the outstanding balance is less than a certain amount, the creditor is not required to disclose that fact, or the balance below which no interest charge will be imposed. The types of transactions to which the periodic rates apply shall also be disclosed. For variable-rate plans, the fact that the annual percentage rate may vary.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Exception.</heading>
<content> A promotional rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/i">§ 226.16(g)(2)(i)</ref>, is required to be disclosed only in periods in which the offered rate is actually applied.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Balance on which finance charge computed.</heading>
<content> The amount of the balance to which a periodic rate was applied and an explanation of how that balance was <?page num="356"?>determined, using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balance Subject to Interest Rate.</inline> When a balance is determined without first deducting all credits and payments made during the billing cycle, the fact and the amount of the credits and payments shall be disclosed. As an alternative to providing an explanation of how the balance was determined, a creditor that uses a balance computation method identified in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> may, at the creditor's option, identify the name of the balance computation method and provide a toll-free telephone number where consumers may obtain from the creditor more information about the balance computation method and how resulting interest charges were determined. If the method used is not identified in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref>, the creditor shall provide a brief explanation of the method used.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Charges imposed.</heading>
<paragraph identifier="/us/cfr/t12/s226.7/b/6/i" class="inline">
<num value="i"> (i)</num>
<content> The amounts of any charges imposed as part of a plan as stated in <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref>, grouped together, in proximity to transactions identified under paragraph (b)(2) of this section, substantially similar to Sample G–18(A) in appendix G to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Interest.</heading>
<content> Finance charges attributable to periodic interest rates, using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest Charge,</inline> must be grouped together under the heading <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest Charged,</inline> itemized and totaled by type of transaction, and a total of finance charges attributable to periodic interest rates, using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total Interest,</inline> must be disclosed for the statement period and calendar year to date, using a format substantially similar to Sample G–18(A) in appendix G to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Fees.</heading>
<content> Charges imposed as part of the plan other than charges attributable to periodic interest rates must be grouped together under the heading <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees,</inline> identified consistent with the feature or type, and itemized, and a total of charges, using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees,</inline> must be disclosed for the statement period and calendar year to date, using a format substantially similar to Sample G–18(A) in appendix G to this part.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Change-in-terms and increased penalty rate summary for open-end (not home-secured) plans.</heading>
<content> Creditors that provide a change-in-terms notice required by <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, or a rate increase notice required by <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref>, on or with the periodic statement, must disclose the information in <ref href="/us/cfr/t12/s226.9/c/2/iv/A">§ 226.9(c)(2)(iv)(A)</ref> and (c)(2)(iv)(B) (if applicable) or <ref href="/us/cfr/t12/s226.9/g/3/i">§ 226.9(g)(3)(i)</ref> on the periodic statement in accordance with the format requirements in <ref href="/us/cfr/t12/s226.9/c/2/iv/D">§ 226.9(c)(2)(iv)(D)</ref>, and <ref href="/us/cfr/t12/s226.9/g/3/ii">§ 226.9(g)(3)(ii)</ref>. See Forms G–18(F) and G–18(G) in appendix G to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Grace period.</heading>
<content> The date by which or the time period within which the new balance or any portion of the new balance must be paid to avoid additional finance charges. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge if payment is received after the time period's expiration.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/9" style="-uslm-sgm:P">
<num value="9">(9) </num>
<heading>Address for notice of billing errors.</heading>
<content> The address to be used for notice of billing errors. Alternatively, the address may be provided on the billing rights statement permitted by <ref href="/us/cfr/t12/s226.9/a/2">§ 226.9(a)(2)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/10" style="-uslm-sgm:P">
<num value="10">(10) </num>
<heading>Closing date of billing cycle; new balance.</heading>
<content> The closing date of the billing cycle and the account balance outstanding on that date. The new balance must be disclosed in accordance with the format requirements of paragraph (b)(13) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/11" style="-uslm-sgm:P">
<num value="11">(11) </num>
<heading>Due date; late payment costs.</heading>
<paragraph identifier="/us/cfr/t12/s226.7/b/11/i" class="inline">
<num value="i"> (i)</num>
<chapeau> Except as provided in paragraph (b)(11)(ii) of this section and in accordance with the format requirements in paragraph (b)(13) of this section, for a credit card account under an open-end (not home-secured) consumer credit plan, a card issuer must provide on each periodic statement:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/b/11/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The due date for a payment. The due date disclosed pursuant to this paragraph shall be the same day of the month for each billing cycle.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/11/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The amount of any late payment fee and any increased periodic rate(s) (expressed as an annual percentage rate(s)) that may be imposed on the account as a result of a late payment. If a range of late payment fees may be assessed, the card issuer may state the range of fees, or the highest fee and an indication that the fee imposed could be lower. If the rate may be increased for more than one feature or balance, the card issuer may state the range of rates or the highest rate that could apply and at the issuer's option an indication that the rate imposed could be lower.
<?page num="357"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/11/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Exception.</heading>
<chapeau> The requirements of paragraph (b)(11)(i) of this section do not apply to the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/b/11/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Periodic statements provided solely for charge card accounts; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/11/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Periodic statements provided for a charged-off account where payment of the entire account balance is due immediately.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12" style="-uslm-sgm:P">
<num value="12">(12) </num>
<heading>Repayment disclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraphs (b)(12)(ii) and (b)(12)(v) of this section, for a credit card account under an open-end (not home-secured) consumer credit plan, a card issuer must provide the following disclosures on each periodic statement:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The following statement with a bold heading: “Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance;”</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The minimum payment repayment estimate, as described in appendix M1 to this part. If the minimum payment repayment estimate is less than 2 years, the card issuer must disclose the estimate in months. Otherwise, the estimate must be disclosed in years and rounded to the nearest whole year;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The minimum payment total cost estimate, as described in appendix M1 to this part. The minimum payment total cost estimate must be rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> A statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement. A statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only minimum payments are made and no other amounts are added to the balance;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services consistent with paragraph (b)(12)(iv) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/1" class="inline">
<num value="1">(1)</num>
<chapeau> Except as provided in paragraph (b)(12)(i)(F)(2) of this section, the following disclosures:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The estimated monthly payment for repayment in 36 months, as described in appendix M1 to this part. The estimated monthly payment for repayment in 36 months must be rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The total cost estimate for repayment in 36 months, as described in appendix M1 to this part. The total cost estimate for repayment in 36 months must be rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The savings estimate for repayment in 36 months, as described in appendix M1 to this part. The savings estimate for repayment in 36 months must be rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> The requirements of paragraph (b)(12)(i)(F)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) of this section do not apply to a periodic statement in any of the following circumstances:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The minimum payment repayment estimate that is disclosed on the periodic statement pursuant to paragraph (b)(12)(i)(B) of this section after rounding is three years or less;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The estimated monthly payment for repayment in 36 months, as described in appendix M1 to this part, after rounding as set forth in paragraph (b)(12)(f)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i</inline>) of this section that is calculated for a particular billing cycle is less than the minimum payment required for the plan for that billing cycle; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/i/F/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A billing cycle where an account has both a balance in a revolving feature where the required minimum payments for this feature will not amortize that balance in a fixed amount of <?page num="358"?>time specified in the account agreement and a balance in a fixed repayment feature where the required minimum payment for this fixed repayment feature will amortize that balance in a fixed amount of time specified in the account agreement which is less than 36 months.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Negative or no amortization.</heading>
<chapeau> If negative or no amortization occurs when calculating the minimum payment repayment estimate as described in appendix M1 of this part, a card issuer must provide the following disclosures on the periodic statement instead of the disclosures set forth in paragraph (b)(12)(i) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The following statement: “Minimum Payment Warning: Even if you make no more charges using this card, if you make only the minimum payment each month we estimate you will never pay off the balance shown on this statement because your payment will be less than the interest charged each month”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The following statement: “If you make more than the minimum payment each period, you will pay less in interest and pay off your balance sooner”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The estimated monthly payment for repayment in 36 months, as described in appendix M1 to this part. The estimated monthly payment for repayment in 36 months must be rounded either to the nearest whole dollar or to the nearest cent, at the issuer's option;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> A statement that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/12/ii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services consistent with paragraph (b)(12)(iv) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/13" style="-uslm-sgm:P">
<num value="13">(13) </num>
<heading>Format requirements.</heading>
<content> The due date required by paragraph (b)(11) of this section shall be disclosed on the front of the first page of the periodic statement. The amount of the late payment fee and the annual percentage rate(s) required by paragraph (b)(11) of this section shall be stated in close proximity to the due date. The ending balance required by paragraph (b)(10) of this section and the disclosures required by paragraph (b)(12) of this section shall be disclosed closely proximate to the minimum payment due. The due date, late payment fee and annual percentage rate, ending balance, minimum payment due, and disclosures required by paragraph (b)(12) of this section shall be grouped together. Sample G–18(D) in appendix G to this part sets forth an example of how these terms may be grouped.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.7/b/14" style="-uslm-sgm:P">
<num value="14">(14) </num>
<heading>Deferred interest or similar transactions.</heading>
<content> For accounts with an outstanding balance subject to a deferred interest or similar program, the date by which that outstanding balance must be paid in full in order to avoid the obligation to pay finance charges on such balance must be disclosed on the front of any page of each periodic statement issued during the deferred interest period beginning with the first periodic statement issued during the deferred interest period that reflects the deferred interest or similar transaction. The disclosure provided pursuant to this paragraph must be substantially similar to Sample G–18(H) in appendix G to this part.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7804">75 FR 7804</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/75/37568">75 FR 37568</ref>, <date date="2010-06-26" role="amended">June 26, 2010</date>; <ref href="/us/fr/76/23000">76 FR 23000</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.8">
<num value="226.8" style="-uslm-sgm:SECTNO">§ 226.8</num>
<heading style="-uslm-sgm:SUBJECT">Identifying transactions on periodic statements.</heading>
<chapeau>
<p style="-uslm-sgm:P">The creditor shall identify credit transactions on or with the first periodic statement that reflects the transaction by furnishing the following information, as applicable.<ref id="fnd3e22890" idref="fnd3e22895" style="-uslm-sgm:SU">16</ref>
</p>
<footnote id="fnd3e22895" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22890" style="-uslm-sgm:SU">16</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.8/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Sale credit.</heading>
<paragraph identifier="/us/cfr/t12/s226.8/a/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Except as provided in paragraph (a)(2) of this section, for each credit transaction involving the sale of property or services, the creditor must disclose the amount and date of the transaction, and either:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.8/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content>
<p> A brief identification <ref id="fnd3e22905" idref="fnd3e22915" style="-uslm-sgm:SU">17</ref> of the property or services purchased, for creditors and sellers that are the same or related; <ref id="fnd3e22909" idref="fnd3e22920" style="-uslm-sgm:SU">18</ref> or</p>
<footnote id="fnd3e22915" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22905" style="-uslm-sgm:SU">17</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e22920" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22909" style="-uslm-sgm:SU">18</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.8/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> The seller's name; and the city and state or foreign country where the <?page num="359"?>transaction took place.<ref id="fnd3e22927" idref="fnd3e22933" style="-uslm-sgm:SU">19</ref> The creditor may omit the address or provide any suitable designation that helps the consumer to identify the transaction when the transaction took place at a location that is not fixed; took place in the consumer's home; or was a mail, Internet, or telephone order.</p>
<footnote id="fnd3e22933" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22927" style="-uslm-sgm:SU">19</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.8/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Creditors need not comply with paragraph (a)(1) of this section if an actual copy of the receipt or other credit document is provided with the first periodic statement reflecting the transaction, and the amount of the transaction and either the date of the transaction to the consumer's account or the date of debiting the transaction are disclosed on the copy or on the periodic statement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.8/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Nonsale credit.</heading>
<content>
<p> For each credit transaction not involving the sale of property or services, the creditor must disclose a brief identification of the transaction;<ref id="fnd3e22944" idref="fnd3e22950" style="-uslm-sgm:SU">20</ref> the amount of the transaction; and at least one of the following dates: The date of the transaction, the date the transaction was debited to the consumer's account, or, if the consumer signed the credit document, the date appearing on the document. If an actual copy of the receipt or other credit document is provided and that copy shows the amount and at least one of the specified dates, the brief identification may be omitted.</p>
<footnote id="fnd3e22950" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e22944" style="-uslm-sgm:SU">20</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.8/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Alternative creditor procedures; consumer inquiries for clarification or documentation.</heading>
<chapeau> The following procedures apply to creditors that treat an inquiry for clarification or documentation as a notice of a billing error, including correcting the account in accordance with <ref href="/us/cfr/t12/s226.13/e">§ 226.13(e)</ref>:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.8/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Failure to disclose the information required by paragraphs (a) and (b) of this section is not a failure to comply with the regulation, provided that the creditor also maintains procedures reasonably designed to obtain and provide the information. This applies to transactions that take place outside a state, as defined in <ref href="/us/cfr/t12/s226.2/a/26">§ 226.2(a)(26)</ref>, whether or not the creditor maintains procedures reasonably adapted to obtain the required information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.8/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> As an alternative to the brief identification for sale or nonsale credit, the creditor may disclose a number or symbol that also appears on the receipt or other credit document given to the consumer, if the number or symbol reasonably identifies that transaction with that creditor.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7806">75 FR 7806</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.9">
<num value="226.9" style="-uslm-sgm:SECTNO">§ 226.9</num>
<heading style="-uslm-sgm:SUBJECT">Subsequent disclosure requirements.</heading>
<paragraph identifier="/us/cfr/t12/s226.9/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Furnishing statement of billing rights—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/a/1" class="inline">
<num value="1">(1) </num>
<heading>Annual statement.</heading>
<content> The creditor shall mail or deliver the billing rights statement required by <ref href="/us/cfr/t12/s226.6/a/5">§ 226.6(a)(5)</ref> and (b)(5)(iii) at least once per calendar year, at intervals of not less than 6 months nor more than 18 months, either to all consumers or to each consumer entitled to receive a periodic statement under <ref href="/us/cfr/t12/s226.5/b/2">§ 226.5(b)(2)</ref> for any one billing cycle.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Alternative summary statement.</heading>
<content> As an alternative to paragraph (a)(1) of this section, the creditor may mail or deliver, on or with each periodic statement, a statement substantially similar to Model Form G–4 or Model Form G–4(A) in appendix G to this part, as applicable. Creditors offering home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> may use either Model Form, at their option.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Disclosures for supplemental credit access devices and additional features.</heading>
<paragraph identifier="/us/cfr/t12/s226.9/b/1" class="inline">
<num value="1"> (1)</num>
<content> If a creditor, within 30 days after mailing or delivering the account-opening disclosures under <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> or (b)(3)(ii)(A), as applicable, adds a credit feature to the consumer's account or mails or delivers to the consumer a credit access device, including but not limited to checks that access a credit card account, for which the finance charge terms are the same as those previously disclosed, no additional disclosures are necessary. Except as provided in paragraph (b)(3) of this section, after 30 days, if the creditor adds a credit feature or furnishes a credit access device (other than as a renewal, resupply, or the original issuance of a credit card) on the same finance charge terms, the creditor shall disclose, before the consumer uses the feature or device for the first time, that it is for use in obtaining credit under the terms previously disclosed.
<?page num="360"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Except as provided in paragraph (b)(3) of this section, whenever a credit feature is added or a credit access device is mailed or delivered to the consumer, and the finance charge terms for the feature or device differ from disclosures previously given, the disclosures required by <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> or (b)(3)(ii)(A), as applicable, that are applicable to the added feature or device shall be given before the consumer uses the feature or device for the first time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Checks that access a credit card account—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i" class="inline">
<num value="i">(i) </num>
<heading>Disclosures.</heading>
<chapeau> For open-end plans not subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, if checks that can be used to access a credit card account are provided more than 30 days after account-opening disclosures under <ref href="/us/cfr/t12/s226.6/b">§ 226.6(b)</ref> are mailed or delivered, or are provided within 30 days of the account-opening disclosures and the finance charge terms for the checks differ from the finance charge terms previously disclosed, the creditor shall disclose on the front of the page containing the checks the following terms in the form of a table with the headings, content, and form substantially similar to Sample G–19 in appendix G to this part:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<chapeau> If a promotional rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/i">§ 226.16(g)(2)(i)</ref> applies to the checks:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/A/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The promotional rate and the time period during which the promotional rate will remain in effect;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/A/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The type of rate that will apply (such as whether the purchase or cash advance rate applies) after the promotional rate expires, and the annual percentage rate that will apply after the promotional rate expires. For a variable-rate account, a creditor must disclose an annual percentage rate based on the applicable index or formula in accordance with the accuracy requirements set forth in paragraph (b)(3)(ii) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/A/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The date, if any, by which the consumer must use the checks in order to qualify for the promotional rate. If the creditor will honor checks used after such date but will apply an annual percentage rate other than the promotional rate, the creditor must disclose this fact and the type of annual percentage rate that will apply if the consumer uses the checks after such date.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> If no promotional rate applies to the checks:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The type of rate that will apply to the checks and the applicable annual percentage rate. For a variable-rate account, a creditor must disclose an annual percentage rate based on the applicable index or formula in accordance with the accuracy requirements set forth in paragraph (b)(3)(ii) of this section.</content>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s226.9/b/3/i/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> [Reserved]</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Any transaction fees applicable to the checks disclosed under <ref href="/us/cfr/t12/s226.6/b/2/iv">§ 226.6(b)(2)(iv)</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Whether or not a grace period is given within which any credit extended by use of the checks may be repaid without incurring a finance charge due to a periodic interest rate. When disclosing whether there is a grace period, the phrase “How to Avoid Paying Interest on Check Transactions” shall be used as the row heading when a grace period applies to credit extended by the use of the checks. When disclosing the fact that no grace period exists for credit extended by use of the checks, the phrase “Paying Interest” shall be used as the row heading.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Accuracy.</heading>
<content> The disclosures in paragraph (b)(3)(i) of this section must be accurate as of the time the disclosures are mailed or delivered. A variable annual percentage rate is accurate if it was in effect within 60 days of when the disclosures are mailed or delivered.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Variable rates.</heading>
<content> If any annual percentage rate required to be disclosed pursuant to paragraph (b)(3)(i) of this section is a variable rate, the card issuer shall also disclose the fact that the rate may vary and how the rate is determined. In describing how the applicable rate will be determined, the card issuer must identify the type of index or formula that is used in setting the rate. The value of the index and the amount of the margin that are used to calculate the variable rate shall not be disclosed in the table. A disclosure of any applicable limitations on rate increases shall not be included in the table.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<paragraph identifier="/us/cfr/t12/s226.9/c/1" class="inline">
<num value="1">(1) </num>
<heading>Rules affecting home-equity plans—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/c/1/i" class="inline">
<num value="i">(i) </num>
<heading>Written notice required.</heading>
<content> For home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, whenever any term required to be disclosed under <?page num="361"?><ref href="/us/cfr/t12/s226.6/a">§ 226.6(a)</ref> is changed or the required minimum periodic payment is increased, the creditor shall mail or deliver written notice of the change to each consumer who may be affected. The notice shall be mailed or delivered at least 15 days prior to the effective date of the change. The 15-day timing requirement does not apply if the change has been agreed to by the consumer; the notice shall be given, however, before the effective date of the change.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Notice not required.</heading>
<content> For home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, a creditor is not required to provide notice under this section when the change involves a reduction of any component of a finance or other charge or when the change results from an agreement involving a court proceeding.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Notice to restrict credit.</heading>
<content> For home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, if the creditor prohibits additional extensions of credit or reduces the credit limit pursuant to <ref href="/us/cfr/t12/s226.5b/f/3/i">§ 226.5b(f)(3)(i)</ref> or (f)(3)(vi), the creditor shall mail or deliver written notice of the action to each consumer who will be affected. The notice must be provided not later than three business days after the action is taken and shall contain specific reasons for the action. If the creditor requires the consumer to request reinstatement of credit privileges, the notice also shall state that fact.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Rules affecting open-end (not home-secured) plans—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>Changes where written advance notice is required—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/i/A" class="inline">
<num value="A">(A) </num>
<heading>General.</heading>
<content> For plans other than home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, except as provided in paragraphs (c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v) of this section, when a significant change in account terms as described in paragraph (c)(2)(ii) of this section is made, a creditor must provide a written notice of the change at least 45 days prior to the effective date of the change to each consumer who may be affected. The 45-day timing requirement does not apply if the consumer has agreed to a particular change as described in paragraph (c)(2)(i)(B) of this section; for such changes, notice must be given in accordance with the timing requirements of paragraph (c)(2)(i)(B) of this section. Increases in the rate applicable to a consumer's account due to delinquency, default or as a penalty described in paragraph (g) of this section that are not due to a change in the contractual terms of the consumer's account must be disclosed pursuant to paragraph (g) of this section instead of paragraph (c)(2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Changes agreed to by the consumer.</heading>
<content> A notice of change in terms is required, but it may be mailed or delivered as late as the effective date of the change if the consumer agrees to the particular change. This paragraph (c)(2)(i)(B) applies only when a consumer substitutes collateral or when the creditor can advance additional credit only if a change relatively unique to that consumer is made, such as the consumer's providing additional security or paying an increased minimum payment amount. The following are not considered agreements between the consumer and the creditor for purposes of this paragraph (c)(2)(i)(B): The consumer's general acceptance of the creditor's contract reservation of the right to change terms; the consumer's use of the account (which might imply acceptance of its terms under state law); the consumer's acceptance of a unilateral term change that is not particular to that consumer, but rather is of general applicability to consumers with that type of account; and the consumer's request to reopen a closed account or to upgrade an existing account to another account offered by the creditor with different credit or other features.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Significant changes in account terms.</heading>
<content> For purposes of this section, a “significant change in account terms” means a change to a term required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2), an increase in the required minimum periodic payment, a change to a term required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/4">§ 226.6(b)(4)</ref>, or the acquisition of a security interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Charges not covered by <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2).</heading>
<chapeau> Except as provided in paragraph (c)(2)(vi) of this section, if a creditor increases any component of a charge, or introduces a new charge, required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref> <?page num="362"?>that is not a significant change in account terms as described in paragraph (c)(2)(ii) of this section, a creditor must either, at its option:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Comply with the requirements of paragraph (c)(2)(i) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Provide notice of the amount of the charge before the consumer agrees to or becomes obligated to pay the charge, at a time and in a manner that a consumer would be likely to notice the disclosure of the charge. The notice may be provided orally or in writing.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Disclosure requirements—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A" class="inline">
<num value="A">(A) </num>
<heading>Significant changes in account terms.</heading>
<chapeau> If a creditor makes a significant change in account terms as described in paragraph (c)(2)(ii) of this section, the notice provided pursuant to paragraph (c)(2)(i) of this section must provide the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A summary of the changes made to terms required by <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2) or <ref href="/us/cfr/t12/s226.6/b/4">§ 226.6(b)(4)</ref>, a description of any increase in the required minimum periodic payment, and a description of any security interest being acquired by the creditor</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A statement that changes are being made to the account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> For accounts other than credit card accounts under an open-end (not home-secured) consumer credit plan subject to <ref href="/us/cfr/t12/s226.9/c/2/iv/B">§ 226.9(c)(2)(iv)(B)</ref>, a statement indicating the consumer has the right to opt out of these changes, if applicable, and a reference to additional information describing the opt-out right provided in the notice, if applicable;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The date the changes will become effective;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> If applicable, a statement that the consumer may find additional information about the summarized changes, and other changes to the account, in the notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> If the creditor is changing a rate on the account, other than a penalty rate, a statement that if a penalty rate currently applies to the consumer's account, the new rate described in the notice will not apply to the consumer's account until the consumer's account balances are no longer subject to the penalty rate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> If the change in terms being disclosed is an increase in an annual percentage rate, the balances to which the increased rate will be applied. If applicable, a statement identifying the balances to which the current rate will continue to apply as of the effective date of the change in terms; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/A/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> If the change in terms being disclosed is an increase in an annual percentage rate for a credit card account under an open-end (not home-secured) consumer credit plan, a statement of no more than four principal reasons for the rate increase, listed in their order of importance.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Right to reject for credit card accounts under an open-end (not home-secured) consumer credit plan.</heading>
<content> In addition to the disclosures in paragraph (c)(2)(iv)(A) of this section, if a card issuer makes a significant change in account terms on a credit card account under an open-end (not home-secured) consumer credit plan, the creditor must generally provide the following information on the notice provided pursuant to paragraph (c)(2)(i) of this section. This information is not required to be provided in the case of an increase in the required minimum periodic payment, an increase in a fee as a result of a reevaluation of a determination made under <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> or an adjustment to the safe harbors in <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> to reflect changes in the Consumer Price Index, a change in an annual percentage rate applicable to a consumer's account, an increase in a fee previously reduced consistent with <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or a similar Federal or State statute or regulation if the amount of the increased fee does not exceed the amount of that fee prior to the reduction, or when the change results from the creditor not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment:</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/C" style="-uslm-sgm:P">
<num value="C">(C) </num>
<heading>Changes resulting from failure to make minimum periodic payment within 60 days from due date for credit card accounts under an open-end (not home-secured) consumer credit plan.</heading>
<chapeau> For a credit card account under an open-end (not home-secured) consumer credit plan:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/C/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> If the significant change required to be disclosed pursuant to paragraph (c)(2)(i) of this section is an increase in an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) <?page num="363"?>based on the consumer's failure to make a minimum periodic payment within 60 days from the due date for that payment, the notice provided pursuant to paragraph (c)(2)(i) of this section must state that the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/C/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the significant change required to be disclosed pursuant to paragraph (c)(2)(i) of this section is an increase in a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) based on the consumer's failure to make a minimum periodic payment within 60 days from the due date for that payment, the notice provided pursuant to paragraph (c)(2)(i) of this section must also state the reason for the increase.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/D" style="-uslm-sgm:P">
<num value="D">(D) </num>
<heading>Format requirements—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/iv/D/1" class="inline">
<num value="1">(1) </num>
<heading>Tabular format.</heading>
<content> The summary of changes described in paragraph (c)(2)(iv)(A)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) of this section must be in a tabular format (except for a summary of any increase in the required minimum periodic payment, a summary of a term required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/4">§ 226.6(b)(4)</ref> that is not required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2), or a description of any security interest being acquired by the creditor), with headings and format substantially similar to any of the account-opening tables found in G–17 in appendix G to this part. The table must disclose the changed term and information relevant to the change, if that relevant information is required by <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2). The new terms shall be described in the same level of detail as required when disclosing the terms under <ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref>.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Notice not required.</heading>
<chapeau> For open-end plans (other than home equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>) a creditor is not required to provide notice under this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> When the change involves charges for documentary evidence; a reduction of any component of a finance or other charge; suspension of future credit privileges (except as provided in paragraph (c)(2)(vi) of this section) or termination of an account or plan; when the change results from an agreement involving a court proceeding; when the change is an extension of the grace period; or if the change is applicable only to checks that access a credit card account and the changed terms are disclosed on or with the checks in accordance with paragraph (b)(3) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> When the change is an increase in an annual percentage rate or fee upon the expiration of a specified period of time, provided that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Prior to commencement of that period, the creditor disclosed in writing to the consumer, in a clear and conspicuous manner, the length of the period and the annual percentage rate or fee that would apply after expiration of the period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The disclosure of the length of the period and the annual percentage rate or fee that would apply after expiration of the period are set forth in close proximity and in equal prominence to the first listing of the disclosure of the rate or fee that applies during the specified period of time; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v/B/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The annual percentage rate or fee that applies after that period does not exceed the rate or fee disclosed pursuant to paragraph (c)(2)(v)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) of this paragraph or, if the rate disclosed pursuant to paragraph (c)(2)(v)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) of this section was a variable rate, the rate following any such increase is a variable rate determined by the same formula (index and margin) that was used to calculate the variable rate disclosed pursuant to paragraph (c)(2)(v)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>);</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> When the change is an increase in a variable annual percentage rate in accordance with a credit card or other account agreement that provides for changes in the rate according to operation of an index that is not under the control of the creditor and is available to the general public; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/v/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> When the change is an increase in an annual percentage rate, a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), (b)(2)(viii), (b)(2)(ix), (b)(2)(ix) or (b)(2)(xii), or the required minimum periodic payment due to the completion of a workout or temporary hardship arrangement by <?page num="364"?>the consumer or the consumer's failure to comply with the terms of such an arrangement, provided that:</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/c/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi) </num>
<heading>Reduction of the credit limit.</heading>
<content> For open-end plans that are not subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, if a creditor decreases the credit limit on an account, advance notice of the decrease must be provided before an over-the-limit fee or a penalty rate can be imposed solely as a result of the consumer exceeding the newly decreased credit limit. Notice shall be provided in writing or orally at least 45 days prior to imposing the over-the-limit fee or penalty rate and shall state that the credit limit on the account has been or will be decreased.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Finance charge imposed at time of transaction.</heading>
<paragraph identifier="/us/cfr/t12/s226.9/d/1" class="inline">
<num value="1"> (1)</num>
<content> Any person, other than the card issuer, who imposes a finance charge at the time of honoring a consumer's credit card, shall disclose the amount of that finance charge prior to its imposition.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The card issuer, other than the person honoring the consumer's credit card, shall have no responsibility for the disclosure required by paragraph (d)(1) of this section, and shall not consider any such charge for the purposes of <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref>, 226.6 and 226.7.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Disclosures upon renewal of credit or charge card—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/e/1" class="inline">
<num value="1">(1) </num>
<heading>Notice prior to renewal.</heading>
<chapeau> A card issuer that imposes any annual or other periodic fee to renew a credit or charge card account of the type subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, including any fee based on account activity or inactivity or any card issuer that has changed or amended any term of a cardholder's account required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2) that has not previously been disclosed to the consumer, shall mail or deliver written notice of the renewal to the cardholder. If the card issuer imposes any annual or other periodic fee for renewal, the notice shall be provided at least 30 days or one billing cycle, whichever is less, before the mailing or the delivery of the periodic statement on which any renewal fee is initially charged to the account. If the card issuer has changed or amended any term required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2) and such changed or amended term has not previously been disclosed to the consumer, the notice shall be provided at least 30 days prior to the scheduled renewal date of the consumer's credit or charge card. The notice shall contain the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content>
<p> The disclosures contained in <ref href="/us/cfr/t12/s226.5a/b/1">§ 226.5a(b)(1)</ref> through (b)(7) that would apply if the account were renewed; <ref id="fnd3e23242" idref="fnd3e23248" style="-uslm-sgm:SU">20a</ref> and</p>
<footnote id="fnd3e23248" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23242" style="-uslm-sgm:SU">20a</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> How and when the cardholder may terminate credit availability under the account to avoid paying the renewal fee, if applicable.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notification on periodic statements.</heading>
<content> The disclosures required by this paragraph may be made on or with a periodic statement. If any of the disclosures are provided on the back of a periodic statement, the card issuer shall include a reference to those disclosures on the front of the statement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Change in credit card account insurance provider—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/f/1" class="inline">
<num value="1">(1) </num>
<heading>Notice prior to change.</heading>
<chapeau> If a credit card issuer plans to change the provider of insurance for repayment of all or part of the outstanding balance of an open-end credit card account of the type subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, the card issuer shall mail or deliver to the cardholder written notice of the change not less than 30 days before the change in provider occurs. The notice shall also include the following items, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any increase in the rate that will result from the change;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any substantial decrease in coverage that will result from the change; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that the cardholder may discontinue the insurance.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notice when change in provider occurs.</heading>
<chapeau> If a change described in paragraph (f)(1) of this section occurs, the card issuer shall provide the cardholder with a written notice no later than 30 days after the change, including the following items, to the extent applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The name and address of the new insurance provider;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A copy of the new policy or group certificate containing the basic terms of the insurance, including the rate to be charged; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that the cardholder may discontinue the insurance.
<?page num="365"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Substantial decrease in coverage.</heading>
<chapeau> For purposes of this paragraph, a substantial decrease in coverage is a decrease in a significant term of coverage that might reasonably be expected to affect the cardholder's decision to continue the insurance. Significant terms of coverage include, for example, the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/f/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Type of coverage provided;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Age at which coverage terminates or becomes more restrictive;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or other term affecting the dollar amount of coverage or benefits provided;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Eligibility requirements and number and identity of persons covered;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Definition of a key term of coverage such as disability;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Exclusions from or limitations on coverage; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/3/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Waiting periods and whether coverage is retroactive.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Combined notification.</heading>
<content> The notices required by paragraph (f)(1) and (2) of this section may be combined provided the timing requirement of paragraph (f)(1) of this section is met. The notices may be provided on or with a periodic statement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Increase in rates due to delinquency or default or as a penalty—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/g/1" class="inline">
<num value="1">(1) </num>
<heading>Increases subject to this section.</heading>
<chapeau> For plans other than home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, except as provided in paragraph (g)(4) of this section, a creditor must provide a written notice to each consumer who may be affected when:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/g/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A rate is increased due to the consumer's delinquency or default; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A rate is increased as a penalty for one or more events specified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Timing of written notice.</heading>
<content> Whenever any notice is required to be given pursuant to paragraph (g)(1) of this section, the creditor shall provide written notice of the increase in rates at least 45 days prior to the effective date of the increase. The notice must be provided after the occurrence of the events described in paragraphs (g)(1)(i) and (g)(1)(ii) of this section that trigger the imposition of the rate increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i" class="inline">
<num value="i">(i) </num>
<heading>Disclosure requirements for rate increases—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/A" class="inline">
<num value="A">(A) </num>
<heading>General.</heading>
<chapeau> If a creditor is increasing the rate due to delinquency or default or as a penalty, the creditor must provide the following information on the notice sent pursuant to paragraph (g)(1) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/A/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A statement that the delinquency or default rate or penalty rate, as applicable, has been triggered;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/A/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The date on which the delinquency or default rate or penalty rate will apply;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/A/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The circumstances under which the delinquency or default rate or penalty rate, as applicable, will cease to apply to the consumer's account, or that the delinquency or default rate or penalty rate will remain in effect for a potentially indefinite time period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/A/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A statement indicating to which balances the delinquency or default rate or penalty rate will be applied;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/A/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> If applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless a consumer fails to make a minimum periodic payment within 60 days from the due date for that payment; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/A/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> For a credit card account under an open-end (not home-secured) consumer credit plan, a statement of no more than four principal reasons for the rate increase, listed in their order of importance.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>Rate increases resulting from failure to make minimum periodic payment within 60 days from due date.</heading>
<content> For a credit card account under an open-end (not home-secured) consumer credit plan, if the rate increase required to be disclosed pursuant to paragraph (g)(1) of this section is an increase pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> based on the consumer's failure to make a minimum periodic payment within 60 days from the due date for that payment, the notice provided pursuant to paragraph (g)(1) of this section must also state that the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments <?page num="366"?>on or before the payment due date, beginning with the first payment due following the effective date of the increase.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Format requirements.</heading>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/ii/A" class="inline">
<num value="A"> (A)</num>
<content> If a notice required by paragraph (g)(1) of this section is included on or with a periodic statement, the information described in paragraph (g)(3)(i) of this section must be in the form of a table and provided on the front of any page of the periodic statement, above the notice described in paragraph (c)(2)(iv) of this section if that notice is provided on the same statement.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If a notice required by paragraph (g)(1) of this section is not included on or with a periodic statement, the information described in paragraph (g)(3)(i) of this section must be disclosed on the front of the first page of the notice. Only information related to the increase in the rate to a penalty rate may be included with the notice, except that this notice may be combined with a notice described in paragraph (c)(2)(iv) or (g)(4) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Exception for decrease in credit limit.</heading>
<chapeau> A creditor is not required to provide a notice pursuant to paragraph (g)(1) of this section prior to increasing the rate for obtaining an extension of credit that exceeds the credit limit, provided that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> The creditor provides at least 45 days in advance of imposing the penalty rate a notice, in writing, that includes:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A statement that the credit limit on the account has been or will be decreased.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A statement indicating the date on which the penalty rate will apply, if the outstanding balance exceeds the credit limit as of that date;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A statement that the penalty rate will not be imposed on the date specified in paragraph (g)(4)(i)(B) of this section, if the outstanding balance does not exceed the credit limit as of that date;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The circumstances under which the penalty rate, if applied, will cease to apply to the account, or that the penalty rate, if applied, will remain in effect for a potentially indefinite time period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> A statement indicating to which balances the penalty rate may be applied; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/i/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> If applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless the consumer fails to make a minimum periodic payment within 60 days from the due date for that payment; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor does not increase the rate applicable to the consumer's account to the penalty rate if the outstanding balance does not exceed the credit limit on the date set forth in the notice and described in paragraph (g)(4)(i)(B) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/iii/A" class="inline">
<num value="A">(A)</num>
<content> If a notice provided pursuant to paragraph (g)(4)(i) of this section is included on or with a periodic statement, the information described in paragraph (g)(4)(i) of this section must be in the form of a table and provided on the front of any page of the periodic statement; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/g/4/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If a notice required by paragraph (g)(4)(i) of this section is not included on or with a periodic statement, the information described in paragraph (g)(4)(i) of this section must be disclosed on the front of the first page of the notice. Only information related to the reduction in credit limit may be included with the notice, except that this notice may be combined with a notice described in paragraph (c)(2)(iv) or (g)(1) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Consumer rejection of certain significant changes in terms—</heading>
<paragraph identifier="/us/cfr/t12/s226.9/h/1" class="inline">
<num value="1">(1) </num>
<heading>Right to reject.</heading>
<content> If paragraph (c)(2)(iv)(B) of this section requires disclosure of the consumer's right to reject a significant change to an account term, the consumer may reject that change by notifying the creditor of the rejection before the effective date of the change. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/h/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Effect of rejection.</heading>
<chapeau> If a creditor is notified of a rejection of a significant change to an account term as provided in paragraph (h)(1) of this section, the creditor must not: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.9/h/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Apply the change to the account; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/h/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Impose a fee or charge or treat the account as in default solely as a result of the rejection; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/h/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Require repayment of the balance on the account using a method that is less beneficial to the consumer <?page num="367"?>than one of the methods listed in <ref href="/us/cfr/t12/s226.55/c/2">§ 226.55(c)(2)</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.9/h/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Exception.</heading>
<content> Section 226.9(h) does not apply when the creditor has not received the consumer's required minimum periodic payment within 60 days after the due date for that payment.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7807">75 FR 7807</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/75/37568">75 FR 37568</ref>, <date date="2010-06-26" role="amended">June 26, 2010</date>; <ref href="/us/fr/76/23000">76 FR 23000</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.10">
<num value="226.10" style="-uslm-sgm:SECTNO">§ 226.10</num>
<heading style="-uslm-sgm:SUBJECT">Payments.</heading>
<paragraph identifier="/us/cfr/t12/s226.10/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule.</heading>
<content> A creditor shall credit a payment to the consumer's account as of the date of receipt, except when a delay in crediting does not result in a finance or other charge or except as provided in paragraph (b) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Specific requirements for payments—</heading>
<paragraph identifier="/us/cfr/t12/s226.10/b/1" class="inline">
<num value="1">(1) </num>
<heading>General rule.</heading>
<content> A creditor may specify reasonable requirements for payments that enable most consumers to make conforming payments.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples of reasonable requirements for payments.</heading>
<chapeau> Reasonable requirements for making payment may include:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.10/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Requiring that payments be accompanied by the account number or payment stub;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Setting reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person (except as provided in paragraph (b)(3) of this section), provided that such cut-off times shall be no earlier than 5 p.m. on the payment due date at the location specified by the creditor for the receipt of such payments;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Specifying that only checks or money orders should be sent by mail;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Specifying that payment is to be made in U.S. dollars; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Specifying one particular address for receiving payments, such as a post office box.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>In-person payments on credit card accounts—</heading>
<paragraph identifier="/us/cfr/t12/s226.10/b/3/i" class="inline">
<num value="i">(i) </num>
<heading>General.</heading>
<content> Notwithstanding <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>, payments on a credit card account under an open-end (not home-secured) consumer credit plan made in person at a branch or office of a card issuer that is a financial institution prior to the close of business of that branch or office shall be considered received on the date on which the consumer makes the payment. A card issuer that is a financial institution shall not impose a cut-off time earlier than the close of business for any such payments made in person at any branch or office of the card issuer at which such payments are accepted. Notwithstanding <ref href="/us/cfr/t12/s226.10/b/2/ii">§ 226.10(b)(2)(ii)</ref>, a card issuer may impose a cut-off time earlier than 5 p.m. for such payments, if the close of business of the branch or office is earlier than 5 p.m.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Financial institution.</heading>
<content> For purposes of paragraph (b)(3) of this section, “financial institution” shall mean a bank, savings association, or credit union.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Nonconforming payments—</heading>
<paragraph identifier="/us/cfr/t12/s226.10/b/4/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> Except as provided in paragraph (b)(4)(ii) of this section, if a creditor specifies, on or with the periodic statement, requirements for the consumer to follow in making payments as permitted under this <ref href="/us/cfr/t12/s226.10">§ 226.10</ref>, but accepts a payment that does not conform to the requirements, the creditor shall credit the payment within five days of receipt.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Payment methods promoted by creditor.</heading>
<content> If a creditor promotes a method for making payments, such payments shall be considered conforming payments in accordance with this paragraph (b) and shall be credited to the consumer's account as of the date of receipt, except when a delay in crediting does not result in a finance or other charge.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Adjustment of account.</heading>
<content> If a creditor fails to credit a payment, as required by paragraphs (a) or (b) of this section, in time to avoid the imposition of finance or other charges, the creditor shall adjust the consumer's account so that the charges imposed are credited to the consumer's account during the next billing cycle.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Crediting of payments when creditor does not receive or accept payments on due date—</heading>
<paragraph identifier="/us/cfr/t12/s226.10/d/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<content> Except as provided in paragraph (d)(2) of this section, if a creditor does not receive or accept payments by mail on the due date for payments, the creditor may generally not treat a payment received the next business day as late for any purpose. For purposes of this paragraph (d), the “next business day” means the next day on which the creditor accepts or receives payments by mail.
<?page num="368"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Payments accepted or received other than by mail.</heading>
<content> If a creditor accepts or receives payments made on the due date by a method other than mail, such as electronic or telephone payments, the creditor is not required to treat a payment made by that method on the next business day as timely, even if it does not accept mailed payments on the due date.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Limitations on fees related to method of payment.</heading>
<content> For credit card accounts under an open-end (not home-secured) consumer credit plan, a creditor may not impose a separate fee to allow consumers to make a payment by any method, such as mail, electronic, or telephone payments, unless such payment method involves an expedited service by a customer service representative of the creditor. For purposes of paragraph (e) of this section, the term “creditor” includes a third party that collects, receives, or processes payments on behalf of a creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.10/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Changes by card issuer.</heading>
<content> If a card issuer makes a material change in the address for receiving payments or procedures for handling payments, and such change causes a material delay in the crediting of a payment to the consumer's account during the 60-day period following the date on which such change took effect, the card issuer may not impose any late fee or finance charge for a late payment on the credit card account during the 60-day period following the date on which the change took effect.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7811">75 FR 7811</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/23001">76 FR 23001</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.11">
<num value="226.11" style="-uslm-sgm:SECTNO">§ 226.11</num>
<heading style="-uslm-sgm:SUBJECT">Treatment of credit balances; account termination.</heading>
<paragraph identifier="/us/cfr/t12/s226.11/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Credit balances.</heading>
<chapeau> When a credit balance in excess of $1 is created on a credit account (through transmittal of funds to a creditor in excess of the total balance due on an account, through rebates of unearned finance charges or insurance premiums, or through amounts otherwise owed to or held for the benefit of the consumer), the creditor shall—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.11/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Credit the amount of the credit balance to the consumer's account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Refund any part of the remaining credit balance within seven business days from receipt of a written request from the consumer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than six months. No further action is required if the consumer's current location is not known to the creditor and cannot be traced through the consumer's last known address or telephone number.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Account termination.</heading>
<paragraph identifier="/us/cfr/t12/s226.11/b/1" class="inline">
<num value="1"> (1)</num>
<content> A creditor shall not terminate an account prior to its expiration date solely because the consumer does not incur a finance charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Nothing in paragraph (b)(1) of this section prohibits a creditor from terminating an account that is inactive for three or more consecutive months. An account is inactive for purposes of this paragraph if no credit has been extended (such as by purchase, cash advance or balance transfer) and if the account has no outstanding balance.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Timely settlement of estate debts—</heading>
<paragraph identifier="/us/cfr/t12/s226.11/c/1" class="inline">
<num value="1">(1) </num>
<heading>General rule—</heading>
<paragraph identifier="/us/cfr/t12/s226.11/c/1/i" class="inline">
<num value="i">(i) </num>
<heading>Reasonable policies and procedures required.</heading>
<content> For credit card accounts under an open-end (not home-secured) consumer credit plan, card issuers must adopt reasonable written policies and procedures designed to ensure that an administrator of an estate of a deceased accountholder can determine the amount of and pay any balance on the account in a timely manner.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Application to joint accounts.</heading>
<content> Paragraph (c) of this section does not apply to the account of a deceased consumer if a joint accountholder remains on the account.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Timely statement of balance—</heading>
<paragraph identifier="/us/cfr/t12/s226.11/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>Requirement.</heading>
<content> Upon request by the administrator of an estate, a card issuer must provide the administrator with the amount of the balance on a deceased consumer's account in a timely manner.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Safe harbor.</heading>
<content> For purposes of paragraph (c)(2)(i) of this section, providing the amount of the balance on the account within 30 days of receiving the request is deemed to be timely.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Limitations after receipt of request from administrator—</heading>
<paragraph identifier="/us/cfr/t12/s226.11/c/3/i" class="inline">
<num value="i">(i) </num>
<heading>Limitation on fees and increases in annual percentage rates.</heading>
<?page num="369"?>
<content>After receiving a request from the administrator of an estate for the amount of the balance on a deceased consumer's account, a card issuer must not impose any fees on the account (such as a late fee, annual fee, or over-the-limit fee) or increase any annual percentage rate, except as provided by <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.11/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Limitation on trailing or residual interest.</heading>
<content> A card issuer must waive or rebate any additional finance charge due to a periodic interest rate if payment in full of the balance disclosed pursuant to paragraph (c)(2) of this section is received within 30 days after disclosure.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7812">75 FR 7812</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.12">
<num value="226.12" style="-uslm-sgm:SECTNO">§ 226.12</num>
<heading style="-uslm-sgm:SUBJECT">Special credit card provisions.</heading>
<paragraph identifier="/us/cfr/t12/s226.12/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Issuance of credit cards.</heading>
<chapeau> Regardless of the purpose for which a credit card is to be used, including business, commercial, or agricultural use, no credit card shall be issued to any person except—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.12/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> In response to an oral or written request or application for the card; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> As a renewal of, or substitute for, an accepted credit card.<ref id="fnd3e23610" idref="fnd3e23615" style="-uslm-sgm:SU">21</ref>
</p>
<footnote id="fnd3e23615" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23610" style="-uslm-sgm:SU">21</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Liability of cardholder for unauthorized use—</heading>
<paragraph identifier="/us/cfr/t12/s226.12/b/1" class="inline">
<num value="1">(1)</num>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.12/b/1/i" class="inline">
<num value="i">(i) </num>
<heading>Definition of unauthorized use.</heading>
<content> For purposes of this section, the term “unauthorized use” means the use of a credit card by a person, other than the cardholder, who does not have actual, implied, or apparent authority for such use, and from which the cardholder receives no benefit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Limitation on amount.</heading>
<content>
<p> The liability of a cardholder for unauthorized use <ref id="fnd3e23631" idref="fnd3e23637" style="-uslm-sgm:SU">22</ref> of a credit card shall not exceed the lesser of $50 or the amount of money, property, labor, or services obtained by the unauthorized use before notification to the card issuer under paragraph (b)(3) of this section.</p>
<footnote id="fnd3e23637" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23631" style="-uslm-sgm:SU">22</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Conditions of liability.</heading>
<chapeau> A cardholder shall be liable for unauthorized use of a credit card only if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.12/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The credit card is an accepted credit card;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> The card issuer has provided adequate notice <ref id="fnd3e23650" idref="fnd3e23656" style="-uslm-sgm:SU">23</ref> of the cardholder's maximum potential liability and of means by which the card issuer may be notified of loss or theft of the card. The notice shall state that the cardholder's liability shall not exceed $50 (or any lesser amount) and that the cardholder may give oral or written notification, and shall describe a means of notification (for example, a telephone number, an address, or both); and</p>
<footnote id="fnd3e23656" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23650" style="-uslm-sgm:SU">23</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The card issuer has provided a means to identify the cardholder on the account or the authorized user of the card.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Notification to card issuer.</heading>
<content> Notification to a card issuer is given when steps have been taken as may be reasonably required in the ordinary course of business to provide the card issuer with the pertinent information about the loss, theft, or possible unauthorized use of a credit card, regardless of whether any particular officer, employee, or agent of the card issuer does, in fact, receive the information. Notification may be given, at the option of the person giving it, in person, by telephone, or in writing. Notification in writing is considered given at the time of receipt or, whether or not received, at the expiration of the time ordinarily required for transmission, whichever is earlier.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Effect of other applicable law or agreement.</heading>
<content> If state law or an agreement between a cardholder and the card issuer imposes lesser liability than that provided in this paragraph, the lesser liability shall govern.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Business use of credit cards.</heading>
<content> If 10 or more credit cards are issued by one card issuer for use by the employees of an organization, this section does not prohibit the card issuer and the organization from agreeing to liability for unauthorized use without regard to this section. However, liability for unauthorized use may be imposed on an employee of the organization, by either the card issuer or the organization, only in accordance with this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Right of cardholder to assert claims or defenses against card issuer</heading>
<chapeau>
<p>
<ref id="fnd3e23680" idref="fnd3e23694" style="-uslm-sgm:SU">24</ref>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> When a person who honors a credit card fails to resolve satisfactorily a dispute as to property or services purchased with the credit card in a <?page num="370"?>consumer credit transaction, the cardholder may assert against the card issuer all claims (other than tort claims) and defenses arising out of the transaction and relating to the failure to resolve the dispute. The cardholder may withhold payment up to the amount of credit outstanding for the property or services that gave rise to the dispute and any finance or other charges imposed on that amount.<ref id="fnd3e23689" idref="fnd3e23699" style="-uslm-sgm:SU">25</ref>
</p>
<footnote id="fnd3e23694" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23680" style="-uslm-sgm:SU">24</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e23699" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23689" style="-uslm-sgm:SU">25</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.12/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Adverse credit reports prohibited.</heading>
<content> If, in accordance with paragraph (c)(1) of this section, the cardholder withholds payment of the amount of credit outstanding for the disputed transaction, the card issuer shall not report that amount as delinquent until the dispute is settled or judgment is rendered.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Limitations—</heading>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/i" class="inline">
<num value="i">(i) </num>
<heading>General.</heading>
<chapeau> The rights stated in paragraphs (c)(1) and (c)(2) of this section apply only if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The cardholder has made a good faith attempt to resolve the dispute with the person honoring the credit card; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content>
<p> The amount of credit extended to obtain the property or services that result in the assertion of the claim or defense by the cardholder exceeds $50, and the disputed transaction occurred in the same state as the cardholder's current designated address or, if not within the same state, within 100 miles from that address.<ref id="fnd3e23720" idref="fnd3e23725" style="-uslm-sgm:SU">26</ref>
</p>
<footnote id="fnd3e23725" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23720" style="-uslm-sgm:SU">26</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Exclusion.</heading>
<chapeau> The limitations stated in paragraph (c)(3)(i)(B) of this section shall not apply when the person honoring the credit card:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Is the same person as the card issuer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Is controlled by the card issuer directly or indirectly;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Is under the direct or indirect control of a third person that also directly or indirectly controls the card issuer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Controls the card issuer directly or indirectly;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/ii/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Is a franchised dealer in the card issuer's products or services; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/c/3/ii/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> Has obtained the order for the disputed transaction through a mail solicitation made or participated in by the card issuer.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Offsets by card issuer prohibited.</heading>
<paragraph identifier="/us/cfr/t12/s226.12/d/1" class="inline">
<num value="1"> (1)</num>
<content> A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder's indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> This paragraph does not alter or affect the right of a card issuer acting under state or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: Obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> This paragraph does not prohibit a plan, if authorized in writing by the cardholder, under which the card issuer may periodically deduct all or part of the cardholder's credit card debt from a deposit account held with the card issuer (subject to the limitations in <ref href="/us/cfr/t12/s226.13/d/1">§ 226.13(d)(1)</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Prompt notification of returns and crediting of refunds.</heading>
<paragraph identifier="/us/cfr/t12/s226.12/e/1" class="inline">
<num value="1"> (1)</num>
<content> When a creditor other than the card issuer accepts the return of property or forgives a debt for services that is to be reflected as a credit to the consumer's credit card account, that creditor shall, within 7 business days from accepting the return or forgiving the debt, transmit a credit statement to the card issuer through the card issuer's normal channels for credit statements.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The card issuer shall, within 3 business days from receipt of a credit statement, credit the consumer's account with the amount of the refund.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If a creditor other than a card issuer routinely gives cash refunds to consumers paying in cash, the creditor shall also give credit or cash refunds to consumers using credit cards, unless it discloses at the time the transaction is consummated that credit or cash refunds for returns are not given. This section does not require refunds for returns nor does it prohibit refunds in kind.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Discounts; tie-in arrangements.</heading>
<chapeau> No card issuer may, by contract or otherwise:
<?page num="371"?></chapeau>
<paragraph identifier="/us/cfr/t12/s226.12/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Prohibit any person who honors a credit card from offering a discount to a consumer to induce the consumer to pay by cash, check, or similar means rather than by use of a credit card or its underlying account for the purchase of property or services; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Require any person who honors the card issuer's credit card to open or maintain any account or obtain any other service not essential to the operation of the credit card plan from the card issuer or any other person, as a condition of participation in a credit card plan. If maintenance of an account for clearing purposes is determined to be essential to the operation of the credit card plan, it may be required only if no service charges or minimum balance requirements are imposed.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.12/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Relation to Electronic Fund Transfer Act and Regulation E.</heading>
<content> For guidance on whether Regulation Z (<ref href="/us/cfr/t12/p226">12 CFR part 226</ref>) or Regulation E (<ref href="/us/cfr/t12/p205">12 CFR part 205</ref>) applies in instances involving both credit and electronic fund transfer aspects, refer to Regulation E, <ref href="/us/cfr/t12/s205.12/a">12 CFR 205.12(a)</ref> regarding issuance and liability for unauthorized use. On matters other than issuance and liability, this section applies to the credit aspects of combined credit/electronic fund transfer transactions, as applicable.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7812">75 FR 7812</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.13">
<num value="226.13" style="-uslm-sgm:SECTNO">§ 226.13</num>
<heading style="-uslm-sgm:SUBJECT">Billing error resolution.<ref id="fnd3e23787" idref="fnd3e23792" style="-uslm-sgm:SU">27</ref>
</heading>
<footnote id="fnd3e23792" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23787" style="-uslm-sgm:SU">27</ref> [Reserved]</p>
</content>
</footnote>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.13/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definition of billing error.</heading>
<content>
<p> For purposes of this section, the term billing error means:</p>
<p style="-uslm-sgm:P">(1) A reflection on or with a periodic statement of an extension of credit that is not made to the consumer or to a person who has actual, implied, or apparent authority to use the consumer's credit card or open-end credit plan.</p>
<p style="-uslm-sgm:P">(2) A reflection on or with a periodic statement of an extension of credit that is not identified in accordance with the requirements of <ref href="/us/cfr/t12/s226.7/a/2">§§ 226.7(a)(2)</ref> or (b)(2), as applicable, and 226.8.</p>
<p style="-uslm-sgm:P">(3) A reflection on or with a periodic statement of an extension of credit for property or services not accepted by the consumer or the consumer's designee, or not delivered to the consumer or the consumer's designee as agreed.</p>
<p style="-uslm-sgm:P">(4) A reflection on a periodic statement of the creditor's failure to credit properly a payment or other credit issued to the consumer's account.</p>
<p style="-uslm-sgm:P">(5) A reflection on a periodic statement of a computational or similar error of an accounting nature that is made by the creditor.</p>
<p style="-uslm-sgm:P">(6) A reflection on a periodic statement of an extension of credit for which the consumer requests additional clarification, including documentary evidence.</p>
<p style="-uslm-sgm:P">(7) The creditor's failure to mail or deliver a periodic statement to the consumer's last known address if that address was received by the creditor, in writing, at least 20 days before the end of the billing cycle for which the statement was required.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Billing error notice.</heading>
<chapeau>
<p>
<ref id="fnd3e23819" idref="fnd3e23829" style="-uslm-sgm:SU">28</ref> A billing error notice is a written notice <ref id="fnd3e23823" idref="fnd3e23834" style="-uslm-sgm:SU">29</ref> from a consumer that:</p>
<footnote id="fnd3e23829" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23819" style="-uslm-sgm:SU">28</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e23834" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23823" style="-uslm-sgm:SU">29</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.13/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Is received by a creditor at the address disclosed under <ref href="/us/cfr/t12/s226.7/a/9">§ 226.7(a)(9)</ref> or (b)(9), as applicable, no later than 60 days after the creditor transmitted the first periodic statement that reflects the alleged billing error;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Enables the creditor to identify the consumer's name and account number; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> To the extent possible, indicates the consumer's belief and the reasons for the belief that a billing error exists, and the type, date, and amount of the error.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Time for resolution; general procedures.</heading>
<paragraph identifier="/us/cfr/t12/s226.13/c/1" class="inline">
<num value="1"> (1)</num>
<content> The creditor shall mail or deliver written acknowledgment to the consumer within 30 days of receiving a billing error notice, unless the creditor has complied with the appropriate resolution procedures of paragraphs (e) and (f) of this section, as applicable, within the 30-day period; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The creditor shall comply with the appropriate resolution procedures of paragraphs (e) and (f) of this section, as applicable, within 2 complete billing cycles (but in no event later than 90 days) after receiving a billing error notice.
<?page num="372"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Rules pending resolution.</heading>
<chapeau> Until a billing error is resolved under paragraph (e) or (f) of this section, the following rules apply:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.13/d/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Consumer's right to withhold disputed amount; collection action prohibited.</heading>
<content>
<p> The consumer need not pay (and the creditor may not try to collect) any portion of any required payment that the consumer believes is related to the disputed amount (including related finance or other charges).<ref id="fnd3e23861" idref="fnd3e23867" style="-uslm-sgm:SU">30</ref> If the cardholder has enrolled in an automatic payment plan offered by the card issuer and has agreed to pay the credit card indebtedness by periodic deductions from the cardholder's deposit account, the card issuer shall not deduct any part of the disputed amount or related finance or other charges if a billing error notice is received any time up to 3 business days before the scheduled payment date.</p>
<footnote id="fnd3e23867" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23861" style="-uslm-sgm:SU">30</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Adverse credit reports prohibited.</heading>
<content> The creditor or its agent shall not (directly or indirectly) make or threaten to make an adverse report to any person about the consumer's credit standing, or report that an amount or account is delinquent, because the consumer failed to pay the disputed amount or related finance or other charges.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Acceleration of debt and restriction of account prohibited.</heading>
<content> A creditor shall not accelerate any part of the consumer's indebtedness or restrict or close a consumer's account solely because the consumer has exercised in good faith rights provided by this section. A creditor may be subject to the forfeiture penalty under <ref href="/us/usc/t15/s1666/e">15 U.S.C. 1666(e)</ref> for failure to comply with any of the requirements of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Permitted creditor actions.</heading>
<content> A creditor is not prohibited from taking action to collect any undisputed portion of the item or bill; from deducting any disputed amount and related finance or other charges from the consumer's credit limit on the account; or from reflecting a disputed amount and related finance or other charges on a periodic statement, provided that the creditor indicates on or with the periodic statement that payment of any disputed amount and related finance or other charges is not required pending the creditor's compliance with this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Procedures if billing error occurred as asserted.</heading>
<chapeau> If a creditor determines that a billing error occurred as asserted, it shall within the time limits in paragraph (c)(2) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.13/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Correct the billing error and credit the consumer's account with any disputed amount and related finance or other charges, as applicable; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Mail or deliver a correction notice to the consumer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Procedures if different billing error or no billing error occurred.</heading>
<chapeau>
<p> If, after conducting a reasonable investigation,<ref id="fnd3e23900" idref="fnd3e23906" style="-uslm-sgm:SU">31</ref> a creditor determines that no billing error occurred or that a different billing error occurred from that asserted, the creditor shall within the time limits in paragraph (c)(2) of this section:</p>
<footnote id="fnd3e23906" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23900" style="-uslm-sgm:SU">31</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.13/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Mail or deliver to the consumer an explanation that sets forth the reasons for the creditor's belief that the billing error alleged by the consumer is incorrect in whole or in part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Furnish copies of documentary evidence of the consumer's indebtedness, if the consumer so requests; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If a different billing error occurred, correct the billing error and credit the consumer's account with any disputed amount and related finance or other charges, as applicable.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Creditor's rights and duties after resolution.</heading>
<chapeau> If a creditor, after complying with all of the requirements of this section, determines that a consumer owes all or part of the disputed amount and related finance or other charges, the creditor:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.13/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Shall promptly notify the consumer in writing of the time when payment is due and the portion of the disputed amount and related finance or other charges that the consumer still owes;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Shall allow any time period disclosed under <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> or (b)(2)(v), as applicable, and <ref href="/us/cfr/t12/s226.7/a/8">§ 226.7(a)(8)</ref> or (b)(8), as applicable, during which the consumer can pay the amount due under paragraph (g)(1) of this section without incurring additional finance or other charges;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/g/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> May report an account or amount as delinquent because the amount due <?page num="373"?>under paragraph (g)(1) of this section remains unpaid after the creditor has allowed any time period disclosed under <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> or (b)(2)(v), as applicable, and <ref href="/us/cfr/t12/s226.7/a/8">§ 226.7(a)(8)</ref> or (b)(8), as applicable or 10 days (whichever is longer) during which the consumer can pay the amount; but</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/g/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> May not report that an amount or account is delinquent because the amount due under paragraph (g)(1) of the section remains unpaid, if the creditor receives (within the time allowed for payment in paragraph (g)(3) of this section) further written notice from the consumer that any portion of the billing error is still in dispute, unless the creditor also:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.13/g/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Promptly reports that the amount or account is in dispute;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/g/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Mails or delivers to the consumer (at the same time the report is made) a written notice of the name and address of each person to whom the creditor makes a report; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/g/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Promptly reports any subsequent resolution of the reported delinquency to all persons to whom the creditor has made a report.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Reassertion of billing error.</heading>
<content> A creditor that has fully complied with the requirements of this section has no further responsibilities under this section (other than as provided in paragraph (g)(4) of this section) if a consumer reasserts substantially the same billing error.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.13/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Relation to Electronic Fund Transfer Act and Regulation E.</heading>
<content> If an extension of credit is incident to an electronic fund transfer, under an agreement between a consumer and a financial institution to extend credit when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account, the creditor shall comply with the requirements of Regulation E, <ref href="/us/cfr/t12/s205.11">12 CFR 205.11</ref> governing error resolution rather than those of paragraphs (a), (b), (c), (e), (f), and (h) of this section.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7814">75 FR 7814</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.14">
<num value="226.14" style="-uslm-sgm:SECTNO">§ 226.14</num>
<heading style="-uslm-sgm:SUBJECT">Determination of annual percentage rate.</heading>
<paragraph identifier="/us/cfr/t12/s226.14/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule.</heading>
<chapeau>
<p> The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate. An annual percentage rate shall be considered accurate if it is not more than <inline role="fraction" style="-uslm-sgm:FR">1/8</inline>th of 1 percentage point above or below the annual percentage rate determined in accordance with this section.<ref id="fnd3e23962" idref="fnd3e23968" style="-uslm-sgm:SU">31a</ref> An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a violation of this regulation if:</p>
<footnote id="fnd3e23968" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e23962" style="-uslm-sgm:SU">31a</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.14/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes, and notifies the Board in writing of the error in the calculation tool.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Annual percentage rate—in general.</heading>
<content> Where one or more periodic rates may be used to compute the finance charge, the annual percentage rate(s) to be disclosed for purposes of <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref>, 226.5b, 226.6, 226.7(a)(4) or (b)(4), 226.9, 226.15, 226.16, 226.26, 226.55, and 226.56 shall be computed by multiplying each periodic rate by the number of periods in a year.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Optional effective annual percentage rate for periodic statements for creditors offering open-end plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</heading>
<chapeau> A creditor offering an open-end plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> need not disclose an effective annual percentage rate. Such a creditor may, at its option, disclose an effective annual percentage rate(s) pursuant to <ref href="/us/cfr/t12/s226.7/a/7">§ 226.7(a)(7)</ref> and compute the effective annual percentage rate as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.14/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Solely periodic rates imposed.</heading>
<chapeau> If the finance charge is determined solely by applying one or more periodic rates, at the creditor's option, either:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.14/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> By multiplying each periodic rate by the number of periods in a year; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> By dividing the total finance charge for the billing cycle by the sum of the balances to which the periodic rates were applied and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Minimum or fixed charge, but not transaction charge, imposed.</heading>
<content>
<p> If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate, other <?page num="374"?>than a charge with respect to any specific transaction during the billing cycle, by dividing the total finance charge for the billing cycle by the amount of the balance(s) to which it is applicable <ref id="fnd3e24002" idref="fnd3e24012" style="-uslm-sgm:SU">32</ref> and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year.<ref id="fnd3e24006" idref="fnd3e24017" style="-uslm-sgm:SU">33</ref> If there is no balance to which the finance charge is applicable, an annual percentage rate cannot be determined under this section. Where the finance charge imposed during the billing cycle is or includes a loan fee, points, or similar charge that relates to opening, renewing, or continuing an account, the amount of such charge shall not be included in the calculation of the annual percentage rate.</p>
<footnote id="fnd3e24012" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e24002" style="-uslm-sgm:SU">32</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e24017" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e24006" style="-uslm-sgm:SU">33</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Transaction charge imposed.</heading>
<content>
<p> If the finance charge imposed during the billing cycle is or includes a charge relating to a specific transaction during the billing cycle (even if the total finance charge also includes any other minimum, fixed, or other charge not due to the application of a periodic rate), by dividing the total finance charge imposed during the billing cycle by the total of all balances and other amounts on which a finance charge was imposed during the billing cycle without duplication, and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year,<ref id="fnd3e24025" idref="fnd3e24035" style="-uslm-sgm:SU">34</ref> except that the annual percentage rate shall not be less than the largest rate determined by multiplying each periodic rate imposed during the billing cycle by the number of periods in a year.<ref id="fnd3e24029" idref="fnd3e24040" style="-uslm-sgm:SU">35</ref> Where the finance charge imposed during the billing cycle is or includes a loan fee, points, or similar charge that relates to the opening, renewing, or continuing an account, the amount of such charge shall not be included in the calculation of the annual percentage rate. See appendix F to this part regarding determination of the denominator of the fraction under this paragraph.</p>
<footnote id="fnd3e24035" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e24025" style="-uslm-sgm:SU">34</ref> [Reserved]</p>
</content>
</footnote>
<footnote id="fnd3e24040" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e24029" style="-uslm-sgm:SU">35</ref> [Reserved]</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate and the total finance charge imposed during the billing cycle does not exceed 50 cents for a monthly or longer billing cycle, or the pro rata part of 50 cents for a billing cycle shorter than monthly, at the creditor's option, by multiplying each applicable periodic rate by the number of periods in a year, notwithstanding the provisions of paragraphs (c)(2) and (c)(3) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Calculations where daily periodic rate applied.</heading>
<chapeau> If the provisions of paragraph (c)(1)(ii) or (c)(2) of this section apply and all or a portion of the finance charge is determined by the application of one or more daily periodic rates, the annual percentage rate may be determined either:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.14/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> By dividing the total finance charge by the average of the daily balances and multiplying the quotient by the number of billing cycles in a year; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.14/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> By dividing the total finance charge by the sum of the daily balances and multiplying the quotient by 365.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7815">75 FR 7815</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.15">
<num value="226.15" style="-uslm-sgm:SECTNO">§ 226.15</num>
<heading style="-uslm-sgm:SUBJECT">Right of rescission.</heading>
<paragraph identifier="/us/cfr/t12/s226.15/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Consumer's right to rescind.</heading>
<paragraph identifier="/us/cfr/t12/s226.15/a/1" class="inline">
<num value="1"> (1)</num>
<paragraph identifier="/us/cfr/t12/s226.15/a/1/i" class="inline">
<num value="i">(i)</num>
<content> Except as provided in paragraph (a)(1)(ii) of this section, in a credit plan in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind: each credit extension made under the plan; the plan when the plan is opened; a security interest when added or increased to secure an existing plan; and the increase when a credit limit on the plan is increased.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> As provided in section 125(e) of the Act, the consumer does not have the right to rescind each credit extension made under the plan if such extension is made in accordance with a previously established credit limit for the plan.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram, or other means of written communication. Notice is considered given when mailed, or when filed for telegraphic <?page num="375"?>transmission, or, if sent by other means, when delivered to the creditor's designated place of business.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> The consumer may exercise the right to rescind until midnight of the third business day following the occurrence described in paragraph (a)(1) of this section that gave rise to the right of rescission, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, <ref id="fnd3e24074" idref="fnd3e24080" style="-uslm-sgm:SU">36</ref> whichever occurs last. If the required notice and material disclosures are not delivered, the right to rescind shall expire 3 years after the occurrence giving rise to the right of rescission, or upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act.</p>
<footnote id="fnd3e24080" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24074" style="-uslm-sgm:SU">36</ref> The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">material disclosures</inline> means the information that must be provided to satisfy the requirements in <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> with regard to the method of determining the finance charge and the balance upon which a finance charge will be imposed, the annual percentage rate, the amount or method of determining the amount of any membership or participation fee that may be imposed as part of the plan, and the payment information described in <ref href="/us/cfr/t12/s226.5b/d/5/i">§ 226.5b(d)(5)(i)</ref> and (ii) that is required under <ref href="/us/cfr/t12/s226.6/e/2">§ 226.6(e)(2)</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> When more than one consumer has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Notice of right to rescind.</heading>
<chapeau> In any transaction or occurrence subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind (one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act). The notice shall identify the transaction or occurrence and clearly and conspicuously disclose the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.15/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The retention or acquisition of a security interest in the consumer's principal dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The consumer's right to rescind, as described in paragraph (a)(1) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor's place of business.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The effects of rescission, as described in paragraph (d) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The date the rescission period expires.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Delay of creditor's performance.</heading>
<content> Unless a consumer waives the right to rescind under paragraph (e) of this section, no money shall be disbursed other than in escrow, no services shall be performed, and no materials delivered until after the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded. A creditor does not violate this section if a third party with no knowledge of the event activating the rescission right does not delay in providing materials or services, as long as the debt incurred for those materials or services is not secured by the property subject to rescission.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Effects of rescission.</heading>
<paragraph identifier="/us/cfr/t12/s226.15/d/1" class="inline">
<num value="1"> (1)</num>
<content> When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void, and the consumer shall not be liable for any amount, including any finance charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer's option, tender of property may be made at the location of the property or at the consumer's residence. Tender of money must be made at the creditor's designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the <?page num="376"?>consumer's tender, the consumer may keep it without further obligation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Consumer's waiver of right to rescind.</heading>
<paragraph identifier="/us/cfr/t12/s226.15/e/1" class="inline">
<num value="1"> (1)</num>
<content> The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind. Printed forms for this purpose are prohibited, except as provided in paragraph (e)(2) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> The need of the consumer to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1993, pursuant to <ref href="/us/usc/t42/s5170">42 U.S.C. 5170</ref>, to be a major disaster area because of severe storms and flooding in the Midwest. <ref id="fnd3e24129" idref="fnd3e24135" style="-uslm-sgm:SU">36a</ref> In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster. </p>
<footnote id="fnd3e24135" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24129" style="-uslm-sgm:SU">36a</ref> A list of the affected areas will be maintained by the Board.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1994 to be a major disaster area, pursuant to <ref href="/us/usc/t42/s5170">42 U.S.C. 5170</ref>, because of severe storms and flooding in the South. <ref id="fnd3e24141" idref="fnd3e24147" style="-uslm-sgm:SU">36b</ref> In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster.</p>
<footnote id="fnd3e24147" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24141" style="-uslm-sgm:SU">36b</ref> A list of the affected areas will be maintained and published by the Board. Such areas now include parts of Alabama, Florida, and Georgia.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/e/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content>
<p> The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during October 1994 to be a major disaster area, pursuant to <ref href="/us/usc/t42/s5170">42 U.S.C. 5170</ref>, because of severe storms and flooding in Texas. <ref id="fnd3e24152" idref="fnd3e24158" style="-uslm-sgm:SU">36c</ref> In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster.</p>
<footnote id="fnd3e24158" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24152" style="-uslm-sgm:SU">36c</ref> A list of the affected areas will be maintained and published by the Board. Such areas now include the following counties in Texas: Angelina, Austin, Bastrop, Brazos, Brazoria, Burleson, Chambers, Fayette, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jackson, Jasper, Jefferson, Lee, Liberty, Madison, Matagorda, Montgomery, Nacagdoches, Orange, Polk, San Augustine, San Jacinto, Shelby, Trinity, Victoria, Washington, Waller, Walker, and Wharton.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Exempt transactions.</heading>
<chapeau> The right to rescind does not apply to the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.15/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A residential mortgage transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.15/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A credit plan in which a state agency is a creditor. </content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/54/24688">54 FR 24688</ref>, <date date="1989-06-09" role="amended">June 9, 1989</date>; <ref href="/us/fr/58/40583">58 FR 40583</ref>, <date date="1993-07-29" role="amended">July 29, 1993</date>; <ref href="/us/fr/59/40204">59 FR 40204</ref>, <date date="1994-08-05" role="amended">Aug. 5, 1994</date>; <ref href="/us/fr/59/63715">59 FR 63715</ref>, <date date="1994-12-09" role="amended">Dec. 9, 1994</date>; <ref href="/us/fr/66/17338">66 FR 17338</ref>, <date date="2001-03-30" role="amended">Mar. 30, 2001</date>; <ref href="/us/fr/72/63474">72 FR 63474</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.16">
<num value="226.16" style="-uslm-sgm:SECTNO">§ 226.16</num>
<heading style="-uslm-sgm:SUBJECT">Advertising.</heading>
<paragraph identifier="/us/cfr/t12/s226.16/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Actually available terms.</heading>
<content> If an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Advertisement of terms that require additional disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.16/b/1" class="inline">
<num value="1"> (1)</num>
<chapeau>
<p> Any term required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref> set forth affirmatively or negatively in an advertisement for an open-end (not home-secured) credit plan triggers additional disclosures under this section. Any term required to be disclosed under <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> or (a)(2) set forth affirmatively or negatively in an advertisement for a home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> triggers additional disclosures under this section. If any of the terms that trigger additional disclosures under this <?page num="377"?>paragraph is set forth in an advertisement, the advertisement shall also clearly and conspicuously set forth the following: <ref id="fnd3e24189" idref="fnd3e24194" style="-uslm-sgm:SU">36d</ref>
</p>
<footnote id="fnd3e24194" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e24189" style="-uslm-sgm:SU">36d</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any minimum, fixed, transaction, activity or similar charge that is a finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref> that could be imposed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any periodic rate that may be applied expressed as an annual percentage rate as determined under <ref href="/us/cfr/t12/s226.14/b">§ 226.14(b)</ref>. If the plan provides for a variable periodic rate, that fact shall be disclosed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Any membership or participation fee that could be imposed.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If an advertisement for credit to finance the purchase of goods or services specified in the advertisement states a periodic payment amount, the advertisement shall also state the total of payments and the time period to repay the obligation, assuming that the consumer pays only the periodic payment amount advertised. The disclosure of the total of payments and the time period to repay the obligation must be equally prominent to the statement of the periodic payment amount.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Catalogs or other multiple-page advertisements; electronic advertisements.</heading>
<paragraph identifier="/us/cfr/t12/s226.16/c/1" class="inline">
<num value="1"> (1)</num>
<chapeau> If a catalog or other multiple-page advertisement, or an electronic advertisement (such as an advertisement appearing on an Internet Web site), gives information in a table or schedule in sufficient detail to permit determination of the disclosures required by paragraph (b) of this section, it shall be considered a single advertisement if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The table or schedule is clearly and conspicuously set forth; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any statement of terms set forth in <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A catalog or other multiple-page advertisement or an electronic advertisement (such as an advertisement appearing on an Internet Web site) complies with this paragraph if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Additional requirements for home-equity plans—</heading>
<paragraph identifier="/us/cfr/t12/s226.16/d/1" class="inline">
<num value="1">(1) </num>
<heading>Advertisement of terms that require additional disclosures.</heading>
<chapeau> If any of the terms required to be disclosed under <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> or (a)(2) or the payment terms of the plan are set forth, affirmatively or negatively, in an advertisement for a home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, the advertisement also shall clearly and conspicuously set forth the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any loan fee that is a percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any periodic rate used to compute the finance charge, expressed as an annual percentage rate as determined under <ref href="/us/cfr/t12/s226.14/b">§ 226.14(b)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The maximum annual percentage rate that may be imposed in a variable-rate plan.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Discounted and premium rates.</heading>
<chapeau> If an advertisement states an initial annual percentage rate that is not based on the index and margin used to make later rate adjustments in a variable-rate plan, the advertisement also shall state with equal prominence and in close proximity to the initial rate:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The period of time such initial rate will be in effect; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A reasonably current annual percentage rate that would have been in effect using the index and margin.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Balloon payment.</heading>
<chapeau>
<p> If an advertisement contains a statement of any minimum periodic payment and a balloon payment may result if only the minimum periodic payments are made, even if such a payment is uncertain or unlikely, the advertisement also shall state with equal prominence and in close proximity to the minimum periodic payment statement that a balloon payment may result, if applicable.<ref id="fnd3e24245" idref="fnd3e24253" style="-uslm-sgm:SU">36e</ref> A balloon payment results if paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time, and the consumer is required to repay the entire outstanding balance at such time. If a balloon payment will occur when the consumer makes only the minimum payments required under the <?page num="378"?>plan, an advertisement for such a program which contains any statement of any minimum periodic payment shall also state with equal prominence and in close proximity to the minimum periodic payment statement:</p>
<footnote id="fnd3e24253" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e24245" style="-uslm-sgm:SU">36e</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> That a balloon payment will result; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The amount and timing of the balloon payment that will result if the consumer makes only the minimum payments for the maximum period of time that the consumer is permitted to make such payments.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Tax implications.</heading>
<chapeau> An advertisement that states that any interest expense incurred under the home-equity plan is or may be tax deductible may not be misleading in this regard. If an advertisement distributed in paper form or through the Internet (rather than by radio or television) is for a home-equity plan secured by the consumer's principal dwelling, and the advertisement states that the advertised extension of credit may exceed the fair market value of the dwelling, the advertisement shall clearly and conspicuously state that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/d/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Misleading terms.</heading>
<content> An advertisement may not refer to a home-equity plan as “free money” or contain a similarly misleading term.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Promotional rates and payments.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.16/d/6/i" class="inline">
<num value="i"> (i) </num>
<heading>Definitions.</heading>
<content>
<p> The following definitions apply for purposes of paragraph (d)(6) of this section:</p>
<p style="-uslm-sgm:P">(A) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotional rate.</inline> The term “promotional rate” means, in a variable-rate plan, any annual percentage rate that is not based on the index and margin that will be used to make rate adjustments under the plan, if that rate is less than a reasonably current annual percentage rate that would be in effect under the index and margin that will be used to make rate adjustments under the plan.</p>
<p style="-uslm-sgm:P">(B) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotional payment.</inline> The term “promotional payment” means:</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) For a variable-rate plan, any minimum payment applicable for a promotional period that:</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i</inline>) Is not derived by applying the index and margin to the outstanding balance when such index and margin will be used to determine other minimum payments under the plan; and</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ii</inline>) Is less than other minimum payments under the plan derived by applying a reasonably current index and margin that will be used to determine the amount of such payments, given an assumed balance.</p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) For a plan other than a variable-rate plan, any minimum payment applicable for a promotional period if that payment is less than other payments required under the plan given an assumed balance.</p>
<p style="-uslm-sgm:P">(C) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotional period.</inline> A “promotional period” means a period of time, less than the full term of the loan, that the promotional rate or promotional payment may be applicable.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Stating the promotional period and post-promotional rate or payments.</heading>
<chapeau> If any annual percentage rate that may be applied to a plan is a promotional rate, or if any payment applicable to a plan is a promotional payment, the following must be disclosed in any advertisement, other than television or radio advertisements, in a clear and conspicuous manner with equal prominence and in close proximity to each listing of the promotional rate or payment:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/d/6/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The period of time during which the promotional rate or promotional payment will apply;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/6/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In the case of a promotional rate, any annual percentage rate that will apply under the plan. If such rate is variable, the annual percentage rate must be disclosed in accordance with the accuracy standards in <ref href="/us/cfr/t12/s226.5b">§§ 226.5b</ref> or 226.16(b)(1)(ii) as applicable; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/6/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> In the case of a promotional payment, the amounts and time periods of any payments that will apply under the plan. In variable-rate transactions, payments that will be determined based on application of an index and margin shall be disclosed based on a reasonably current index and margin.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/d/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Envelope excluded.</heading>
<content> The requirements in paragraph (d)(6)(ii) of this section do not apply to an envelope in <?page num="379"?>which an application or solicitation is mailed, or to a banner advertisement or pop-up advertisement linked to an application or solicitation provided electronically.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Alternative disclosures—television or radio advertisements.</heading>
<content> An advertisement made through television or radio stating any of the terms requiring additional disclosures under paragraphs (b)(1) or (d)(1) of this section may alternatively comply with paragraphs (b)(1) or (d)(1) of this section by stating the information required by paragraphs (b)(1)(ii) or (d)(1)(ii) of this section, as applicable, and listing a toll-free telephone number, or any telephone number that allows a consumer to reverse the phone charges when calling for information, along with a reference that such number may be used by consumers to obtain the additional cost information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Misleading terms.</heading>
<content> An advertisement may not refer to an annual percentage rate as “fixed,” or use a similar term, unless the advertisement also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Promotional rates and fees.</heading>
<paragraph identifier="/us/cfr/t12/s226.16/g/1" class="inline">
<num value="1"> (1) </num>
<heading>Scope.</heading>
<content> The requirements of this paragraph apply to any advertisement of an open-end (not home-secured) plan, including promotional materials accompanying applications or solicitations subject to <ref href="/us/cfr/t12/s226.5a/c">§ 226.5a(c)</ref> or accompanying applications or solicitations subject to <ref href="/us/cfr/t12/s226.5a/e">§ 226.5a(e)</ref>.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.16/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Definitions.</heading>
<content>
<p> (i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotional rate</inline> means any annual percentage rate applicable to one or more balances or transactions on an open-end (not home-secured) plan for a specified period of time that is lower than the annual percentage rate that will be in effect at the end of that period on such balances or transactions.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Introductory rate</inline> means a promotional rate offered in connection with the opening of an account.</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotional period</inline> means the maximum time period for which a promotional rate or promotional fee may be applicable.</p>
<p style="-uslm-sgm:P">(iv) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotional fee</inline> means a fee required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (2) applicable to an open-end (not home-secured) plan, or to one or more balances or transactions on an open-end (not home-secured) plan, for a specified period of time that is lower than the fee that will be in effect at the end of that period for such plan or types of balances or transactions.</p>
<p style="-uslm-sgm:P">(v) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Introductory fee</inline> means a promotional fee offered in connection with the opening of an account.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/g/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Stating the term “introductory”.</heading>
<content> If any annual percentage rate or fee that may be applied to the account is an introductory rate or introductory fee, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">introductory</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">intro</inline> must be in immediate proximity to each listing of the introductory rate or introductory fee in a written or electronic advertisement.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/g/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Stating the promotional period and post-promotional rate or fee.</heading>
<chapeau> If any annual percentage rate that may be applied to the account is a promotional rate under paragraph (g)(2)(i) of this section or any fee that may be applied to the account is a promotional fee under paragraph (g)(2)(iv) of this section, the information in paragraphs (g)(4)(i) and, as applicable, (g)(4)(ii) or (iii) of this section must be stated in a clear and conspicuous manner in the advertisement. If the rate or fee is stated in a written or electronic advertisement, the information in paragraphs (g)(4)(i) and, as applicable, (g)(4)(ii) or (iii) of this section must also be stated in a prominent location closely proximate to the first listing of the promotional rate or promotional fee.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/g/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> When the promotional rate or promotional fee will end;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/g/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The annual percentage rate that will apply after the end of the promotional period. If such rate is variable, the annual percentage rate must comply with the accuracy standards in <ref href="/us/cfr/t12/s226.5a/c/2">§§ 226.5a(c)(2)</ref>, 226.5a(d)(3), 226.5a(e)(4), or 226.16(b)(1)(ii), as applicable. If such rate cannot be determined at the time disclosures are given because the rate depends at least in part on a later determination of the consumer's creditworthiness, the advertisement must disclose the specific rates or the range of rates that might apply; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/g/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The fee that will apply after the end of the promotional period.
<?page num="380"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/g/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Envelope excluded.</heading>
<content> The requirements in paragraph (g)(4) of this section do not apply to an envelope or other enclosure in which an application or solicitation is mailed, or to a banner advertisement or pop-up advertisement, linked to an application or solicitation provided electronically.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Deferred interest or similar offers.</heading>
<paragraph identifier="/us/cfr/t12/s226.16/h/1" class="inline">
<num value="1"> (1) </num>
<heading>Scope.</heading>
<content> The requirements of this paragraph apply to any advertisement of an open-end credit plan not subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, including promotional materials accompanying applications or solicitations subject to <ref href="/us/cfr/t12/s226.5a/c">§ 226.5a(c)</ref> or accompanying applications or solicitations subject to <ref href="/us/cfr/t12/s226.5a/e">§ 226.5a(e)</ref>.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.16/h/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Definitions.</heading>
<content> “Deferred interest” means finance charges, accrued on balances or transactions, that a consumer is not obligated to pay or that will be waived or refunded to a consumer if those balances or transactions are paid in full by a specified date. The maximum period from the date the consumer becomes obligated for the balance or transaction until the specified date by which the consumer must pay the balance or transaction in full in order to avoid finance charges, or receive a waiver or refund of finance charges, is the “deferred interest period.” “Deferred interest” does not include any finance charges the consumer avoids paying in connection with any recurring grace period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/h/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Stating the deferred interest period.</heading>
<content> If a deferred interest offer is advertised, the deferred interest period must be stated in a clear and conspicuous manner in the advertisement. If the phrase “no interest” or similar term regarding the possible avoidance of interest obligations under the deferred interest program is stated, the term “if paid in full” must also be stated in a clear and conspicuous manner preceding the disclosure of the deferred interest period in the advertisement. If the deferred interest offer is included in a written or electronic advertisement, the deferred interest period and, if applicable, the term “if paid in full” must also be stated in immediate proximity to each statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/h/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Stating the terms of the deferred interest or similar offer.</heading>
<chapeau> If any deferred interest offer is advertised, the information in paragraphs (h)(4)(i) and (h)(4)(ii) of this section must be stated in the advertisement, in language similar to Sample G–24 in appendix G to this part. If the deferred interest offer is included in a written or electronic advertisement, the information in paragraphs (h)(4)(i) and (h)(4)(ii) of this section must also be stated in a prominent location closely proximate to the first statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.16/h/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A statement that interest will be charged from the date the consumer becomes obligated for the balance or transaction subject to the deferred interest offer if the balance or transaction is not paid in full within the deferred interest period; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/h/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement, if applicable, that interest will be charged from the date the consumer incurs the balance or transaction subject to the deferred interest offer if the account is in default before the end of the deferred interest period.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.16/h/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Envelope excluded.</heading>
<content> The requirements in paragraph (h)(4) of this section do not apply to an envelope or other enclosure in which an application or solicitation is mailed, or to a banner advertisement or pop-up advertisement linked to an application or solicitation provided electronically.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7816">75 FR 7816</ref>, Feb. 22, 201, as amended at <ref href="/us/fr/76/23002">76 FR 23002</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spC">
<num value="C" style="-uslm-sgm:HED">Subpart C—</num>
<heading style="-uslm-sgm:HED">Closed-End Credit
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.17">
<num value="226.17" style="-uslm-sgm:SECTNO">§ 226.17 </num>
<heading style="-uslm-sgm:SUBJECT">General disclosure requirements.</heading>
<paragraph identifier="/us/cfr/t12/s226.17/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Form of disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.17/a/1" class="inline">
<num value="1"> (1)</num>
<content>
<p> The creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). The <?page num="381"?>disclosures required by <ref href="/us/cfr/t12/s226.17/g">§§ 226.17(g)</ref>, 226.19(b), and 226.24 may be provided to the consumer in electronic form without regard to the consumer consent or other provisions of the E-Sign Act in the circumstances set forth in those sections. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related <ref id="fnd3e24465" idref="fnd3e24476" style="-uslm-sgm:SU">37</ref> to the disclosures required under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> or <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>.<ref id="fnd3e24469" idref="fnd3e24481" style="-uslm-sgm:SU">38</ref> The itemization of the amount financed under <ref href="/us/cfr/t12/s226.18/c/1">§ 226.18(c)(1)</ref> must be separate from the other disclosures under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>, except for private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>.</p>
<footnote id="fnd3e24476" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24465" style="-uslm-sgm:SU">37</ref> The disclosures may include an acknowledgment of receipt, the date of the transaction, and the consumer's name, address, and account number.</p>
</content>
</footnote>
<footnote id="fnd3e24481" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24469" style="-uslm-sgm:SU">38</ref> The following disclosures may be made together with or separately from other required disclosures: the creditor's identity under <ref href="/us/cfr/t12/s226.18/a">§ 226.18(a)</ref>, the variable rate example under <ref href="/us/cfr/t12/s226.18/f/1/iv">§ 226.18(f)(1)(iv)</ref>, insurance or debt cancellation under <ref href="/us/cfr/t12/s226.18/n">§ 226.18(n)</ref>, and certain security interest charges under <ref href="/us/cfr/t12/s226.18/o">§ 226.18(o)</ref>.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Except for private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>, the terms “finance charge” and “annual percentage rate,” when required to be disclosed under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> (d) and (e) together with a corresponding amount or percentage rate, shall be more conspicuous than any other disclosure, except the creditor's identity under <ref href="/us/cfr/t12/s226.18/a">§ 226.18(a)</ref>. For private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>, the term “annual percentage rate,” and the corresponding percentage rate must be less conspicuous than the term “finance charge” and corresponding amount under <ref href="/us/cfr/t12/s226.18/d">§ 226.18(d)</ref>, the interest rate under <ref href="/us/cfr/t12/s226.47/b/1/i">§§ 226.47(b)(1)(i)</ref> and (c)(1), and the notice of the right to cancel under <ref href="/us/cfr/t12/s226.47/c/4">§ 226.47(c)(4)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Time of disclosures.</heading>
<content> The creditor shall make disclosures before consummation of the transaction. In certain residential mortgage transactions, special timing requirements are set forth in <ref href="/us/cfr/t12/s226.19/a">§ 226.19(a)</ref>. In certain variable-rate transactions, special timing requirements for variable-rate disclosures are set forth in <ref href="/us/cfr/t12/s226.19/b">§§ 226.19(b)</ref> and 226.20(c). For private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>, special timing requirements are set forth in <ref href="/us/cfr/t12/s226.46/d">§ 226.46(d)</ref>. In certain transactions involving mail or telephone orders or a series of sales, the timing of disclosures may be delayed in accordance with paragraphs (g) and (h) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Basis of disclosures and use of estimates.</heading>
<paragraph identifier="/us/cfr/t12/s226.17/c/1" class="inline">
<num value="1"> (1)</num>
<content> The disclosures shall reflect the terms of the legal obligation between the parties.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<paragraph identifier="/us/cfr/t12/s226.17/c/2/i" class="inline">
<num value="i">(i)</num>
<content> If any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available at the time the disclosure is provided to the consumer, and shall state clearly that the disclosure is an estimate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> For a transaction in which a portion of the interest is determined on a per-diem basis and collected at consummation, any disclosure affected by the per-diem interest shall be considered accurate if the disclosure is based on the information known to the creditor at the time that the disclosure documents are prepared for consummation of the transaction. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> The creditor may disregard the effects of the following in making calculations and disclosures.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.17/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> That payments must be collected in whole cents.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> That dates of scheduled payments and advances may be changed because the scheduled date is not a business day.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> That months have different numbers of days.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The occurrence of leap year.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> In making calculations and disclosures, the creditor may disregard any irregularity in the first period that falls within the limits described below and any payment schedule irregularity that results from the irregular first period:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.17/c/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> For transactions in which the term is less than 1 year, a first period not more than 6 days shorter or 13 days longer than a regular period; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> For transactions in which the term is at least 1 year and less than 10 years, a first period not more than 11 days shorter or 21 days longer than a regular period; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> For transactions in which the term is at least 10 years, a first period <?page num="382"?>shorter than or not more than 32 days longer than a regular period.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> If an obligation is payable on demand, the creditor shall make the disclosures based on an assumed maturity of 1 year. If an alternate maturity date is stated in the legal obligation between the parties, the disclosures shall be based on that date.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<paragraph identifier="/us/cfr/t12/s226.17/c/6/i" class="inline">
<num value="i">(i)</num>
<content> A series of advances under an agreement to extend credit up to a certain amount may be considered as one transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/c/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> When a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Multiple creditors; multiple consumers.</heading>
<content> If a transaction involves more than one creditor, only one set of disclosures shall be given and the creditors shall agree among themselves which creditor must comply with the requirements that this regulation imposes on any or all of them. If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation. If the transaction is rescindable under <ref href="/us/cfr/t12/s226.23">§ 226.23</ref>, however, the disclosures shall be made to each consumer who has the right to rescind.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Effect of subsequent events.</heading>
<content> If a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of this regulation, although new disclosures may be required under paragraph (f) of this section, <ref href="/us/cfr/t12/s226.19">§ 226.19</ref>, <ref href="/us/cfr/t12/s226.20">§ 226.20</ref>, or <ref href="/us/cfr/t12/s226.48/c/4">§ 226.48(c)(4)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Early disclosures.</heading>
<chapeau>
<p> Except for private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>, if disclosures required by this subpart are given before the date of consummation of a transaction and a subsequent event makes them inaccurate, the creditor shall disclose before consummation (subject to the provisions of <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref> and <ref href="/us/cfr/t12/s226.19/a/5/iii">§ 226.19(a)(5)(iii)</ref>): <ref id="fnd3e24543" idref="fnd3e24548" style="-uslm-sgm:SU">39</ref>
</p>
<footnote id="fnd3e24548" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e24543" style="-uslm-sgm:SU">39</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.17/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Any changed term unless the term was based on an estimate in accordance with <ref href="/us/cfr/t12/s226.17/c/2">§ 226.17(c)(2)</ref> and was labelled an estimate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> All changed terms, if the annual percentage rate at the time of consummation varies from the annual percentage rate disclosed earlier by more than <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> of 1 percentage point in a regular transaction, or more than <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point in an irregular transaction, as defined in <ref href="/us/cfr/t12/s226.22/a">§ 226.22(a)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Mail or telephone orders—delay in disclosures.</heading>
<chapeau> Except for private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>, if a creditor receives a purchase order or a request for an extension of credit by mail, telephone, or facsimile machine without face-to-face or direct telephone solicitation, the creditor may delay the disclosures until the due date of the first payment, if the following information for representative amounts or ranges of credit is made available in written form or in electronic form to the consumer or to the public before the actual purchase order or request:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.17/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The cash price or the principal loan amount.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The total sale price.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/g/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The finance charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/g/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> The annual percentage rate, and if the rate may increase after consummation, the following disclosures:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.17/g/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The circumstances under which the rate may increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/g/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any limitations on the increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/g/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The effect of an increase.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/g/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The terms of repayment.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Series of sales—delay in disclosures.</heading>
<chapeau> If a credit sale is one of a series made under an agreement providing that subsequent sales may be added to an outstanding balance, the creditor may delay the required disclosures until the due date of the first payment for the current sale, if the following two conditions are met:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.17/h/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The consumer has approved in writing the annual percentage rate or rates, the range of balances to which they apply, and the method of treating any unearned finance charge on an existing balance.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/h/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The creditor retains no security interest in any property after the creditor has received payments equal to the cash price and any finance charge attributable to the sale of that property. For purposes of this provision, in the <?page num="383"?>case of items purchased on different dates, the first purchased is deemed the first item paid for; in the case of items purchased on the same date, the lowest priced is deemed the first item paid for.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.17/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Interim student credit extensions.</heading>
<content> For transactions involving an interim credit extension under a student credit program for which an application is received prior to the mandatory compliance date of <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref>, 47, and 48, the creditor need not make the following disclosures: the finance charge under <ref href="/us/cfr/t12/s226.18/d">§ 226.18(d)</ref>, the payment schedule under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>, the total of payments under <ref href="/us/cfr/t12/s226.18/h">§ 226.18(h)</ref>, or the total sale price under <ref href="/us/cfr/t12/s226.18/j">§ 226.18(j)</ref> at the time the credit is actually extended. The creditor must make complete disclosures at the time the creditor and consumer agree upon the repayment schedule for the total obligation. At that time, a new set of disclosures must be made of all applicable items under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/52/48670">52 FR 48670</ref>, <date date="1987-12-24" role="amended">Dec. 24, 1987</date>; <ref href="/us/fr/61/49246">61 FR 49246</ref>, <date date="1996-09-19" role="amended">Sept. 19, 1996</date>; <ref href="/us/fr/66/17338">66 FR 17338</ref>, <date date="2001-03-30" role="amended">Mar. 30, 2001</date>; <ref href="/us/fr/67/16982">67 FR 16982</ref>, <date date="2002-04-09" role="amended">Apr. 9, 2002</date>; <ref href="/us/fr/72/63474">72 FR 63474</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>; <ref href="/us/fr/73/44600">73 FR 44600</ref>, <date date="2008-07-30" role="amended">July 30, 2008</date>; <ref href="/us/fr/74/23301">74 FR 23301</ref>, <date date="2009-05-19" role="amended">May 19, 2009</date>; <ref href="/us/fr/73/44600">73 FR 44600</ref>, <date date="2008-07-30" role="amended">July 30, 2008</date>; <ref href="/us/fr/74/41232">74 FR 41232</ref>, <date date="2009-08-14" role="amended">Aug. 14, 2009</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.18">
<num value="226.18" style="-uslm-sgm:SECTNO">§ 226.18</num>
<heading style="-uslm-sgm:SUBJECT">Content of disclosures.</heading>
<chapeau style="-uslm-sgm:P">For each transaction, the creditor shall disclose the following information as applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Creditor.</heading>
<content> The identity of the creditor making the disclosures.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Amount financed.</heading>
<chapeau> The <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount financed,</inline> using that term, and a brief description such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">the amount of credit provided to you or on your behalf.</inline> The amount financed is calculated by:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Determining the principal loan amount or the cash price (subtracting any downpayment); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Adding any other amounts that are financed by the creditor and are not part of the finance charge; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Subtracting any prepaid finance charge.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Itemization of amount financed.</heading>
<paragraph identifier="/us/cfr/t12/s226.18/c/1" class="inline">
<num value="1"> (1)</num>
<chapeau>
<p> A separate written itemization of the amount financed, including: <ref id="fnd3e24635" idref="fnd3e24640" style="-uslm-sgm:SU">40</ref>
</p>
<footnote id="fnd3e24640" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24635" style="-uslm-sgm:SU">40</ref> Good faith estimates of settlement costs provided for transactions subject to the Real Estate Settlement Procedures Act (<ref href="/us/usc/t12/s2601">12 U.S.C. 2601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) may be substituted for the disclosures required by paragraph (c) of this section.</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of any proceeds distributed directly to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The amount credited to the consumer's account with the creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content>
<p> Any amounts paid to other persons by the creditor on the consumer's behalf. The creditor shall identify those persons. <ref id="fnd3e24653" idref="fnd3e24658" style="-uslm-sgm:SU">41</ref>
</p>
<footnote id="fnd3e24658" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24653" style="-uslm-sgm:SU">41</ref> The following payees may be described using generic or other general terms and need not be further identified: public officials or government agencies, credit reporting agencies, appraisers, and insurance companies.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The prepaid finance charge.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The creditor need not comply with paragraph (c)(1) of this section if the creditor provides a statement that the consumer has the right to receive a written itemization of the amount financed, together with a space for the consumer to indicate whether it is desired, and the consumer does not request it.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Finance charge.</heading>
<chapeau> The <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge,</inline> using that term, and a brief description such as “the dollar amount the credit will cost you.” </chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/d/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Mortgage loans.</heading>
<chapeau> In a transaction secured by real property or a dwelling, the disclosed finance charge and other disclosures affected by the disclosed finance charge (including the amount financed and the annual percentage rate) shall be treated as accurate if the amount disclosed as the finance charge: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Is understated by no more than $100; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is greater than the amount required to be disclosed. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Other credit.</heading>
<content> In any other transaction, the amount disclosed as the finance charge shall be treated as accurate if, in a transaction involving an amount financed of $1,000 or less, it is not more than $5 above or below the amount required to be disclosed; or, in a transaction involving an amount financed of more than $1,000, it is not more than $10 above or below the amount required to be disclosed. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Annual percentage rate.</heading>
<content>
<p> The <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate,</inline> using that term, and a <?page num="384"?>brief description such as “the cost of your credit as a yearly rate.” <ref id="fnd3e24697" idref="fnd3e24703" style="-uslm-sgm:SU">42</ref>
</p>
<footnote id="fnd3e24703" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24697" style="-uslm-sgm:SU">42</ref> For any transaction involving a finance charge of $5 or less on an amount financed of $75 or less, or a finance charge of $7.50 or less on an amount financed of more than $75, the creditor need not disclose the annual percentage rate.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Variable rate.</heading>
<paragraph identifier="/us/cfr/t12/s226.18/f/1" class="inline">
<num value="1"> (1)</num>
<chapeau>
<p> If the annual percentage rate may increase after consummation in a transaction not secured by the consumer's principal dwelling or in a transaction secured by the consumer's principal dwelling with a term of one year or less, the following disclosures: <ref id="fnd3e24711" idref="fnd3e24716" style="-uslm-sgm:SU">43</ref>
</p>
<footnote id="fnd3e24716" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24711" style="-uslm-sgm:SU">43</ref> Information provided in accordance with <ref href="/us/cfr/t12/s226.18/f/2">§§ 226.18(f)(2)</ref> and 226.19(b) may be substituted for the disclosures required by paragraph (f)(1) of this section.</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The circumstances under which the rate may increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any limitations on the increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/f/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The effect of an increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/f/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> An example of the payment terms that would result from an increase.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> If the annual percentage rate may increase after consummation in a transaction secured by the consumer's principal dwelling with a term greater than one year, the following disclosures:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The fact that the transaction contains a variable-rate feature.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that variable-rate disclosures have been provided earlier.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Payment schedule.</heading>
<chapeau> Other than for a transaction that is subject to paragraph (s) of this section, the number, amounts, and timing of payments scheduled to repay the obligation.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> In a demand obligation with no alternate maturity date, the creditor may comply with this paragraph by disclosing the due dates or payment periods of any scheduled interest payments for the first year.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> In a transaction in which a series of payments varies because a finance charge is applied to the unpaid principal balance, the creditor may comply with this paragraph by disclosing the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/g/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The dollar amounts of the largest and smallest payments in the series.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/g/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A reference to the variations in the other payments in the series.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Total of payments.</heading>
<content>
<p> The <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total of payments,</inline> using that term, and a descriptive explanation such as “the amount you will have paid when you have made all scheduled payments.” <ref id="fnd3e24755" idref="fnd3e24761" style="-uslm-sgm:SU">44</ref>
</p>
<footnote id="fnd3e24761" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24755" style="-uslm-sgm:SU">44</ref> In any transaction involving a single payment, the creditor need not disclose the total of payments.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Demand feature.</heading>
<content> If the obligation has a demand feature, that fact shall be disclosed. When the disclosures are based on an assumed maturity of 1 year as provided in <ref href="/us/cfr/t12/s226.17/c/5">§ 226.17(c)(5)</ref>, that fact shall also be disclosed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Total sale price.</heading>
<content> In a credit sale, the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total sale price,</inline> using that term, and a descriptive explanation (including the amount of any downpayment) such as “the total price of your purchase on credit, including your downpayment of $__.” The total sale price is the sum of the cash price, the items described in paragraph (b)(2), and the finance charge disclosed under paragraph (d) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/k" style="-uslm-sgm:P">
<num value="k">(k) </num>
<heading>Prepayment.</heading>
<paragraph identifier="/us/cfr/t12/s226.18/k/1" class="inline">
<num value="1"> (1)</num>
<content> When an obligation includes a finance charge computed from time to time by application of a rate to the unpaid principal balance, a statement indicating whether or not a penalty may be imposed if the obligation is prepaid in full.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/k/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> When an obligation includes a finance charge other than the finance charge described in paragraph (k)(1) of this section, a statement indicating whether or not the consumer is entitled to a rebate of any finance charge if the obligation is prepaid in full.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/l" style="-uslm-sgm:P">
<num value="l">(l) </num>
<heading>Late payment.</heading>
<content> Any dollar or percentage charge that may be imposed before maturity due to a late payment, other than a deferral or extension charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/m" style="-uslm-sgm:P">
<num value="m">(m) </num>
<heading>Security interest.</heading>
<content> The fact that the creditor has or will acquire a security interest in the property purchased as part of the transaction, or in other property identified by item or type.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/n" style="-uslm-sgm:P">
<num value="n">(n) </num>
<heading>Insurance and debt cancellation.</heading>
<content> The items required by <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref> in order to exclude certain insurance premiums and debt cancellation fees from the finance charge. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/o" style="-uslm-sgm:P">
<num value="o">(o) </num>
<heading>Certain security interest charges.</heading>
<content> The disclosures required by <ref href="/us/cfr/t12/s226.4/e">§ 226.4(e)</ref> in order to exclude from the finance charge certain fees prescribed by law or <?page num="385"?>certain premiums for insurance in lieu of perfecting a security interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/p" style="-uslm-sgm:P">
<num value="p">(p) </num>
<heading>Contract reference.</heading>
<content> A statement that the consumer should refer to the appropriate contract document for information about nonpayment, default, the right to accelerate the maturity of the obligation, and prepayment rebates and penalties. At the creditor's option, the statement may also include a reference to the contract for further information about security interests and, in a residential mortgage transaction, about the creditor's policy regarding assumption of the obligation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/q" style="-uslm-sgm:P">
<num value="q">(q) </num>
<heading>Assumption policy.</heading>
<content> In a residential mortgage transaction, a statement whether or not a subsequent purchaser of the dwelling from the consumer may be permitted to assume the remaining obligation on its original terms.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/r" style="-uslm-sgm:P">
<num value="r">(r) </num>
<heading>Required deposit.</heading>
<content>
<p> If the creditor requires the consumer to maintain a deposit as a condition of the specific transaction, a statement that the annual percentage rate does not reflect the effect of the required deposit. <ref id="fnd3e24822" idref="fnd3e24827" style="-uslm-sgm:SU">45</ref>
</p>
<footnote id="fnd3e24827" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e24822" style="-uslm-sgm:SU">45</ref> A required deposit need not include, for example: (1) An escrow account for items such as taxes, insurance or repairs; (2) a deposit that earns not less than 5 percent per year; or (3) payments under a Morris Plan.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s" style="-uslm-sgm:P">
<num value="s">(s) </num>
<heading>Interest rate and payment summary for mortgage transactions.</heading>
<chapeau> For a closed-end transaction secured by real property or a dwelling, other than a transaction secured by a consumer's interest in a timeshare plan described in <ref href="/us/usc/t11/s101/53D">11 U.S.C. 101(53D)</ref>, the creditor shall disclose the following information about the interest rate and payments:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Form of disclosures.</heading>
<content> The information in paragraphs (s)(2)–(4) of this section shall be in the form of a table, with no more than five columns, with headings and format substantially similar to Model Clause H–4(E), H–4(F), H–4(G), or H–4(H) in appendix H to this part. The table shall contain only the information required in paragraphs (s)(2)–(4) of this section, shall be placed in a prominent location, and shall be in a minimum 10-point font.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Interest rates—</heading>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/i" class="inline">
<num value="i">(i) </num>
<heading>Amortizing loans.</heading>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/i/A" class="inline">
<num value="A"> (A)</num>
<content> For a fixed-rate mortgage, the interest rate at consummation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> For an adjustable-rate or step-rate mortgage—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/i/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The interest rate at consummation and the period of time until the first interest rate adjustment may occur, labeled as the “introductory rate and monthly payment”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/i/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due and the earliest date on which that rate may apply, labeled as “maximum during first five years”; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/i/B/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The maximum interest rate that may apply during the life of the loan and the earliest date on which that rate may apply, labeled as “maximum ever.”</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> If the loan provides for payment increases as described in paragraph (s)(3)(i)(B) of this section, the interest rate in effect at the time the first such payment increase is scheduled to occur and the date on which the increase will occur, labeled as “first adjustment” if the loan is an adjustable-rate mortgage or, otherwise, labeled as “first increase.”</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Negative amortization loans.</heading>
<chapeau> For a negative amortization loan—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The interest rate at consummation and, if it will adjust after consummation, the length of time until it will adjust, and the label “introductory” or “intro”;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The maximum interest rate that could apply when the consumer must begin making fully amortizing payments under the terms of the legal obligation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> If the minimum required payment will increase before the consumer must begin making fully amortizing payments, the maximum interest rate that could apply at the time of the first payment increase and the date the increase is scheduled to occur; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> If a second increase in the minimum required payment may occur before the consumer must begin making fully amortizing payments, the maximum interest rate that could apply at the time of the second payment increase and the date the increase is scheduled to occur.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Introductory rate disclosure for amortizing adjustable-rate mortgages.</heading>
<chapeau> For an amortizing adjustable-rate mortgage, if the interest rate at consummation is less than the fully-indexed rate, <?page num="386"?>placed in a box directly beneath the table required by paragraph (s)(1) of this section, in a format substantially similar to Model Clause H–4(I) in appendix H to this part—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The interest rate that applies at consummation and the period of time for which it applies;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A statement that, even if market rates do not change, the interest rate will increase at the first adjustment and a designation of the place in sequence of the month or year, as applicable, of such rate adjustment; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/2/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The fully-indexed rate.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Payments for amortizing loans—</heading>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/i" class="inline">
<num value="i">(i) </num>
<heading>Principal and interest payments.</heading>
<chapeau> If all periodic payments will be applied to accrued interest and principal, for each interest rate disclosed under paragraph (s)(2)(i) of this section—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The corresponding periodic principal and interest payment, labeled as “principal and interest;”</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the periodic payment may increase without regard to an interest rate adjustment, the payment that corresponds to the first such increase and the earliest date on which the increase could occur;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> If an escrow account will be established, an estimate of the amount of taxes and insurance, including any mortgage insurance, payable with each periodic payment; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The sum of the amounts disclosed under paragraphs (s)(3)(i)(A) and (C) of this section or (s)(3)(i)(B) and (C) of this section, as applicable, labeled as “total estimated monthly payment.”</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Interest-only payments.</heading>
<chapeau> If the loan is an interest-only loan, for each interest rate disclosed under paragraph (s)(2)(i) of this section, the corresponding periodic payment and—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> If the payment will be applied to only accrued interest, the amount applied to interest, labeled as “interest payment,” and a statement that none of the payment is being applied to principal;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the payment will be applied to accrued interest and principal, an itemization of the amount of the first such payment applied to accrued interest and to principal, labeled as “interest payment” and “principal payment,” respectively;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The escrow information described in paragraph (s)(3)(i)(C) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/3/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The sum of all amounts required to be disclosed under paragraphs (s)(3)(ii)(A) and (C) of this section or (s)(3)(ii)(B) and (C) of this section, as applicable, labeled as “total estimated monthly payment.”</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Payments for negative amortization loans.</heading>
<chapeau> For negative amortization loans:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<paragraph identifier="/us/cfr/t12/s226.18/s/4/i/A" class="inline">
<num value="A">(A)</num>
<content> The minimum periodic payment required until the first payment increase or interest rate increase, corresponding to the interest rate disclosed under paragraph (s)(2)(ii)(A) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The minimum periodic payment that would be due at the first payment increase and the second, if any, corresponding to the interest rates described in paragraphs (s)(2)(ii)(C) and (D) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/4/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A statement that the minimum payment pays only some interest, does not repay any principal, and will cause the loan amount to increase;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The fully amortizing periodic payment amount at the earliest time when such a payment must be made, corresponding to the interest rate disclosed under paragraph (s)(2)(ii)(B) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If applicable, in addition to the payments in paragraphs (s)(4)(i) and (ii) of this section, for each interest rate disclosed under paragraph (s)(2)(ii) of this section, the amount of the fully amortizing periodic payment, labeled as the “full payment option,” and a statement that these payments pay all principal and all accrued interest.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Balloon payments.</heading>
<paragraph identifier="/us/cfr/t12/s226.18/s/5/i" class="inline">
<num value="i"> (i)</num>
<content> Except as provided in paragraph (s)(5)(ii) of this section, if the transaction will require a balloon payment, defined as a payment that is more than two times a regular periodic payment, the balloon payment shall be disclosed separately from other periodic payments disclosed in the table under this paragraph (s), outside the table and in a manner substantially similar to Model Clause H–4(J) in appendix H to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the balloon payment is scheduled to occur at the same time as another payment required to be disclosed in the table pursuant to paragraph (s)(3) or (s)(4) of this section, then the <?page num="387"?>balloon payment must be disclosed in the table.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Special disclosures for loans with negative amortization.</heading>
<chapeau> For a negative amortization loan, the following information, in close proximity to the table required in paragraph (s)(1) of this section, with headings, content, and format substantially similar to Model Clause H–4(G) in appendix H to this part:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/s/6/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The maximum interest rate, the shortest period of time in which such interest rate could be reached, the amount of estimated taxes and insurance included in each payment disclosed, and a statement that the loan offers payment options, two of which are shown.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/s/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The dollar amount of the increase in the loan's principal balance if the consumer makes only the minimum required payments for the maximum possible time and the earliest date on which the consumer must begin making fully amortizing payments, assuming that the maximum interest rate is reached at the earliest possible time.</content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.18/s/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>:</p>
<p style="-uslm-sgm:P">(i) The term “adjustable-rate mortgage” means a transaction secured by real property or a dwelling for which the annual percentage rate may increase after consummation.</p>
<p style="-uslm-sgm:P">(ii) The term “step-rate mortgage” means a transaction secured by real property or a dwelling for which the interest rate will change after consummation, and the rates that will apply and the periods for which they will apply are known at consummation.</p>
<p style="-uslm-sgm:P">(iii) The term “fixed-rate mortgage” means a transaction secured by real property or a dwelling that is not an adjustable-rate mortgage or a step-rate mortgage.</p>
<p style="-uslm-sgm:P">(iv) The term “interest-only” means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; an “interest-only loan” is a loan that permits interest-only payments.</p>
<p style="-uslm-sgm:P">(v) The term “amortizing loan” means a loan in which payment of the periodic payments does not result in an increase in the principal balance under the terms of the legal obligation; the term “negative amortization” means payment of periodic payments that will result in an increase in the principal balance under the terms of the legal obligation; the term “negative amortization loan” means a loan, other than a reverse mortgage subject to <ref href="/us/cfr/t12/s226.33">§ 226.33</ref>, that provides for a minimum periodic payment that covers only a portion of the accrued interest, resulting in negative amortization.</p>
<p style="-uslm-sgm:P">(vi) The term “fully-indexed rate” means the interest rate calculated using the index value and margin at the time of consummation.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.18/t" style="-uslm-sgm:P">
<num value="t">(t)</num>
<chapeau> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No-guarantee-to-refinance” statement</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure.</inline> For a closed-end transaction secured by real property or a dwelling, other than a transaction secured by a consumer's interest in a timeshare plan described in <ref href="/us/usc/t11/s101/53D">11 U.S.C. 101(53D)</ref>, the creditor shall disclose a statement that there is no guarantee the consumer can refinance the transaction to lower the interest rate or periodic payments.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.18/t/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Format.</heading>
<content> The statement required by paragraph (t)(1) of this section must be in a form substantially similar to Model Clause H–4(K) in appendix H to this part.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>; <ref href="/us/fr/46/29246">46 FR 29246</ref>, <date date="1981-06-01">June 1, 1981</date>, as amended at <ref href="/us/fr/52/48670">52 FR 48670</ref>, <date date="1987-12-24" role="amended">Dec. 24, 1987</date>; <ref href="/us/fr/61/49246">61 FR 49246</ref>, <date date="1996-09-19" role="amended">Sept. 19, 1996</date>; <ref href="/us/fr/75/58482">75 FR 58482</ref>, <date date="2010-09-24" role="amended">Sept. 24, 2010</date>; <ref href="/us/fr/75/81841">75 FR 81841</ref>, <date date="2010-12-29" role="amended">Dec. 29, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.19">
<num value="226.19" style="-uslm-sgm:SECTNO">§ 226.19</num>
<heading style="-uslm-sgm:SUBJECT">Certain mortgage and variable-rate transactions.</heading>
<paragraph identifier="/us/cfr/t12/s226.19/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Mortgage transactions subject to RESPA—</heading>
<paragraph identifier="/us/cfr/t12/s226.19/a/1" class="inline">
<num value="1">(1)</num>
<paragraph identifier="/us/cfr/t12/s226.19/a/1/i" class="inline">
<num value="i">(i) </num>
<heading>Time of disclosures.</heading>
<content> In a mortgage transaction subject to the Real Estate Settlement Procedures Act (<ref href="/us/usc/t12/s2601">12 U.S.C. 2601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) that is secured by the consumer's dwelling, other than a home equity line of credit subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> or mortgage transaction subject to paragraph (a)(5) of this section, the creditor shall make good faith estimates of the disclosures required by <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> and shall deliver or place them in the mail not later than the third business day after the creditor receives the consumer's written application.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Imposition of fees.</heading>
<content> Except as provided in paragraph (a)(1)(iii) of this section, neither a creditor nor any other person may impose a fee on a consumer <?page num="388"?>in connection with the consumer's application for a mortgage transaction subject to paragraph (a)(1)(i) of this section before the consumer has received the disclosures required by paragraph (a)(1)(i) of this section. If the disclosures are mailed to the consumer, the consumer is considered to have received them three business days after they are mailed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Exception to fee restriction.</heading>
<content> A creditor or other person may impose a fee for obtaining the consumer's credit history before the consumer has received the disclosures required by paragraph (a)(1)(i) of this section, provided the fee is <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> and reasonable in amount.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Waiting periods for early disclosures and corrected disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.19/a/2/i" class="inline">
<num value="i"> (i)</num>
<content> The creditor shall deliver or place in the mail the good faith estimates required by paragraph (a)(1)(i) of this section not later than the seventh business day before consummation of the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the annual percentage rate disclosed under paragraph (a)(1)(i) of this section becomes inaccurate, as defined in <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor shall provide corrected disclosures with all changed terms. The consumer must receive the corrected disclosures no later than three business days before consummation. If the corrected disclosures are mailed to the consumer or delivered to the consumer by means other than delivery in person, the consumer is deemed to have received the corrected disclosures three business days after they are mailed or delivered.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Consumer's waiver of waiting period before consummation.</heading>
<content> If the consumer determines that the extension of credit is needed to meet a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> personal financial emergency, the consumer may modify or waive the seven-business-day waiting period or the three-business-day waiting period required by paragraph (a)(2) of this section, after receiving the disclosures required by <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>. To modify or waive a waiting period, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and bears the signature of all the consumers who are primarily liable on the legal obligation. Printed forms for this purpose are prohibited.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Notice.</heading>
<content> Disclosures made pursuant to paragraph (a)(1) or paragraph (a)(2) of this section shall contain the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.” The disclosure required by this paragraph shall be grouped together with the disclosures required by paragraphs (a)(1) or (a)(2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Timeshare plans.</heading>
<chapeau> In a mortgage transaction subject to the Real Estate Settlement Procedures Act (<ref href="/us/usc/t12/s2601">12 U.S.C. 2601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) that is secured by a consumer's interest in a timeshare plan described in <ref href="/us/usc/t11/s101">11 U.S.C. 101</ref>(53(D)):</chapeau>
<paragraph identifier="/us/cfr/t12/s226.19/a/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The requirements of paragraphs (a)(1) through (a)(4) of this section do not apply;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor shall make good faith estimates of the disclosures required by <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> before consummation, or shall deliver or place them in the mail not later than three business days after the creditor receives the consumer's written application, whichever is earlier; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/a/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If the annual percentage rate at the time of consummation varies from the annual percentage rate disclosed under paragraph (a)(5)(ii) of this section by more than <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> of 1 percentage point in a regular transaction or more than <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point in an irregular transaction, as defined in <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor shall disclose all the changed terms no later than consummation or settlement. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Certain variable-rate transactions.</heading>
<chapeau>
<p>
<ref id="fnd3e25067" idref="fnd3e25076" style="-uslm-sgm:SU">45a</ref> If the annual percentage rate may increase after consummation in a transaction secured by the consumer's principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier: <ref id="fnd3e25071" idref="fnd3e25081" style="-uslm-sgm:SU">45b</ref>
</p>
<footnote id="fnd3e25076" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25067" style="-uslm-sgm:SU">45a</ref> Information provided in accordance with variable-rate regulations of other federal agencies may be substituted for the disclosures required by paragraph (b) of this section.</p>
</content>
</footnote>
<footnote id="fnd3e25081" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25071" style="-uslm-sgm:SU">45b</ref> Disclosures may be delivered or placed in the mail not later than three business days following receipt of a consumer's application when the application reaches the <?page num=""?>creditor by telephone, or through an intermediary agent or broker.</p>
</content>
</footnote>
<?page num="389"?>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.19/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The booklet titled <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer Handbook on Adjustable Rate Mortgages</inline> published by the Board and the Federal Home Loan Bank Board, or a suitable substitute.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> A loan program disclosure for each variable-rate program in which the consumer expresses an interest. The following disclosures, as applicable, shall be provided:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The fact that the interest rate, payment, or term of the loan can change.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The index or formula used in making adjustments, and a source of information about the index or formula.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A statement that the consumer should ask about the current margin value and current interest rate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The fact that the interest rate will be discounted, and a statement that the consumer should ask about the amount of the interest rate discount. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> The frequency of interest rate and payment changes. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Any rules relating to changes in the index, interest rate, payment amount, and outstanding loan balance including, for example, an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<chapeau> At the option of the creditor, either of the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/viii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A historical example, based on a $10,000 loan amount, illustrating how payments and the loan balance would have been affected by interest rate changes implemented according to the terms of the loan program disclosure. The example shall reflect the most recent 15 years of index values. The example shall reflect all significant loan program terms, such as negative amortization, interest rate carryover, interest rate discounts, and interest rate and payment limitations, that would have been affected by the index movement during the period.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/viii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The maximum interest rate and payment for a $10,000 loan originated at the initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure assuming the maximum periodic increases in rates and payments under the program; and the initial interest rate and payment for that loan and a statement that the periodic payment may increase or decrease substantially depending on changes in the rate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/ix" style="-uslm-sgm:P">
<num value="ix">(ix)</num>
<chapeau> An explanation of how the consumer may calculate the payments for the loan amount to be borrowed based on either:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/ix/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The most recent payment shown in the historical example in paragraph (b)(2)(viii)(A) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/ix/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The initial interest rate used to calculate the maximum interest rate and payment in paragraph (b)(2)(viii)(B) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/x" style="-uslm-sgm:P">
<num value="x">(x)</num>
<content> The fact that the loan program contains a demand feature. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/xi" style="-uslm-sgm:P">
<num value="xi">(xi)</num>
<content> The type of information that will be provided in notices of adjustments and the timing of such notices. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/b/2/xii" style="-uslm-sgm:P">
<num value="xii">(xii)</num>
<content> A statement that disclosure forms are available for the creditor's other variable-rate loan programs.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.19/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Electronic disclosures.</heading>
<content> For an application that is accessed by the consumer in electronic form, the disclosures required by paragraph (b) of this section may be provided to the consumer in electronic form on or with the application.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/52/48670">52 FR 48670</ref>, <date date="1987-12-24">Dec. 24, 1987</date>; <ref href="/us/fr/53/467">53 FR 467</ref>, <date date="1988-01-07">Jan. 7, 1988</date>, as amended at <ref href="/us/fr/61/49246">61 FR 49246</ref>, <date date="1996-09-19" role="amended">Sept. 19, 1996</date>; <ref href="/us/fr/62/63443">62 FR 63443</ref>, <date date="1997-12-01" role="amended">Dec. 1, 1997</date>; <ref href="/us/fr/72/63474">72 FR 63474</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>; <ref href="/us/fr/73/44600">73 FR 44600</ref>, <date date="2008-07-30" role="amended">July 30, 2008</date>; <ref href="/us/fr/73/44600">73 FR 44600</ref>, <date date="2008-07-30" role="amended">July 30, 2008</date>; <ref href="/us/fr/74/23301">74 FR 23301</ref>, <date date="2009-05-19" role="amended">May 19, 2009</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.20">
<num value="226.20" style="-uslm-sgm:SECTNO">§ 226.20</num>
<heading style="-uslm-sgm:SUBJECT">Subsequent disclosure requirements.</heading>
<paragraph identifier="/us/cfr/t12/s226.20/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Refinancings.</heading>
<chapeau> A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance <?page num="390"?>charge that is not credited to the existing obligation. The following shall not be treated as a refinancing:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.20/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A renewal of a single payment obligation with no change in the original terms.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A reduction in the annual percentage rate with a corresponding change in the payment schedule.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> An agreement involving a court proceeding.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Assumptions.</heading>
<chapeau> An assumption occurs when a creditor expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction. Before the assumption occurs, the creditor shall make new disclosures to the subsequent consumer, based on the remaining obligation. If the finance charge originally imposed on the existing obligation was an add-on or discount finance charge, the creditor need only disclose:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.20/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The unpaid balance of the obligation assumed.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The total charges imposed by the creditor in connection with the assumption.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The information required to be disclosed under <ref href="/us/cfr/t12/s226.18/k">§ 226.18(k)</ref>, (l), (m), and (n). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The annual percentage rate originally imposed on the obligation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The payment schedule under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref> and the total of payments under <ref href="/us/cfr/t12/s226.18/h">§ 226.18(h)</ref> based on the remaining obligation.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Variable-rate adjustments.</heading>
<chapeau>
<p> 
<ref id="fnd3e25178" idref="fnd3e25184" style="-uslm-sgm:SU">45c</ref> An adjustment to the interest rate with or without a corresponding adjustment to the payment in a variable-rate transaction subject to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> is an event requiring new disclosures to the consumer. At least once each year during which an interest rate adjustment is implemented without an accompanying payment change, and at least 25, but no more than 120, calendar days before a payment at a new level is due, the following disclosures, as applicable, must be delivered or placed in the mail:</p>
<footnote id="fnd3e25184" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25178" style="-uslm-sgm:SU">45c</ref> Information provided in accordance with variable-rate subsequent disclosure regulations of other federal agencies may be substituted for the disclosure required by paragraph (c) of this section.</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.20/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The current and prior interest rates.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The index values upon which the current and prior interest rates are based. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The extent to which the creditor has foregone any increase in the interest rate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The contractual effects of the adjustment, including the payment due after the adjustment is made, and a statement of the loan balance. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.20/c/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The payment, if different from that referred to in paragraph (c)(4) of this section, that would be required to fully amortize the loan at the new interest rate over the remainder of the loan term.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/52/48671">52 FR 48671</ref>, <date date="1987-12-24" role="amended">Dec. 24, 1987</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.21">
<num value="226.21" style="-uslm-sgm:SECTNO">§ 226.21</num>
<heading style="-uslm-sgm:SUBJECT">Treatment of credit balances.</heading>
<chapeau style="-uslm-sgm:P">When a credit balance in excess of $1 is created in connection with a transaction (through transmittal of funds to a creditor in excess of the total balance due on an account, through rebates of unearned finance charges or insurance premiums, or through amounts otherwise owed to or held for the benefit of a consumer), the creditor shall:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.21/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> Credit the amount of the credit balance to the consumer's account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.21/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> Refund any part of the remaining credit balance, upon the written request of the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.21/c" style="-uslm-sgm:P">
<num value="c">(c)</num>
<content> Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than 6 months, except that no further action is required if the consumer's current location is not <?page num="391"?>known to the creditor and cannot be traced through the consumer's last known address or telephone number.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.22">
<num value="226.22" style="-uslm-sgm:SECTNO">§ 226.22</num>
<heading style="-uslm-sgm:SUBJECT">Determination of annual percentage rate.</heading>
<paragraph identifier="/us/cfr/t12/s226.22/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Accuracy of annual percentage rate.</heading>
<paragraph identifier="/us/cfr/t12/s226.22/a/1" class="inline">
<num value="1"> (1)</num>
<content>
<p> The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made. The annual percentage rate shall be determined in accordance with either the actuarial method or the United States Rule method. Explanations, equations and instructions for determining the annual percentage rate in accordance with the actuarial method are set forth in appendix J to this regulation. <ref id="fnd3e25224" idref="fnd3e25230" style="-uslm-sgm:SU">45d</ref>
</p>
<footnote id="fnd3e25230" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25224" style="-uslm-sgm:SU">45d</ref> An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a violation of this regulation if: (1) The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and (2) upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes and notifies the Board in writing of the error in the calculation tool.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> As a general rule, the annual percentage rate shall be considered accurate if it is not more than <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> In an irregular transaction, the annual percentage rate shall be considered accurate if it is not more than <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section. <ref id="fnd3e25243" idref="fnd3e25248" style="-uslm-sgm:SU">46</ref>
</p>
<footnote id="fnd3e25248" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25243" style="-uslm-sgm:SU">46</ref> For purposes of paragraph (a)(3) of this section, an irregular transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Mortgage loans.</heading>
<chapeau> If the annual percentage rate disclosed in a transaction secured by real property or a dwelling varies from the actual rate determined in accordance with paragraph (a)(1) of this section, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, the disclosed annual percentage rate shall also be considered accurate if: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.22/a/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The rate results from the disclosed finance charge; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/a/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<paragraph identifier="/us/cfr/t12/s226.22/a/4/ii/A" class="inline">
<num value="A">(A)</num>
<content> The disclosed finance charge would be considered accurate under <ref href="/us/cfr/t12/s226.18/d/1">§ 226.18(d)(1)</ref>; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/a/4/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> For purposes of rescission, if the disclosed finance charge would be considered accurate under <ref href="/us/cfr/t12/s226.23/g">§ 226.23(g)</ref> or (h), whichever applies. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Additional tolerance for mortgage loans.</heading>
<chapeau> In a transaction secured by real property or a dwelling, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, if the disclosed finance charge is calculated incorrectly but is considered accurate under <ref href="/us/cfr/t12/s226.18/d/1">§ 226.18(d)(1)</ref> or <ref href="/us/cfr/t12/s226.23/g">§ 226.23(g)</ref> or (h), the disclosed annual percentage rate shall be considered accurate: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.22/a/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> If the disclosed finance charge is understated, and the disclosed annual percentage rate is also understated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/a/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the disclosed finance charge is overstated, and the disclosed annual percentage rate is also overstated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Computation tools.</heading>
<paragraph identifier="/us/cfr/t12/s226.22/b/1" class="inline">
<num value="1"> (1)</num>
<content> The Regulation Z Annual Percentage Rate Tables produced by the Board may be used to determine the annual percentage rate, and any rate determined from those tables in accordance with the accompanying instructions complies with the requirements of this section. Volume I of the tables applies to single advance transactions involving up to 480 monthly payments or 104 weekly payments. It may be used for regular transactions and for transactions with any of the following irregularities: an irregular first period, an irregular first payment, and an irregular final payment. Volume II of the tables applies to transactions involving multiple advances and any type of payment or period irregularity.
<?page num="392"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Creditors may use any other computation tool in determining the annual percentage rate if the rate so determined equals the rate determined in accordance with appendix J, within the degree of accuracy set forth in paragraph (a) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Single add-on rate transactions.</heading>
<content> If a single add-on rate is applied to all transactions with maturities up to 60 months and if all payments are equal in amount and period, a single annual percentage rate may be disclosed for all those transactions, so long as it is the highest annual percentage rate for any such transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.22/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Certain transactions involving ranges of balances.</heading>
<content> For purposes of disclosing the annual percentage rate referred to in <ref href="/us/cfr/t12/s226.17/g/4">§ 226.17(g)(4)</ref> (Mail or telephone orders—delay in disclosures) and (h) (Series of sales—delay in disclosures), if the same finance charge is imposed on all balances within a specified range of balances, the annual percentage rate computed for the median balance may be disclosed for all the balances. However, if the annual percentage rate computed for the median balance understates the annual percentage rate computed for the lowest balance by more than 8 percent of the latter rate, the annual percentage rate shall be computed on whatever lower balance will produce an annual percentage rate that does not result in an understatement of more than 8 percent of the rate determined on the lowest balance.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/47/756">47 FR 756</ref>, <date date="1982-01-07" role="amended">Jan. 7, 1982</date>; <ref href="/us/fr/48/14886">48 FR 14886</ref>, <date date="1983-04-06" role="amended">Apr. 6, 1983</date>; <ref href="/us/fr/61/49246">61 FR 49246</ref>, <date date="1996-09-19" role="amended">Sept. 19, 1996</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.23">
<num value="226.23" style="-uslm-sgm:SECTNO">§ 226.23</num>
<heading style="-uslm-sgm:SUBJECT">Right of rescission.</heading>
<paragraph identifier="/us/cfr/t12/s226.23/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Consumer's right to rescind.</heading>
<paragraph identifier="/us/cfr/t12/s226.23/a/1" class="inline">
<num value="1"> (1)</num>
<content>
<p> In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (f) of this section. <ref id="fnd3e25302" idref="fnd3e25307" style="-uslm-sgm:SU">47</ref>
</p>
<footnote id="fnd3e25307" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25302" style="-uslm-sgm:SU">47</ref> For purposes of this section, the addition to an existing obligation of a security interest in a consumer's principal dwelling is a transaction. The right of rescission applies only to the addition of the security interest and not the existing obligation. The creditor shall deliver the notice required by paragraph (b) of this section but need not deliver new material disclosures. Delivery of the required notice shall begin the rescission period.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, <ref id="fnd3e25314" idref="fnd3e25320" style="-uslm-sgm:SU">48</ref> whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act.</p>
<footnote id="fnd3e25320" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25314" style="-uslm-sgm:SU">48</ref> The term ‘material disclosures’ means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in <ref href="/us/cfr/t12/s226.32/c">§§ 226.32(c)</ref> and (d) and 226.35(b)(2).</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> When more than one consumer in a transaction has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<paragraph identifier="/us/cfr/t12/s226.23/b/1" class="inline">
<num value="1">(1) </num>
<heading>Notice of right to rescind.</heading>
<chapeau> In a transaction subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind (one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act). The notice shall be on a separate document that identifies the transaction and shall clearly and conspicuously disclose the following:
<?page num="393"?></chapeau>
<paragraph identifier="/us/cfr/t12/s226.23/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The retention or acquisition of a security interest in the consumer's principal dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The consumer's right to rescind the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor's place of business.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The effects of rescission, as described in paragraph (d) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/b/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The date the rescission period expires.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Proper form of notice.</heading>
<content> To satisfy the disclosure requirements of paragraph (b)(1) of this section, the creditor shall provide the appropriate model form in appendix H of this part or a substantially similar notice. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Delay of creditor's performance.</heading>
<content> Unless a consumer waives the right of rescission under paragraph (e) of this section, no money shall be disbursed other than in escrow, no services shall be performed and no materials delivered until the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Effects of rescission.</heading>
<paragraph identifier="/us/cfr/t12/s226.23/d/1" class="inline">
<num value="1"> (1)</num>
<content> When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer's option, tender of property may be made at the location of the property or at the consumer's residence. Tender of money must be made at the creditor's designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer's tender, the consumer may keep it without further obligation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The procedures outlined in paragraphs (d) (2) and (3) of this section may be modified by court order.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Consumer's waiver of right to rescind.</heading>
<paragraph identifier="/us/cfr/t12/s226.23/e/1" class="inline">
<num value="1"> (1)</num>
<content> The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind. Printed forms for this purpose are prohibited, except as provided in paragraph (e)(2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> The need of the consumer to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1993, pursuant to <ref href="/us/usc/t42/s5170">42 U.S.C. 5170</ref>, to be a major disaster area because of severe storms and flooding in the Midwest. <ref id="fnd3e25370" idref="fnd3e25377" style="-uslm-sgm:SU">48a</ref> In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster. </p>
<footnote id="fnd3e25377" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25370" style="-uslm-sgm:SU">48a</ref> A list of the affected areas will be maintained by the Board.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during June through September 1994 to be a major disaster area, pursuant to <ref href="/us/usc/t42/s5170">42 U.S.C. 5170</ref>, because of severe storms and flooding in the South. <ref id="fnd3e25382" idref="fnd3e25390" style="-uslm-sgm:SU">48b</ref> In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from <?page num="394"?>the date an area was declared a major disaster.</p>
<footnote id="fnd3e25390" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25382" style="-uslm-sgm:SU">48b</ref> A list of the affected areas will be maintained and published by the Board. Such areas now include parts of Alabama, Florida, and Georgia.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/e/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content>
<p> The consumer's need to obtain funds immediately shall be regarded as a bona fide personal financial emergency provided that the dwelling securing the extension of credit is located in an area declared during October 1994 to be a major disaster area, pursuant to <ref href="/us/usc/t42/s5170">42 U.S.C. 5170</ref>, because of severe storms and flooding in Texas. <ref id="fnd3e25395" idref="fnd3e25401" style="-uslm-sgm:SU">48c</ref> In this instance, creditors may use printed forms for the consumer to waive the right to rescind. This exemption to paragraph (e)(1) of this section shall expire one year from the date an area was declared a major disaster.</p>
<footnote id="fnd3e25401" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e25395" style="-uslm-sgm:SU">48c</ref> A list of the affected areas will be maintained and published by the Board. Such areas now include the following counties in Texas: Angelina, Austin, Bastrop, Brazos, Brazoria, Burleson, Chambers, Fayette, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jackson, Jasper, Jefferson, Lee, Liberty, Madison, Matagorda, Montgomery, Nacagdoches, Orange, Polk, San Augustine, San Jacinto, Shelby, Trinity, Victoria, Washington, Waller, Walker, and Wharton.</p>
</content>
</footnote>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Exempt transactions.</heading>
<chapeau> The right to rescind does not apply to the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.23/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A residential mortgage transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling. The right of rescission shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A transaction in which a state agency is a creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/f/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> An advance, other than an initial advance, in a series of advances or in a series of single-payment obligations that is treated as a single transaction under <ref href="/us/cfr/t12/s226.17/c/6">§ 226.17(c)(6)</ref>, if the notice required by paragraph (b) of this section and all material disclosures have been given to the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/f/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> A renewal of optional insurance premiums that is not considered a refinancing under <ref href="/us/cfr/t12/s226.20/a/5">§ 226.20(a)(5)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Tolerances for accuracy—</heading>
<paragraph identifier="/us/cfr/t12/s226.23/g/1" class="inline">
<num value="1">(1) </num>
<heading>One-half of 1 percent tolerance.</heading>
<chapeau> Except as provided in paragraphs (g)(2) and (h)(2) of this section, the finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.23/g/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> is understated by no more than <inline role="fraction" style="-uslm-sgm:FR">1/2</inline> of 1 percent of the face amount of the note or $100, whichever is greater; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/g/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> is greater than the amount required to be disclosed. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>One percent tolerance.</heading>
<chapeau> In a refinancing of a residential mortgage transaction with a new creditor (other than a transaction covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>), if there is no new advance and no consolidation of existing loans, the finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.23/g/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/g/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> is greater than the amount required to be disclosed. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Special rules for foreclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.23/h/1" class="inline">
<num value="1">(1) </num>
<heading>Right to rescind.</heading>
<chapeau> After the initiation of foreclosure on the consumer's principal dwelling that secures the credit obligation, the consumer shall have the right to rescind the transaction if: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.23/h/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A mortgage broker fee that should have been included in the finance charge was not included; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/h/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor did not provide the properly completed appropriate model form in appendix H of this part, or a substantially similar notice of rescission. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/h/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Tolerance for disclosures.</heading>
<chapeau> After the initiation of foreclosure on the consumer's principal dwelling that secures the credit obligation, the finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.23/h/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> is understated by no more than $35; or
<?page num="395"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.23/h/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> is greater than the amount required to be disclosed. </content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/51/45299">51 FR 45299</ref>, <date date="1986-12-18" role="amended">Dec. 18, 1986</date>; <ref href="/us/fr/58/40583">58 FR 40583</ref>, <date date="1993-07-29" role="amended">July 29, 1993</date>; <ref href="/us/fr/59/40204">59 FR 40204</ref>, <date date="1994-08-05" role="amended">Aug. 5, 1994</date>; <ref href="/us/fr/59/63715">59 FR 63715</ref>, <date date="1994-12-09" role="amended">Dec. 9, 1994</date>; <ref href="/us/fr/60/15471">60 FR 15471</ref>, <date date="1995-03-24" role="amended">Mar. 24, 1995</date>; <ref href="/us/fr/61/49247">61 FR 49247</ref>, <date date="1996-09-19" role="amended">Sept. 19, 1996</date>; <ref href="/us/fr/66/17338">66 FR 17338</ref>, <date date="2001-03-30" role="amended">Mar. 30, 2001</date>; <ref href="/us/fr/72/63474">72 FR 63474</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>; <ref href="/us/fr/73/44601">73 FR 44601</ref>, <date date="2008-07-24" role="amended">July 24, 2008</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.24">
<num value="226.24" style="-uslm-sgm:SECTNO">§ 226.24</num>
<heading style="-uslm-sgm:SUBJECT">Advertising.</heading>
<paragraph identifier="/us/cfr/t12/s226.24/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Actually available terms.</heading>
<content> If an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Clear and conspicuous standard.</heading>
<content> Disclosures required by this section shall be made clearly and conspicuously.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Advertisement of rate of finance charge.</heading>
<content> If an advertisement states a rate of finance charge, it shall state the rate as an “annual percentage rate,” using that term. If the annual percentage rate may be increased after consummation, the advertisement shall state that fact. If an advertisement is for credit not secured by a dwelling, the advertisement shall not state any other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the annual percentage rate. If an advertisement is for credit secured by a dwelling, the advertisement shall not state any other rate, except that a simple annual rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the annual percentage rate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Advertisement of terms that require additional disclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.24/d/1" class="inline">
<num value="1">(1) </num>
<heading>Triggering terms.</heading>
<chapeau> If any of the following terms is set forth in an advertisement, the advertisement shall meet the requirements of paragraph (d)(2) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount or percentage of any downpayment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The number of payments or period of repayment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The amount of any payment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/d/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The amount of any finance charge.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Additional terms.</heading>
<chapeau>
<p> An advertisement stating any of the terms in paragraph (d)(1) of this section shall state the following terms,<ref id="fnd3e25510" idref="fnd3e25517" style="-uslm-sgm:SU">49</ref> as applicable (an example of one or more typical extensions of credit with a statement of all the terms applicable to each may be used):</p>
<footnote id="fnd3e25517" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e25510" style="-uslm-sgm:SU">49</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount or percentage of the downpayment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The “annual percentage rate,” using that term, and, if the rate may be increased after consummation, that fact.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Catalogs or other multiple-page advertisements; electronic advertisements—</heading>
<paragraph identifier="/us/cfr/t12/s226.24/e/1" class="inline">
<num value="1">(1)</num>
<chapeau> If a catalog or other multiple-page advertisement, or an electronic advertisement (such as an advertisement appearing on an Internet Web site), gives information in a table or schedule in sufficient detail to permit determination of the disclosures required by paragraph (d)(2) of this section, it shall be considered a single advertisement if—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The table or schedule is clearly and conspicuously set forth; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any statement of the credit terms in paragraph (d)(1) of this section appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A catalog or other multiple-page advertisement or an electronic advertisement (such as an advertisement appearing on an Internet Web site) complies with paragraph (d)(2) of this section if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Disclosure of rates and payments in advertisements for credit secured by a dwelling—</heading>
<paragraph identifier="/us/cfr/t12/s226.24/f/1" class="inline">
<num value="1">(1) </num>
<heading>Scope.</heading>
<content> The requirements of this paragraph apply to any advertisement for credit secured by a dwelling, other than television or radio advertisements, including promotional materials accompanying applications.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Disclosure of rates—</heading>
<paragraph identifier="/us/cfr/t12/s226.24/f/2/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> If an advertisement for credit secured by a dwelling states a simple annual rate <?page num="396"?>of interest and more than one simple annual rate of interest will apply over the term of the advertised loan, the advertisement shall disclose in a clear and conspicuous manner:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/f/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Each simple annual rate of interest that will apply. In variable-rate transactions, a rate determined by adding an index and margin shall be disclosed based on a reasonably current index and margin;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The period of time during which each simple annual rate of interest will apply; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The annual percentage rate for the loan. If such rate is variable, the annual percentage rate shall comply with the accuracy standards in <ref href="/us/cfr/t12/s226.17/c">§§ 226.17(c)</ref> and 226.22.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Clear and conspicuous requirement.</heading>
<content> For purposes of paragraph (f)(2)(i) of this section, clearly and conspicuously disclosed means that the required information in paragraphs (f)(2)(i)(A) through (C) shall be disclosed with equal prominence and in close proximity to any advertised rate that triggered the required disclosures. The required information in paragraph (f)(2)(i)(C) may be disclosed with greater prominence than the other information.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Disclosure of payments—</heading>
<paragraph identifier="/us/cfr/t12/s226.24/f/3/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> In addition to the requirements of paragraph (c) of this section, if an advertisement for credit secured by a dwelling states the amount of any payment, the advertisement shall disclose in a clear and conspicuous manner:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/f/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The amount of each payment that will apply over the term of the loan, including any balloon payment. In variable-rate transactions, payments that will be determined based on the application of the sum of an index and margin shall be disclosed based on a reasonably current index and margin;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The period of time during which each payment will apply; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/3/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> In an advertisement for credit secured by a first lien on a dwelling, the fact that the payments do not include amounts for taxes and insurance premiums, if applicable, and that the actual payment obligation will be greater.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Clear and conspicuous requirement.</heading>
<content> For purposes of paragraph (f)(3)(i) of this section, a clear and conspicuous disclosure means that the required information in paragraphs (f)(3)(i)(A) and (B) shall be disclosed with equal prominence and in close proximity to any advertised payment that triggered the required disclosures, and that the required information in paragraph (f)(3)(i)(C) shall be disclosed with prominence and in close proximity to the advertised payments.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Envelope excluded.</heading>
<content> The requirements in paragraphs (f)(2) and (f)(3) of this section do not apply to an envelope in which an application or solicitation is mailed, or to a banner advertisement or pop-up advertisement linked to an application or solicitation provided electronically.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Alternative disclosures—television or radio advertisements.</heading>
<chapeau> An advertisement made through television or radio stating any of the terms requiring additional disclosures under paragraph (d)(2) of this section may comply with paragraph (d)(2) of this section either by:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Stating clearly and conspicuously each of the additional disclosures required under paragraph (d)(2) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Stating clearly and conspicuously the information required by paragraph (d)(2)(iii) of this section and listing a toll-free telephone number, or any telephone number that allows a consumer to reverse the phone charges when calling for information, along with a reference that such number may be used by consumers to obtain additional cost information.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Tax implications.</heading>
<chapeau> If an advertisement distributed in paper form or through the Internet (rather than by radio or television) is for a loan secured by the consumer's principal dwelling, and the advertisement states that the advertised extension of credit may exceed the fair market value of the dwelling, the advertisement shall clearly and conspicuously state that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/h/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/h/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.
<?page num="397"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Prohibited acts or practices in advertisements for credit secured by a dwelling.</heading>
<chapeau> The following acts or practices are prohibited in advertisements for credit secured by a dwelling:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/i/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Misleading advertising of “fixed” rates and payments.</heading>
<chapeau> Using the word “fixed” to refer to rates, payments, or the credit transaction in an advertisement for variable-rate transactions or other transactions where the payment will increase, unless:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/i/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> In the case of an advertisement solely for one or more variable-rate transactions,</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/i/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The phrase “Adjustable-Rate Mortgage,” “Variable-Rate Mortgage,” or “ARM” appears in the advertisement before the first use of the word “fixed” and is at least as conspicuous as any use of the word “fixed” in the advertisement; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Each use of the word “fixed” to refer to a rate or payment is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed, and the fact that the rate may vary or the payment may increase after that period;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In the case of an advertisement solely for non-variable-rate transactions where the payment will increase (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.</inline>, a stepped-rate mortgage transaction with an initial lower payment), each use of the word “fixed” to refer to the payment is accompanied by an equally prominent and closely proximate statement of the time period for which the payment is fixed, and the fact that the payment will increase after that period; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> In the case of an advertisement for both variable-rate transactions and non-variable-rate transactions,</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/i/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The phrase “Adjustable-Rate Mortgage,” “Variable-Rate Mortgage,” or “ARM” appears in the advertisement with equal prominence as any use of the term “fixed,” “Fixed-Rate Mortgage,” or similar terms; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Each use of the word “fixed” to refer to a rate, payment, or the credit transaction either refers solely to the transactions for which rates are fixed and complies with paragraph (i)(1)(ii) of this section, if applicable, or, if it refers to the variable-rate transactions, is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed, and the fact that the rate may vary or the payment may increase after that period.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Misleading comparisons in advertisements.</heading>
<chapeau> Making any comparison in an advertisement between actual or hypothetical credit payments or rates and any payment or simple annual rate that will be available under the advertised product for a period less than the full term of the loan, unless:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/i/2/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> The advertisement includes a clear and conspicuous comparison to the information required to be disclosed under sections 226.24(f)(2) and (3); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Application to variable-rate transactions.</heading>
<content> If the advertisement is for a variable-rate transaction, and the advertised payment or simple annual rate is based on the index and margin that will be used to make subsequent rate or payment adjustments over the term of the loan, the advertisement includes an equally prominent statement in close proximity to the payment or rate that the payment or rate is subject to adjustment and the time period when the first adjustment will occur.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Misrepresentations about government endorsement.</heading>
<content> Making any statement in an advertisement that the product offered is a “government loan program”, “government-supported loan”, or is otherwise endorsed or sponsored by any federal, state, or local government entity, unless the advertisement is for an FHA loan, VA loan, or similar loan program that is, in fact, endorsed or sponsored by a federal, state, or local government entity.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Misleading use of the current lender's name.</heading>
<chapeau> Using the name of the consumer's current lender in an advertisement that is not sent by or on behalf of the consumer's current lender, unless the advertisement:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.24/i/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Discloses with equal prominence the name of the person or creditor making the advertisement; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Includes a clear and conspicuous statement that the person making the advertisement is not associated with, or acting on behalf of, the consumer's current lender.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Misleading claims of debt elimination.</heading>
<content> Making any misleading claim <?page num="398"?>in an advertisement that the mortgage product offered will eliminate debt or result in a waiver or forgiveness of a consumer's existing loan terms with, or obligations to, another creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Misleading use of the term “counselor”.</heading>
<content> Using the term “counselor” in an advertisement to refer to a for-profit mortgage broker or mortgage creditor, its employees, or persons working for the broker or creditor that are involved in offering, originating or selling mortgages.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.24/i/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Misleading foreign-language advertisements.</heading>
<content> Providing information about some trigger terms or required disclosures, such as an initial rate or payment, only in a foreign language in an advertisement, but providing information about other trigger terms or required disclosures, such as information about the fully-indexed rate or fully amortizing payment, only in English in the same advertisement.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/66/17338">66 FR 17338</ref>, <date date="2001-03-30" role="amended">Mar. 30, 2001</date>; <ref href="/us/fr/72/63474">72 FR 63474</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>; <ref href="/us/fr/73/44601">73 FR 44601</ref>, <date date="2008-07-30" role="amended">July 30, 2008</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spD">
<num value="D" style="-uslm-sgm:HED">Subpart D—</num>
<heading style="-uslm-sgm:HED">Miscellaneous
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.25">
<num value="226.25" style="-uslm-sgm:SECTNO">§ 226.25 </num>
<heading style="-uslm-sgm:SUBJECT">Record retention.</heading>
<paragraph identifier="/us/cfr/t12/s226.25/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule.</heading>
<content> A creditor shall retain evidence of compliance with this regulation (other than advertising requirements under <ref href="/us/cfr/t12/s226.16">§§ 226.16</ref> and 226.24) for 2 years after the date disclosures are required to be made or action is required to be taken. The administrative agencies responsible for enforcing the regulation may require creditors under their jurisdictions to retain records for a longer period if necessary to carry out their enforcement responsibilities under section 108 of the act.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.25/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Inspection of records.</heading>
<content> A creditor shall permit the agency responsible for enforcing this regulation with respect to that creditor to inspect its relevant records for compliance.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.26">
<num value="226.26" style="-uslm-sgm:SECTNO">§ 226.26 </num>
<heading style="-uslm-sgm:SUBJECT">Use of annual percentage rate in oral disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.26/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Open-end credit.</heading>
<content> In an oral response to a consumer's inquiry about the cost of open-end credit, only the annual percentage rate or rates shall be stated, except that the periodic rate or rates also may be stated. If the annual percentage rate cannot be determined in advance because there are finance charges other than a periodic rate, the corresponding annual percentage rate shall be stated, and other cost information may be given.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.26/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Closed-end credit.</heading>
<content> In an oral response to a consumer's inquiry about the cost of closed-end credit, only the annual percentage rate shall be stated, except that a simple annual rate or periodic rate also may be stated if it is applied to an unpaid balance. If the annual percentage rate cannot be determined in advance, the annual percentage rate for a sample transaction shall be stated, and other cost information for the consumer's specific transaction may be given.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.27">
<num value="226.27" style="-uslm-sgm:SECTNO">§ 226.27 </num>
<heading style="-uslm-sgm:SUBJECT">Language of disclosures. </heading>
<content>
<p style="-uslm-sgm:P">Disclosures required by this regulation may be made in a language other than English, provided that the disclosures are made available in English upon the consumer's request. This requirement for providing English disclosures on request does not apply to advertisements subject to <ref href="/us/cfr/t12/s226.16">§§ 226.16</ref> and 226.24.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/66/17339">66 FR 17339</ref>, <date date="2001-03-30">Mar. 30, 2001</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.28">
<num value="226.28" style="-uslm-sgm:SECTNO">§ 226.28 </num>
<heading style="-uslm-sgm:SUBJECT">Effect on State laws.</heading>
<paragraph identifier="/us/cfr/t12/s226.28/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Inconsistent disclosure requirements.</heading>
<paragraph identifier="/us/cfr/t12/s226.28/a/1" class="inline">
<num value="1"> (1)</num>
<content> Except as provided in paragraph (d) of this section, State law requirements that are inconsistent with the requirements contained in chapter 1 (General Provisions), chapter 2 (Credit Transactions), or chapter 3 (Credit Advertising) of the act and the implementing provisions of this regulation are preempted to the extent of the inconsistency. A State law is inconsistent if it requires a creditor to make disclosures or take actions that contradict the requirements of the Federal law. A State law is contradictory if it requires the use of the same term to represent a different amount or a different meaning than the Federal law, or if it requires the use of a term different from that required in the Federal law to describe the same item. A creditor, State, or other interested party may request the Board to determine whether a State law requirement is inconsistent. After the Board determines that a State law is inconsistent, a creditor may not <?page num="399"?>make disclosures using the inconsistent term or form.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.28/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<paragraph identifier="/us/cfr/t12/s226.28/a/2/i" class="inline">
<num value="i">(i)</num>
<content> State law requirements are inconsistent with the requirements contained in sections 161 (Correction of billing errors) or 162 (Regulation of credit reports) of the Act and the implementing provisions of this regulation and are preempted if they provide rights, responsibilities, or procedures for consumers or creditors that are different from those required by the Federal law. However, a State law that allows a consumer to inquire about an open-end credit account and imposes on the creditor an obligation to respond to such inquiry after the time allowed in the Federal law for the consumer to submit written notice of a billing error shall not be preempted in any situation where the time period for making written notice under this regulation has expired. If a creditor gives written notice of a consumer's rights under such State law, the notice shall state that reliance on the longer time period available under State law may result in the loss of important rights that could be preserved by acting more promptly under Federal law; it shall also explain that the State law provisions apply only after expiration of the time period for submitting a proper written notice of a billing error under the Federal law. If the State disclosures are made on the same side of a page as the required Federal disclosures, the State disclosures shall appear under a demarcation line below the Federal disclosures, and the Federal disclosures shall be identified by a heading indicating that they are made in compliance with Federal law.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.28/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> State law requirements are inconsistent with the requirements contained in chapter 4 (Credit billing) of the Act (other than section 161 or 162) and the implementing provisions of this regulation and are preempted if the creditor cannot comply with State law without violating Federal law.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.28/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A State may request the Board to determine whether its law is inconsistent with chapter 4 of the Act and its implementing provisions.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.28/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Equivalent disclosure requirements.</heading>
<content> If the Board determines that a disclosure required by state law (other than a requirement relating to the finance charge, annual percentage rate, or the disclosures required under <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>) is substantially the same in meaning as a disclosure required under the act or this regulation, creditors in that state may make the state disclosure in lieu of the federal disclosure. A creditor, State, or other interested party may request the Board to determine whether a State disclosure is substantially the same in meaning as a Federal disclosure.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.28/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Request for determination.</heading>
<content> The procedures under which a request for a determination may be made under this section are set forth in appendix A.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.28/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Special rule for credit and charge cards.</heading>
<content> State law requirements relating to the disclosure of credit information in any credit or charge card application or solicitation that is subject to the requirements of section 127(c) of chapter 2 of the act (<ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> of the regulation) or in any renewal notice for a credit or charge card that is subject to the requirements of section 127(d) of chapter 2 of the act (<ref href="/us/cfr/t12/s226.9/e">§ 226.9(e)</ref> of the regulation) are preempted. State laws relating to the enforcement of section 127 (c) and (d) of the act are not preempted.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/54/13867">54 FR 13867</ref>, <date date="1989-04-06" role="amended">Apr. 6, 1989</date>; <ref href="/us/fr/54/32954">54 FR 32954</ref>, <date date="1989-08-11" role="amended">Aug. 11, 1989</date>; <ref href="/us/fr/60/15471">60 FR 15471</ref>, <date date="1995-03-24" role="amended">Mar. 24, 1995</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.29">
<num value="226.29" style="-uslm-sgm:SECTNO">§ 226.29 </num>
<heading style="-uslm-sgm:SUBJECT">State exemptions.</heading>
<paragraph identifier="/us/cfr/t12/s226.29/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule.</heading>
<chapeau> Any State may apply to the Board to exempt a class of transactions within the State from the requirements of chapter 2 (Credit transactions) or chapter 4 (Credit billing) of the Act and the corresponding provisions of this regulation. The Board shall grant an exemption if it determines that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.29/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The State law is substantially similar to the Federal law or, in the case of chapter 4, affords the consumer greater protection than the Federal law; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.29/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> There is adequate provision for enforcement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.29/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Civil liability.</heading>
<paragraph identifier="/us/cfr/t12/s226.29/b/1" class="inline">
<num value="1"> (1)</num>
<content> No exemptions granted under this section shall extend to the civil liability provisions of sections 130 and 131 of the Act.
<?page num="400"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.29/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If an exemption has been granted, the disclosures required by the applicable State law (except any additional requirements not imposed by Federal law) shall constitute the disclosures required by this Act.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.29/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Applications.</heading>
<content> The procedures under which a State may apply for an exemption under this section are set forth in appendix B.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>; <ref href="/us/fr/46/29246">46 FR 29246</ref>, <date date="1981-06-01">June 1, 1981</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.30">
<num value="226.30" style="-uslm-sgm:SECTNO">§ 226.30</num>
<heading style="-uslm-sgm:SUBJECT">Limitation on rates.</heading>
<chapeau>
<p style="-uslm-sgm:P">A creditor shall include in any consumer credit contract secured by a dwelling and subject to the act and this regulation the maximum interest rate that may be imposed during the term of the obligation <ref id="fnd3e25801" idref="fnd3e25807" style="-uslm-sgm:SU">50</ref> when:</p>
<footnote id="fnd3e25807" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e25801" style="-uslm-sgm:SU">50</ref> [Reserved]</p>
</content>
</footnote>
</chapeau>
<paragraph identifier="/us/cfr/t12/s226.30/a" style="-uslm-sgm:P">
<num value="a">(a)</num>
<content> In the case of closed-end credit, the annual percentage rate may increase after consummation, or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.30/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> In the case of open-end credit, the annual percentage rate may increase during the plan.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7818">75 FR 7818</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spE">
<num value="E" style="-uslm-sgm:HED">Subpart E—</num>
<heading style="-uslm-sgm:HED">Special Rules for Certain Home Mortgage Transactions</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. Z, <ref href="/us/fr/60/15471">60 FR 15471</ref>, <date date="1995-03-24">Mar. 24, 1995</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.31">
<num value="226.31" style="-uslm-sgm:SECTNO">§ 226.31 </num>
<heading style="-uslm-sgm:SUBJECT">General rules. </heading>
<paragraph identifier="/us/cfr/t12/s226.31/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Relation to other subparts in this part.</heading>
<content> The requirements and limitations of this subpart are in addition to and not in lieu of those contained in other subparts of this part. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Form of disclosures.</heading>
<content> The creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15">15 U.S.C. </ref>§ 7001 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Timing of disclosure—</heading>
<paragraph identifier="/us/cfr/t12/s226.31/c/1" class="inline">
<num value="1">(1) </num>
<heading>Disclosures for certain closed-end home mortgages.</heading>
<chapeau> The creditor shall furnish the disclosures required by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> at least three business days prior to consummation of a mortgage transaction covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. </chapeau>
<paragraph identifier="/us/cfr/t12/s226.31/c/1/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Change in terms.</heading>
<content> After complying with paragraph (c)(1) of this section and prior to consummation, if the creditor changes any term that makes the disclosures inaccurate, new disclosures shall be provided in accordance with the requirements of this subpart. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Telephone disclosures.</heading>
<chapeau> A creditor may provide new disclosures by telephone if the consumer initiates the change and if, at consummation: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.31/c/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The creditor provides new written disclosures; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/c/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The consumer and creditor sign a statement that the new disclosures were provided by telephone at least three days prior to consummation. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Consumer's waiver of waiting period before consummation.</heading>
<content> The consumer may, after receiving the disclosures required by paragraph (c)(1) of this section, modify or waive the three-day waiting period between delivery of those disclosures and consummation if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and bears the signature of all the consumers entitled to the waiting period. Printed forms for this purpose are prohibited, except when creditors are permitted to use printed forms pursuant to <ref href="/us/cfr/t12/s226.23/e/2">§ 226.23(e)(2)</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Disclosures for reverse mortgages.</heading>
<chapeau> The creditor shall furnish the disclosures required by <ref href="/us/cfr/t12/s226.33">§ 226.33</ref> at least three business days prior to: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.31/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Consummation of a closed-end credit transaction; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The first transaction under an open-end credit plan. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Basis of disclosures and use of estimates—</heading>
<paragraph identifier="/us/cfr/t12/s226.31/d/1" class="inline">
<num value="1">(1) </num>
<heading>Legal Obligation.</heading>
<content> Disclosures shall reflect the terms of the legal obligation between the parties. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Estimates.</heading>
<content> If any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available <?page num="401"?>at the time the disclosure is provided, and shall state clearly that the disclosure is an estimate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Per-diem interest.</heading>
<content> For a transaction in which a portion of the interest is determined on a per-diem basis and collected at consummation, any disclosure affected by the per-diem interest shall be considered accurate if the disclosure is based on the information known to the creditor at the time that the disclosure documents are prepared. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Multiple creditors; multiple consumers.</heading>
<content> If a transaction involves more than one creditor, only one set of disclosures shall be given and the creditors shall agree among themselves which creditor must comply with the requirements that this part imposes on any or all of them. If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation. If the transaction is rescindable under <ref href="/us/cfr/t12/s226.15">§ 226.15</ref> or <ref href="/us/cfr/t12/s226.23">§ 226.23</ref>, however, the disclosures shall be made to each consumer who has the right to rescind. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Effect of subsequent events.</heading>
<content> If a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of Regulation Z (<ref href="/us/cfr/t12/p226">12 CFR part 226</ref>), although new disclosures may be required for mortgages covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> under paragraph (c) of this section, <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, <ref href="/us/cfr/t12/s226.19">§ 226.19</ref>, or <ref href="/us/cfr/t12/s226.20">§ 226.20</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.31/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Accuracy of annual percentage rate.</heading>
<content> For purposes of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, the annual percentage rate shall be considered accurate, and may be used in determining whether a transaction is covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, if it is accurate according to the requirements and within the tolerances under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>. The finance charge tolerances for rescission under <ref href="/us/cfr/t12/s226.23/g">§ 226.23(g)</ref> or (h) shall not apply for this purpose. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/60/15471">60 FR 15471</ref>, <date date="1995-03-24">Mar. 24, 1995</date>, as amended at <ref href="/us/fr/60/29969">60 FR 29969</ref>, <date date="1995-06-07" role="amended">June 7, 1995</date>; <ref href="/us/fr/61/49247">61 FR 49247</ref>, <date date="1996-09-19" role="amended">Sept. 19, 1996</date>; <ref href="/us/fr/66/17339">66 FR 17339</ref>, <date date="2001-03-30" role="amended">Mar. 30, 2001</date>; <ref href="/us/fr/72/63475">72 FR 63475</ref>, <date date="2007-11-09" role="amended">Nov. 9, 2007</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.32">
<num value="226.32" style="-uslm-sgm:SECTNO">§ 226.32 </num>
<heading style="-uslm-sgm:SUBJECT">Requirements for certain closed-end home mortgages.</heading>
<paragraph identifier="/us/cfr/t12/s226.32/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Coverage.</heading>
<paragraph identifier="/us/cfr/t12/s226.32/a/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Except as provided in paragraph (a)(2) of this section, the requirements of this section apply to a consumer credit transaction that is secured by the consumer's principal dwelling, and in which either: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.32/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The annual percentage rate at consummation will exceed by more than 8 percentage points for first-lien loans, or by more than 10 percentage points for subordinate-lien loans, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> This section does not apply to the following: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.32/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A residential mortgage transaction. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A reverse mortgage transaction subject to <ref href="/us/cfr/t12/s226.33">§ 226.33</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> An open-end credit plan subject to subpart B of this part. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.32/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this subpart, the following definitions apply: </p>
<p style="-uslm-sgm:P">(1) For purposes of paragraph (a)(1)(ii) of this section, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">points and fees</inline> means: </p>
<p style="-uslm-sgm:P">(i) All items required to be disclosed under <ref href="/us/cfr/t12/s226.4/a">§ 226.4(a)</ref> and 226.4(b), except interest or the time-price differential; </p>
<p style="-uslm-sgm:P">(ii) All compensation paid to mortgage brokers; </p>
<p style="-uslm-sgm:P">(iii) All items listed in <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref> (other than amounts held for future payment of taxes) unless the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor; and </p>
<p style="-uslm-sgm:P">(iv) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the <?page num="402"?>case of accident, written in connection with the credit transaction. </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate</inline> means any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (<ref href="/us/usc/t12/s1841">12 U.S.C. 1841</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Disclosures.</heading>
<chapeau> In addition to other disclosures required by this part, in a mortgage subject to this section, the creditor shall disclose the following in conspicuous type size: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.32/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Notices.</heading>
<content> The following statement: “You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.” </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Annual percentage rate.</heading>
<content> The annual percentage rate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Regular payment; balloon payment.</heading>
<content> The amount of the regular monthly (or other periodic) payment and the amount of any balloon payment. The regular payment disclosed under this paragraph shall be treated as accurate if it is based on an amount borrowed that is deemed accurate and is disclosed under paragraph (c)(5) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Variable-rate.</heading>
<content> For variable-rate transactions, a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate required to be disclosed under <ref href="/us/cfr/t12/s226.30">§ 226.30</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Amount borrowed.</heading>
<content> For a mortgage refinancing, the total amount the consumer will borrow, as reflected by the face amount of the note; and where the amount borrowed includes premiums or other charges for optional credit insurance or debt-cancellation coverage, that fact shall be stated, grouped together with the disclosure of the amount borrowed. The disclosure of the amount borrowed shall be treated as accurate if it is not more than $100 above or below the amount required to be disclosed. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Limitations.</heading>
<chapeau> A mortgage transaction subject to this section shall not include the following terms: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.32/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<paragraph identifier="/us/cfr/t12/s226.32/d/1/i" class="inline">
<num value="i">(i) </num>
<heading>Balloon payment.</heading>
<content> For a loan with a term of less than five years, a payment schedule with regular periodic payments that when aggregated do not fully amortize the outstanding principal balance. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Exception.</heading>
<content> The limitations in paragraph (d)(1)(i) of this section do not apply to loans with maturities of less than one year, if the purpose of the loan is a “bridge” loan connected with the acquisition or construction of a dwelling intended to become the consumer's principal dwelling. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Negative amortization.</heading>
<content> A payment schedule with regular periodic payments that cause the principal balance to increase. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Advance payments.</heading>
<content> A payment schedule that consolidates more than two periodic payments and pays them in advance from the proceeds. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Increased interest rate.</heading>
<content> An increase in the interest rate after default. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Rebates.</heading>
<content> A refund calculated by a method less favorable than the actuarial method (as defined by section 933(d) of the Housing and Community Development Act of 1992, <ref href="/us/usc/t15/s1615/d">15 U.S.C. 1615(d)</ref>), for rebates of interest arising from a loan acceleration due to default. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Prepayment penalties.</heading>
<content> Except as allowed under paragraph (d)(7) of this section, a penalty for paying all or part of the principal before the date on which the principal is due. A prepayment penalty includes computing a refund of unearned interest by a method that is less favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing and Community Development Act of 1992, <ref href="/us/usc/t15/s1615/d">15 U.S.C. 1615(d)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Prepayment penalty exception.</heading>
<chapeau> A mortgage transaction subject to this section may provide for a prepayment penalty (including a refund calculated according to the rule of 78s) otherwise permitted by law if, under the terms of the loan:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.32/d/7/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The penalty will not apply after the two-year period following consummation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor;
<?page num="403"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/7/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> At consummation, the consumer's total monthly debt payments (including amounts owed under the mortgage) do not exceed 50 percent of the consumer's monthly gross income, as verified in accordance with <ref href="/us/cfr/t12/s226.34/a/4/ii">§ 226.34(a)(4)(ii)</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/7/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Due-on-demand clause.</heading>
<chapeau> A demand feature that permits the creditor to terminate the loan in advance of the original maturity date and to demand repayment of the entire outstanding balance, except in the following circumstances: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.32/d/8/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> There is fraud or material misrepresentation by the consumer in connection with the loan; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/8/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The consumer fails to meet the repayment terms of the agreement for any outstanding balance; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.32/d/8/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> There is any action or inaction by the consumer that adversely affects the creditor's security for the loan, or any right of the creditor in such security. </content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/60/15472">60 FR 15472</ref>, <date date="1995-03-24">Mar. 24, 1995</date>, as amended at <ref href="/us/fr/60/29969">60 FR 29969</ref>, <date date="1995-06-07" role="amended">June 7, 1995</date>; <ref href="/us/fr/66/65617">66 FR 65617</ref>, <date date="2001-12-20" role="amended">Dec. 20, 2001</date>; <ref href="/us/fr/73/44602">73 FR 44602</ref>, <date date="2008-07-30" role="amended">July 30, 2008</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.33">
<num value="226.33" style="-uslm-sgm:SECTNO">§ 226.33 </num>
<heading style="-uslm-sgm:SUBJECT">Requirements for reverse mortgages.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.33/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definition.</heading>
<content>
<p> For purposes of this subpart, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">reverse mortgage transaction</inline> means a nonrecourse consumer credit obligation in which: </p>
<p style="-uslm-sgm:P">(1) A mortgage, deed of trust, or equivalent consensual security interest securing one or more advances is created in the consumer's principal dwelling; and </p>
<p style="-uslm-sgm:P">(2) Any principal, interest, or shared appreciation or equity is due and payable (other than in the case of default) only after: </p>
<p style="-uslm-sgm:P">(i) The consumer dies; </p>
<p style="-uslm-sgm:P">(ii) The dwelling is transferred; or </p>
<p style="-uslm-sgm:P">(iii) The consumer ceases to occupy the dwelling as a principal dwelling. </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Content of disclosures.</heading>
<chapeau> In addition to other disclosures required by this part, in a reverse mortgage transaction the creditor shall provide the following disclosures in a form substantially similar to the model form found in paragraph (d) of appendix K of this part: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.33/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Notice.</heading>
<content> A statement that the consumer is not obligated to complete the reverse mortgage transaction merely because the consumer has received the disclosures required by this section or has signed an application for a reverse mortgage loan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Total annual loan cost rates.</heading>
<content> A good-faith projection of the total cost of the credit, determined in accordance with paragraph (c) of this section and expressed as a table of “total annual loan cost rates,” using that term, in accordance with appendix K of this part. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Itemization of pertinent information.</heading>
<content> An itemization of loan terms, charges, the age of the youngest borrower and the appraised property value. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Explanation of table.</heading>
<content> An explanation of the table of total annual loan cost rates as provided in the model form found in paragraph (d) of appendix K of this part. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Projected total cost of credit.</heading>
<chapeau> The projected total cost of credit shall reflect the following factors, as applicable: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.33/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Costs to consumer.</heading>
<content> All costs and charges to the consumer, including the costs of any annuity the consumer purchases as part of the reverse mortgage transaction. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Payments to consumer.</heading>
<content> All advances to and for the benefit of the consumer, including annuity payments that the consumer will receive from an annuity that the consumer purchases as part of the reverse mortgage transaction. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Additional creditor compensation.</heading>
<content> Any shared appreciation or equity in the dwelling that the creditor is entitled by contract to receive. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Limitations on consumer liability.</heading>
<content> Any limitation on the consumer's liability (such as nonrecourse limits and equity conservation agreements). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Assumed annual appreciation rates.</heading>
<chapeau> Each of the following assumed annual appreciation rates for the dwelling: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.33/c/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> 0 percent. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> 4 percent. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> 8 percent. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Assumed loan period.</heading>
<paragraph identifier="/us/cfr/t12/s226.33/c/6/i" class="inline">
<num value="i"> (i)</num>
<chapeau> Each of the following assumed loan periods, as provided in appendix L of this part:
<?page num="404"?></chapeau>
<paragraph identifier="/us/cfr/t12/s226.33/c/6/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Two years. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/6/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The actuarial life expectancy of the consumer to become obligated on the reverse mortgage transaction (as of that consumer's most recent birthday). In the case of multiple consumers, the period shall be the actuarial life expectancy of the youngest consumer (as of that consumer's most recent birthday). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/6/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The actuarial life expectancy specified by paragraph (c)(6)(i)(B) of this section, multiplied by a factor of 1.4 and rounded to the nearest full year.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.33/c/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> At the creditor's option, the actuarial life expectancy specified by paragraph (c)(6)(i)(B) of this section, multiplied by a factor of .5 and rounded to the nearest full year.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.34">
<num value="226.34" style="-uslm-sgm:SECTNO">§ 226.34 </num>
<heading style="-uslm-sgm:SUBJECT">Prohibited acts or practices in connection with credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. </heading>
<paragraph identifier="/us/cfr/t12/s226.34/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Prohibited acts or practices for loans subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>.</heading>
<chapeau> A creditor extending mortgage credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> shall not—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.34/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Home improvement contracts.</heading>
<chapeau> Pay a contractor under a home improvement contract from the proceeds of a mortgage covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, other than: </chapeau>
<paragraph identifier="/us/cfr/t12/s226.34/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> By an instrument payable to the consumer or jointly to the consumer and the contractor; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> At the election of the consumer, through a third-party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor prior to the disbursement. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notice to assignee.</heading>
<content> Sell or otherwise assign a mortgage subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> without furnishing the following statement to the purchaser or assignee: “Notice: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage that the borrower could assert against the creditor.” </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Refinancings within one-year period.</heading>
<content> Within one year of having extended credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, refinance any loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to the same borrower into another loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, unless the refinancing is in the borrower's interest. An assignee holding or servicing an extension of mortgage credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, shall not, for the remainder of the one-year period following the date of origination of the credit, refinance any loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to the same borrower into another loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, unless the refinancing is in the borrower's interest. A creditor (or assignee) is prohibited from engaging in acts or practices to evade this provision, including a pattern or practice of arranging for the refinancing of its own loans by affiliated or unaffiliated creditors, or modifying a loan agreement (whether or not the existing loan is satisfied and replaced by the new loan) and charging a fee. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Repayment ability.</heading>
<chapeau> Extend credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to a consumer based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation, including the consumer's current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Mortgage-related obligations.</heading>
<content> For purposes of this paragraph (a)(4), mortgage-related obligations are expected property taxes, premiums for mortgage-related insurance required by the creditor as set forth in <ref href="/us/cfr/t12/s226.35/b/3/i">§ 226.35(b)(3)(i)</ref>, and similar expenses.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Verification of repayment ability.</heading>
<chapeau> Under this paragraph (a)(4) a creditor must verify the consumer's repayment ability as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A creditor must verify amounts of income or assets that it relies on to determine repayment ability, including expected income or assets, by the consumer's Internal Revenue Service Form W–2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer's income or assets.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Notwithstanding paragraph (a)(4)(ii)(A), a creditor has not violated paragraph (a)(4)(ii) if the amounts of income and assets that the creditor relied upon in determining repayment ability are not materially greater than the amounts of the consumer's income or assets that the creditor could have verified pursuant to paragraph <?page num="405"?>(a)(4)(ii)(A) at the time the loan was consummated.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A creditor must verify the consumer's current obligations.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Presumption of compliance.</heading>
<chapeau> A creditor is presumed to have complied with this paragraph (a)(4) with respect to a transaction if the creditor:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Verifies the consumer's repayment ability as provided in paragraph (a)(4)(ii);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Determines the consumer's repayment ability using the largest payment of principal and interest scheduled in the first seven years following consummation and taking into account current obligations and mortgage-related obligations as defined in paragraph (a)(4)(i); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/iii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Assesses the consumer's repayment ability taking into account at least one of the following: The ratio of total debt obligations to income, or the income the consumer will have after paying debt obligations.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Exclusions from presumption of compliance.</heading>
<chapeau> Notwithstanding the previous paragraph, no presumption of compliance is available for a transaction for which:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/iv/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The regular periodic payments for the first seven years would cause the principal balance to increase; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/iv/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The term of the loan is less than seven years and the regular periodic payments when aggregated do not fully amortize the outstanding principal balance.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/a/4/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>Exemption.</heading>
<content> This paragraph (a)(4) does not apply to temporary or “bridge” loans with terms of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.34/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Prohibited acts or practices for dwelling-secured loans; open-end credit.</heading>
<content> In connection with credit secured by the consumer's dwelling that does not meet the definition in <ref href="/us/cfr/t12/s226.2/a/20">§ 226.2(a)(20)</ref>, a creditor shall not structure a home-secured loan as an open-end plan to evade the requirements of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/66/65618">66 FR 65618</ref>, <date date="2001-12-20">Dec. 20, 2001</date>, as amended at <ref href="/us/fr/73/44603">73 FR 44603</ref>, <date date="2008-07-30" role="amended">July 30, 2008</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.35">
<num value="226.35" style="-uslm-sgm:SECTNO">§ 226.35</num>
<heading style="-uslm-sgm:SUBJECT">Prohibited acts or practices in connection with higher-priced mortgage loans.</heading>
<paragraph identifier="/us/cfr/t12/s226.35/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Higher-priced mortgage loans—</heading>
<paragraph identifier="/us/cfr/t12/s226.35/a/1" class="inline">
<num value="1">(1)</num>
<content> For purposes of this section, except as provided in paragraph (b)(3)(v) of this section, a higher-priced mortgage loan is a consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> “Average prime offer rate” means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. The Board publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Board uses to derive these rates.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Notwithstanding paragraph (a)(1) of this section, the term “higher-priced mortgage loan” does not include a transaction to finance the initial construction of a dwelling, a temporary or “bridge” loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to <ref href="/us/cfr/t12/s226.33">§ 226.33</ref>, or a home equity line of credit subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Rules for higher-priced mortgage loans.</heading>
<chapeau> Higher-priced mortgage loans are subject to the following restrictions:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.35/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Repayment ability.</heading>
<content> A creditor shall not extend credit based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation as provided in <ref href="/us/cfr/t12/s226.34/a/4">§ 226.34(a)(4)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Prepayment penalties.</heading>
<chapeau> A loan may not include a penalty described by <ref href="/us/cfr/t12/s226.32/d/6">§ 226.32(d)(6)</ref> unless:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.35/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The penalty is otherwise permitted by law, including <ref href="/us/cfr/t12/s226.32/d/7">§ 226.32(d)(7)</ref> if <?page num="406"?>the loan is a mortgage transaction described in <ref href="/us/cfr/t12/s226.32/a">§ 226.32(a)</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Under the terms of the loan—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.35/b/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The penalty will not apply after the two-year period following consummation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/2/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Escrows—</heading>
<paragraph identifier="/us/cfr/t12/s226.35/b/3/i" class="inline">
<num value="i">(i) </num>
<heading>Failure to escrow for property taxes and insurance.</heading>
<content> Except as provided in paragraph (b)(3)(ii) of this section, a creditor may not extend a loan secured by a first lien on a principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Exemptions for loans secured by shares in a cooperative and for certain condominium units—</heading>
<paragraph identifier="/us/cfr/t12/s226.35/b/3/ii/A" class="inline">
<num value="A">(A)</num>
<content> Escrow accounts need not be established for loans secured by shares in a cooperative; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/3/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Insurance premiums described in paragraph (b)(3)(i) of this section need not be included in escrow accounts for loans secured by condominium units, where the condominium association has an obligation to the condominium unit owners to maintain a master policy insuring condominium units.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Cancellation.</heading>
<content> A creditor or servicer may permit a consumer to cancel the escrow account required in paragraph (b)(3)(i) of this section only in response to a consumer's dated written request to cancel the escrow account that is received no earlier than 365 days after consummation.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.35/b/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Definition of escrow account.</heading>
<content> For purposes of this section, “escrow account” shall have the same meaning as in <ref href="/us/cfr/t24/s3500.17/b">24 CFR 3500.17(b)</ref> as amended.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/3/v" style="-uslm-sgm:P">
<num value="v">(v) </num>
<heading>“Jumbo” loans.</heading>
<content> For purposes of this <ref href="/us/cfr/t12/s226.35/b/3">§ 226.35(b)(3)</ref>, for a transaction with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac, the coverage threshold set forth in paragraph (a)(1) of this section for loans secured by a first lien on a dwelling shall be 2.5 or more percentage points greater than the applicable average prime offer rate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.35/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Evasion; open-end credit.</heading>
<content> In connection with credit secured by a consumer's principal dwelling that does not meet the definition of open-end credit in <ref href="/us/cfr/t12/s226.2/a/20">§ 226.2(a)(20)</ref>, a creditor shall not structure a home-secured loan as an open-end plan to evade the requirements of this section.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/73/44603">73 FR 44603</ref>, <date date="2008-07-30">July 30, 2008</date>, as amended at <ref href="/us/fr/76/11324">76 FR 11324</ref>, <date date="2011-03-02" role="amended">Mar. 2, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.36">
<num value="226.36" style="-uslm-sgm:SECTNO">§ 226.36</num>
<heading style="-uslm-sgm:SUBJECT">Prohibited acts or practices in connection with credit secured by a dwelling.</heading>
<paragraph identifier="/us/cfr/t12/s226.36/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Loan originator and mortgage broker defined—</heading>
<paragraph identifier="/us/cfr/t12/s226.36/a/1" class="inline">
<num value="1">(1) </num>
<heading>Loan originator.</heading>
<content> For purposes of this section, the term “loan originator” means with respect to a particular transaction, a person who for compensation or other monetary gain, or in expectation of compensation or other monetary gain, arranges, negotiates, or otherwise obtains an extension of consumer credit for another person. The term “loan originator” includes an employee of the creditor if the employee meets this definition. The term “loan originator” includes the creditor only if the creditor does not provide the funds for the transaction at consummation out of the creditor's own resources, including drawing on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> warehouse line of credit, or out of deposits held by the creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Mortgage broker.</heading>
<content> For purposes of this section, a mortgage broker with respect to a particular transaction is any loan originator that is not an employee of the creditor.</content>
</paragraph>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s226.36/b" style="-uslm-sgm:P">
<num value="b">(b)</num>
<content> [Reserved]</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Servicing practices.</heading>
<paragraph identifier="/us/cfr/t12/s226.36/c/1" class="inline">
<num value="1"> (1)</num>
<chapeau> In connection with a consumer credit transaction secured by a consumer's principal dwelling, no servicer shall—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.36/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Fail to credit a payment to the consumer's loan account as of the date of receipt, except when a delay in crediting does not result in any charge to <?page num="407"?>the consumer or in the reporting of negative information to a consumer reporting agency, or except as provided in paragraph (c)(2) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Impose on the consumer any late fee or delinquency charge in connection with a payment, when the only delinquency is attributable to late fees or delinquency charges assessed on an earlier payment, and the payment is otherwise a full payment for the applicable period and is paid on its due date or within any applicable grace period; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Fail to provide, within a reasonable time after receiving a request from the consumer or any person acting on behalf of the consumer, an accurate statement of the total outstanding balance that would be required to satisfy the consumer's obligation in full as of a specified date.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If a servicer specifies in writing requirements for the consumer to follow in making payments, but accepts a payment that does not conform to the requirements, the servicer shall credit the payment as of 5 days after receipt.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> For purposes of this paragraph (c), the terms “servicer” and “servicing” have the same meanings as provided in <ref href="/us/cfr/t24/s3500.2/b">24 CFR 3500.2(b)</ref>, as amended.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Prohibited payments to loan originators—</heading>
<paragraph identifier="/us/cfr/t12/s226.36/d/1" class="inline">
<num value="1">(1) </num>
<heading>Payments based on transaction terms or conditions.</heading>
<paragraph identifier="/us/cfr/t12/s226.36/d/1/i" class="inline">
<num value="i"> (i)</num>
<content> In connection with a consumer credit transaction secured by a dwelling, no loan originator shall receive and no person shall pay to a loan originator, directly or indirectly, compensation in an amount that is based on any of the transaction's terms or conditions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> For purposes of this paragraph (d)(1), the amount of credit extended is not deemed to be a transaction term or condition, provided compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended; however, such compensation may be subject to a minimum or maximum dollar amount.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> This paragraph (d)(1) shall not apply to any transaction in which paragraph (d)(2) of this section applies.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Payments by persons other than consumer.</heading>
<chapeau> If any loan originator receives compensation directly from a consumer in a consumer credit transaction secured by a dwelling:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.36/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> No loan originator shall receive compensation, directly or indirectly, from any person other than the consumer in connection with the transaction; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> No person who knows or has reason to know of the consumer-paid compensation to the loan originator (other than the consumer) shall pay any compensation to a loan originator, directly or indirectly, in connection with the transaction.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Affiliates.</heading>
<content> For purposes of this paragraph (d), affiliates shall be treated as a single “person.”</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Prohibition on steering—</heading>
<paragraph identifier="/us/cfr/t12/s226.36/e/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<content> In connection with a consumer credit transaction secured by a dwelling, a loan originator shall not direct or “steer” a consumer to consummate a transaction based on the fact that the originator will receive greater compensation from the creditor in that transaction than in other transactions the originator offered or could have offered to the consumer, unless the consummated transaction is in the consumer's interest.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Permissible transactions.</heading>
<chapeau> A transaction does not violate paragraph (e)(1) of this section if the consumer is presented with loan options that meet the conditions in paragraph (e)(3) of this section for each type of transaction in which the consumer expressed an interest. For purposes of paragraph (e) of this section, the term “type of transaction” refers to whether:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.36/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A loan has an annual percentage rate that cannot increase after consummation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A loan has an annual percentage rate that may increase after consummation; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A loan is a reverse mortgage.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Loan options presented.</heading>
<chapeau> A transaction satisfies paragraph (e)(2) of this section only if the loan originator presents the loan options required by that paragraph and all of the following conditions are met:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.36/e/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> The loan originator must obtain loan options from a significant number of the creditors with which the originator regularly does business and, for each type of transaction in which the consumer expressed an interest, must <?page num="408"?>present the consumer with loan options that include:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.36/e/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The loan with the lowest interest rate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The loan with the lowest interest rate without negative amortization, a prepayment penalty, interest-only payments, a balloon payment in the first 7 years of the life of the loan, a demand feature, shared equity, or shared appreciation; or, in the case of a reverse mortgage, a loan without a prepayment penalty, or shared equity or shared appreciation; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/3/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The loan with the lowest total dollar amount for origination points or fees and discount points.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The loan originator must have a good faith belief that the options presented to the consumer pursuant to paragraph (e)(3)(i) of this section are loans for which the consumer likely qualifies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> For each type of transaction, if the originator presents to the consumer more than three loans, the originator must highlight the loans that satisfy the criteria specified in paragraph (e)(3)(i) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/e/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Number of loan options presented.</heading>
<content> The loan originator can present fewer than three loans and satisfy paragraphs (e)(2) and (e)(3)(i) of this section if the loan(s) presented to the consumer satisfy the criteria of the options in paragraph (e)(3)(i) of this section and the provisions of paragraph (e)(3) of this section are otherwise met.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.36/f" style="-uslm-sgm:P">
<num value="f">(f)</num>
<content> This section does not apply to a home-equity line of credit subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>. Section 226.36(d) and (e) do not apply to a loan that is secured by a consumer's interest in a timeshare plan described in <ref href="/us/usc/t11/s101/53D">11 U.S.C. 101(53D)</ref>.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/73/44604">73 FR 44604</ref>, <date date="2008-07-30">July 30, 2008</date>, as amended at <ref href="/us/fr/75/58533">75 FR 58533</ref>, <date date="2010-09-24" role="amended">Sept. 24, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s226.37-226.38">
<num value="226.37-226.38" style="-uslm-sgm:SECTNO">§§ 226.37–226.38</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.39">
<num value="226.39" style="-uslm-sgm:SECTNO">§ 226.39</num>
<heading style="-uslm-sgm:SUBJECT">Mortgage transfer disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.39/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<chapeau> The disclosure requirements of this section apply to any covered person except as otherwise provided in this section. For purposes of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.39/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">covered person”</inline> means any person, as defined in <ref href="/us/cfr/t12/s226.2/a/22">§ 226.2(a)(22)</ref>, that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer, and who acquires more than one mortgage loan in any twelve-month period. For purposes of this section, a servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">mortgage loan”</inline> means any consumer credit transaction that is secured by the principal dwelling of a consumer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Disclosure required.</heading>
<chapeau> Except as provided in paragraph (c) of this section, each covered person is subject to the requirements of this section and shall mail or deliver the disclosures required by this section to the consumer on or before the 30th calendar day following the date of transfer.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.39/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Form of disclosures.</heading>
<content> The disclosures required by this section shall be provided clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures required by this section may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>The date of transfer.</heading>
<content> For purposes of this section, the date of transfer to the covered person may, at the covered person's option, be either the date of acquisition recognized in the books and records of the acquiring party, or the date of transfer recognized in the books and records of the transferring party.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Multiple consumers.</heading>
<content> If more than one consumer is liable on the obligation, a covered person may mail or deliver the disclosures to any consumer who is primarily liable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Multiple transfers.</heading>
<content> If a mortgage loan is acquired by a covered person and subsequently sold, assigned, or otherwise transferred to another covered person, a single disclosure may be provided on behalf of both covered persons if the disclosure satisfies the timing and content requirements applicable to each covered person.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Multiple covered persons.</heading>
<content> If an acquisition involves multiple covered <?page num="409"?>persons who jointly acquire the loan, a single disclosure must be provided on behalf of all covered persons.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exceptions.</heading>
<chapeau> Notwithstanding paragraph (b) of this section, a covered person is not subject to the requirements of this section with respect to a particular mortgage loan if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.39/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The covered person sells, or otherwise transfers or assigns legal title to the mortgage loan on or before the 30th calendar day following the date that the covered person acquired the mortgage loan which shall be the date of transfer recognized for purposes of paragraph (b)(2) of this section;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The mortgage loan is transferred to the covered person in connection with a repurchase agreement that obligates the transferor to repurchase the loan. However, if the transferor does not repurchase the loan, the covered person must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The covered person acquires only a partial interest in the loan and the party authorized to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan does not change as a result of the transfer of the partial interest.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Content of required disclosures.</heading>
<chapeau> The disclosures required by this section shall identify the loan that was sold, assigned or otherwise transferred, and state the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.39/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> The name, address, and telephone number of the covered person.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.39/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> If a single disclosure is provided on behalf of more than one covered person, the information required by this paragraph shall be provided for each of them unless paragraph (d)(1)(ii) of this section applies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If a single disclosure is provided on behalf of more than one covered person and one of them has been authorized in accordance with paragraph (d)(3) of this section to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan, the information required by paragraph (d)(1) of this section may be provided only for that covered person.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The date of transfer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The name, address and telephone number of an agent or party authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. However, no information is required to be provided under this paragraph if the consumer can use the information provided under paragraph (d)(1) of this section for these purposes.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Where transfer of ownership of the debt to the covered person is or may be recorded in public records, or, alternatively, that the transfer of ownership has not been recorded in public records at the time the disclosure is provided.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.39/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Optional disclosures.</heading>
<content> In addition to the information required to be disclosed under paragraph (d) of this section, a covered person may, at its option, provide any other information regarding the transaction.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/58501">75 FR 58501</ref>, <date date="2010-09-24">Sept. 24, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s226.40-226.41">
<num value="226.40-226.41" style="-uslm-sgm:SECTNO">§§ 226.40–226.41</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.42">
<num value="226.42" style="-uslm-sgm:SECTNO">§ 226.42</num>
<heading style="-uslm-sgm:SUBJECT">Valuation independence.</heading>
<paragraph identifier="/us/cfr/t12/s226.42/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope.</heading>
<content> This section applies to any consumer credit transaction secured by the consumer's principal dwelling.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.42/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this section:</p>
<p style="-uslm-sgm:P">(1) “Covered person” means a creditor with respect to a covered transaction or a person that provides “settlement services,” as defined in <ref href="/us/usc/t12/s2602/3">12 U.S.C. 2602(3)</ref> and implementing regulations, in connection with a covered transaction.</p>
<p style="-uslm-sgm:P">(2) “Covered transaction” means an extension of consumer credit that is or will be secured by the consumer's principal dwelling, as defined in <ref href="/us/cfr/t12/s226.2/a/19">§ 226.2(a)(19)</ref>.</p>
<p style="-uslm-sgm:P">(3) “Valuation” means an estimate of the value of the consumer's principal dwelling in written or electronic form, other than one produced solely by an automated model or system.</p>
<p style="-uslm-sgm:P">(4) “Valuation management functions” means:</p>
<p style="-uslm-sgm:P">(i) Recruiting, selecting, or retaining a person to prepare a valuation;</p>
<p style="-uslm-sgm:P">(ii) Contracting with or employing a person to prepare a valuation;</p>
<p style="-uslm-sgm:P">(iii) Managing or overseeing the process of preparing a valuation, including <?page num="410"?>by providing administrative services such as receiving orders for and receiving a valuation, submitting a completed valuation to creditors and underwriters, collecting fees from creditors and underwriters for services provided in connection with a valuation, and compensating a person that prepares valuations; or</p>
<p style="-uslm-sgm:P">(iv) Reviewing or verifying the work of a person that prepares valuations.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Valuation of consumer's principal dwelling—</heading>
<paragraph identifier="/us/cfr/t12/s226.42/c/1" class="inline">
<num value="1">(1) </num>
<heading>Coercion.</heading>
<chapeau> In connection with a covered transaction, no covered person shall or shall attempt to directly or indirectly cause the value assigned to the consumer's principal dwelling to be based on any factor other than the independent judgment of a person that prepares valuations, through coercion, extortion, inducement, bribery, or intimidation of, compensation or instruction to, or collusion with a person that prepares valuations or performs valuation management functions.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> Examples of actions that violate paragraph (c)(1) include:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/c/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Seeking to influence a person that prepares a valuation to report a minimum or maximum value for the consumer's principal dwelling;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Withholding or threatening to withhold timely payment to a person that prepares a valuation or performs valuation management functions because the person does not value the consumer's principal dwelling at or above a certain amount;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Implying to a person that prepares valuations that current or future retention of the person depends on the amount at which the person estimates the value of the consumer's principal dwelling;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/1/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Excluding a person that prepares a valuation from consideration for future engagement because the person reports a value for the consumer's principal dwelling that does not meet or exceed a predetermined threshold; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/1/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Conditioning the compensation paid to a person that prepares a valuation on consummation of the covered transaction.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Mischaracterization of value—</heading>
<paragraph identifier="/us/cfr/t12/s226.42/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>Misrepresentation.</heading>
<content> In connection with a covered transaction, no person that prepares valuations shall materially misrepresent the value of the consumer's principal dwelling in a valuation. A misrepresentation is material for purposes of this paragraph (c)(2)(i) if it is likely to significantly affect the value assigned to the consumer's principal dwelling. A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> error shall not be a misrepresentation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Falsification or alteration.</heading>
<content> In connection with a covered transaction, no covered person shall falsify and no covered person other than a person that prepares valuations shall materially alter a valuation. An alteration is material for purposes of this paragraph (c)(2)(ii) if it is likely to significantly affect the value assigned to the consumer's principal dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Inducement of mischaracterization.</heading>
<content> In connection with a covered transaction, no covered person shall induce a person to violate paragraph (c)(2)(i) or (ii) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Permitted actions.</heading>
<chapeau> Examples of actions that do not violate paragraph (c)(1) or (c)(2) include:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Asking a person that prepares a valuation to consider additional, appropriate property information, including information about comparable properties, to make or support a valuation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Requesting that a person that prepares a valuation provide further detail, substantiation, or explanation for the person's conclusion about the value of the consumer's principal dwelling;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Asking a person that prepares a valuation to correct errors in the valuation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Obtaining multiple valuations for the consumer's principal dwelling to select the most reliable valuation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Withholding compensation due to breach of contract or substandard performance of services; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/c/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> Taking action permitted or required by applicable federal or state statute, regulation, or agency guidance.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Prohibition on conflicts of interest—</heading>
<paragraph identifier="/us/cfr/t12/s226.42/d/1" class="inline">
<num value="1">(1)</num>
<paragraph identifier="/us/cfr/t12/s226.42/d/1/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<content> No person preparing a valuation or performing valuation management functions for a covered transaction may have a direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is or will be performed.
<?page num="411"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Employees and affiliates of creditors; providers of multiple settlement services.</heading>
<chapeau> In any covered transaction, no person violates paragraph (d)(1)(i) of this section based solely on the fact that the person—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/d/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Is an employee or affiliate of the creditor; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Provides a settlement service in addition to preparing valuations or performing valuation management functions, or based solely on the fact that the person's affiliate performs another settlement service.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Employees and affiliates of creditors with assets of more than $250 million for both of the past two calendar years.</heading>
<chapeau> For any covered transaction in which the creditor had assets of more than $250 million as of December 31st for both of the past two calendar years, a person subject to paragraph (d)(1)(i) of this section who is employed by or affiliated with the creditor does not have a conflict of interest in violation of paragraph (d)(1)(i) of this section based on the person's employment or affiliate relationship with the creditor if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The person preparing a valuation or performing valuation management functions reports to a person who is not part of the creditor's loan production function, as defined in paragraph (d)(5)(i) of this section, and whose compensation is not based on the closing of the transaction to which the valuation relates; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> No employee, officer or director in the creditor's loan production function, as defined in paragraph (d)(5)(i) of this section, is directly or indirectly involved in selecting, retaining, recommending or influencing the selection of the person to prepare a valuation or perform valuation management functions, or to be included in or excluded from a list of approved persons who prepare valuations or perform valuation management functions.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Employees and affiliates of creditors with assets of $250 million or less for either of the past two calendar years.</heading>
<chapeau> For any covered transaction in which the creditor had assets of $250 million or less as of December 31st for either of the past two calendar years, a person subject to paragraph (d)(1)(i) of this section who is employed by or affiliated with the creditor does not have a conflict of interest in violation of paragraph (d)(1)(i) of this section based on the person's employment or affiliate relationship with the creditor if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor requires that any employee, officer or director of the creditor who orders, performs, or reviews a valuation for a covered transaction abstain from participating in any decision to approve, not approve, or set the terms of that transaction.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Providers of multiple settlement services.</heading>
<chapeau> For any covered transaction, a person who prepares a valuation or performs valuation management functions in addition to performing another settlement service for the transaction, or whose affiliate performs another settlement service for the transaction, does not have a conflict of interest in violation of paragraph (d)(1)(i) of this section as a result of the person or the person's affiliate performing another settlement service for the transaction if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/d/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The creditor had assets of more than $250 million as of December 31st for both of the past two calendar years and the conditions in paragraph (d)(2)(i)–(iii) are met; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor had assets of $250 million or less as of December 31st for either of the past two calendar years and the conditions in paragraph (d)(3)(i)–(ii) are met.</content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.42/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this paragraph, the following definitions apply:</p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan production function.</inline> The term “loan production function” means an employee, officer, director, department, division, or other unit of a creditor with responsibility for generating covered transactions, approving covered transactions, or both.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Settlement service.</inline> The term “settlement service” has the same meaning as in the Real Estate Settlement Procedures Act, <ref href="/us/usc/t12/s2601">12 U.S.C. 2601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>
<?page num="412"?> </p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate.</inline> The term “affiliate” has the same meaning as in Regulation Y, <ref href="/us/cfr/t12/s225.2/a">12 CFR 225.2(a)</ref>.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>When extension of credit prohibited.</heading>
<content> In connection with a covered transaction, a creditor that knows, at or before consummation, of a violation of paragraph (c) or (d) of this section in connection with a valuation shall not extend credit based on the valuation, unless the creditor documents that it has acted with reasonable diligence to determine that the valuation does not materially misstate or misrepresent the value of the consumer's principal dwelling. For purposes of this paragraph (e), a valuation materially misstates or misrepresents the value of the consumer's principal dwelling if the valuation contains a misstatement or misrepresentation that affects the credit decision or the terms on which credit is extended.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Customary and reasonable compensation—</heading>
<paragraph identifier="/us/cfr/t12/s226.42/f/1" class="inline">
<num value="1">(1) </num>
<heading>Requirement to provide customary and reasonable compensation to fee appraisers.</heading>
<content> In any covered transaction, the creditor and its agents shall compensate a fee appraiser for performing appraisal services at a rate that is customary and reasonable for comparable appraisal services performed in the geographic market of the property being appraised. For purposes of paragraph (f) of this section, “agents” of the creditor do not include any fee appraiser as defined in paragraph (f)(4)(i) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Presumption of compliance.</heading>
<chapeau> A creditor and its agents shall be presumed to comply with paragraph (f)(1) if—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> The creditor or its agents compensate the fee appraiser in an amount that is reasonably related to recent rates paid for comparable appraisal services performed in the geographic market of the property being appraised. In determining this amount, a creditor or its agents shall review the factors below and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The type of property,</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The scope of work,</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The time in which the appraisal services are required to be performed,</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Fee appraiser qualifications,</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Fee appraiser experience and professional record, and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/i/F" style="-uslm-sgm:P">
<num value="F">(F)</num>
<content> Fee appraiser work quality; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The creditor and its agents do not engage in any anticompetitive acts in violation of state or federal law that affect the compensation paid to fee appraisers, including—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Entering into any contracts or engaging in any conspiracies to restrain trade through methods such as price fixing or market allocation, as prohibited under section 1 of the Sherman Antitrust Act, <ref href="/us/usc/t15/s1">15 U.S.C. 1</ref>, or any other relevant antitrust laws; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Engaging in any acts of monopolization such as restricting any person from entering the relevant geographic market or causing any person to leave the relevant geographic market, as prohibited under section 2 of the Sherman Antitrust Act, <ref href="/us/usc/t15/s2">15 U.S.C. 2</ref>, or any other relevant antitrust laws.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Alternative presumption of compliance.</heading>
<chapeau> A creditor and its agents shall be presumed to comply with paragraph (f)(1) if the creditor or its agents determine the amount of compensation paid to the fee appraiser by relying on information about rates that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.42/f/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Is based on objective third-party information, including fee schedules, studies, and surveys prepared by independent third parties such as government agencies, academic institutions, and private research firms;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is based on recent rates paid to a representative sample of providers of appraisal services in the geographic market of the property being appraised or the fee schedules of those providers; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/f/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> In the case of information based on fee schedules, studies, and surveys, such fee schedules, studies, or surveys, or the information derived therefrom, excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies, as defined in paragraph (f)(4)(iii) of this section.</content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.42/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this paragraph (f), the following definitions apply:</p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fee appraiser.</inline> The term “fee appraiser” means—</p>
<p style="-uslm-sgm:P">(A) A natural person who is a state-licensed or state-certified appraiser <?page num="413"?>and receives a fee for performing an appraisal, but who is not an employee of the person engaging the appraiser; or</p>
<p style="-uslm-sgm:P">(B) An organization that, in the ordinary course of business, employs state-licensed or state-certified appraisers to perform appraisals, receives a fee for performing appraisals, and is not subject to the requirements of section 1124 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (<ref href="/us/usc/t12/s3331">12 U.S.C. 3331</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal services.</inline> The term “appraisal services” means the services required to perform an appraisal, including defining the scope of work, inspecting the property, reviewing necessary and appropriate public and private data sources (for example, multiple listing services, tax assessment records and public land records), developing and rendering an opinion of value, and preparing and submitting the appraisal report.</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal management company.</inline> The term “appraisal management company” means any person authorized to perform one or more of the following actions on behalf of the creditor—</p>
<p style="-uslm-sgm:P">(A) Recruit, select, and retain fee appraisers;</p>
<p style="-uslm-sgm:P">(B) Contract with fee appraisers to perform appraisal services;</p>
<p style="-uslm-sgm:P">(C) Manage the process of having an appraisal performed, including providing administrative services such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and underwriters, collecting fees from creditors and underwriters for services provided, and compensating fee appraisers for services performed; or</p>
<p style="-uslm-sgm:P">(D) Review and verify the work of fee appraisers.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Mandatory reporting—</heading>
<paragraph identifier="/us/cfr/t12/s226.42/g/1" class="inline">
<num value="1">(1) </num>
<heading>Reporting required.</heading>
<content> Any covered person that reasonably believes an appraiser has not complied with the Uniform Standards of Professional Appraisal Practice or ethical or professional requirements for appraisers under applicable state or federal statutes or regulations shall refer the matter to the appropriate state agency if the failure to comply is material. For purposes of this paragraph (g)(1), a failure to comply is material if it is likely to significantly affect the value assigned to the consumer's principal dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.42/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Timing of reporting.</heading>
<content> A covered person shall notify the appropriate state agency within a reasonable period of time after the person determines that there is a reasonable basis to believe that a failure to comply required to be reported under paragraph (g)(1) of this section has occurred.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.42/g/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Definition.</heading>
<content> For purposes of this paragraph (g), “state agency” means “state appraiser certifying and licensing agency” under <ref href="/us/usc/t12/s3350/1">12 U.S.C. 3350(1)</ref> and any implementing regulations. The appropriate state agency to which a covered person must refer a matter under paragraph (g)(1) of this section is the agency for the state in which the consumer's principal dwelling is located.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/66580">75 FR 66580</ref>, <date date="2010-10-28">Oct. 28, 2010</date>, <ref href="/us/fr/75/80676">75 FR 80676</ref>, <date date="2010-12-23">Dec. 23, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.43">
<num value="226.43" style="-uslm-sgm:SECTNO">§ 226.43</num>
<heading style="-uslm-sgm:SUBJECT">Appraisals for higher-priced mortgage loans.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.43/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this section:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Certified or licensed appraiser</inline> means a person who is certified or licensed by the State agency in the State in which the property that secures the transaction is located, and who performs the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and the requirements applicable to appraisers in title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (<ref href="/us/usc/t12/s3331">12 U.S.C. 3331</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and any implementing regulations, in effect at the time the appraiser signs the appraiser's certification.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consummation</inline> has the same meaning as in <ref href="/us/cfr/t12/s1026.2/a/13">12 CFR 1026.2(a)(13)</ref>.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor</inline> has the same meaning as in <ref href="/us/cfr/t12/s1026.2/a/17">12 CFR 1026.2(a)(17)</ref>.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit risk</inline> means the financial risk that a consumer will default on a loan.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Higher-priced mortgage loan</inline> has the same meaning as in <ref href="/us/cfr/t12/s1026.35/a/1">12 CFR 1026.35(a)(1)</ref>.</p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manufactured home</inline> has the same meaning as in <ref href="/us/cfr/t24/s3280.2">24 CFR 3280.2</ref>.</p>
<p style="-uslm-sgm:P">(7) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manufacturer's invoice</inline> means a document issued by a manufacturer and provided with a manufactured home to a retail dealer that separately <?page num="414"?>details the wholesale (base) prices at the factory for specific models or series of manufactured homes and itemized options (large appliances, built-in items and equipment), plus actual itemized charges for freight from the factory to the dealer's lot or the homesite (including any rental of wheels and axles) and for any sales taxes to be paid by the dealer. The invoice may recite such prices and charges on an itemized basis or by stating an aggregate price or charge, as appropriate, for each category.</p>
<p style="-uslm-sgm:P">(8) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">National Registry</inline> means the database of information about State certified and licensed appraisers maintained by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council.</p>
<p style="-uslm-sgm:P">(9) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">New manufactured home</inline> means a manufactured home that has not been previously occupied.</p>
<p style="-uslm-sgm:P">(10) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State agency</inline> means a “State appraiser certifying and licensing agency” recognized in accordance with section 1118(b) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (<ref href="/us/usc/t12/s3347/b">12 U.S.C. 3347(b)</ref>) and any implementing regulations.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exemptions.</heading>
<chapeau> Unless otherwise specified, the requirements in paragraphs (c) through (f) of this section do not apply to the following types of transactions:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A loan that satisfies the criteria of a qualified mortgage as defined pursuant to <ref href="/us/usc/t15/s1639c">15 U.S.C. 1639c</ref>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An extension of credit for which the amount of credit extended is equal to or less than the applicable threshold amount, which is adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable, and published in the official staff commentary to this paragraph (b)(2); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A transaction secured by a mobile home, boat, or trailer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A transaction to finance the initial construction of a dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> A loan with a maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of a dwelling intended to become the consumer's principal dwelling.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> A reverse-mortgage transaction subject to <ref href="/us/cfr/t12/s1026.33/a">12 CFR 1026.33(a)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<chapeau> An extension of credit that is a refinancing secured by a first lien, with refinancing defined as in <ref href="/us/cfr/t12/s1026.20/a">12 CFR 1026.20(a)</ref> (except that the creditor need not be the original creditor or a holder or servicer of the original obligation), provided that the refinancing meets the following criteria:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> Either—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The credit risk of the refinancing is retained by the person that held the credit risk of the existing obligation and there is no commitment, at consummation, to transfer the credit risk to another person; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The refinancing is insured or guaranteed by the same Federal government agency that insured or guaranteed the existing obligation;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> The regular periodic payments under the refinance loan do not—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Cause the principal balance to increase;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Allow the consumer to defer repayment of principal; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Result in a balloon payment, as defined in <ref href="/us/cfr/t12/s1026.18/s/5/i">12 CFR 1026.18(s)(5)(i)</ref>; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/7/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The proceeds from the refinancing are used only to satisfy the existing obligation and to pay amounts attributed solely to the costs of the refinancing; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<chapeau> A transaction secured by:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/b/8/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A new manufactured home and land, but the exemption shall only apply to the requirement in paragraph (c)(1) of this section that the appraiser conduct a physical visit of the interior of the new manufactured home; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/8/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> A manufactured home and not land, for which the creditor obtains one of the following and provides a copy to the consumer no later than three business days prior to consummation of the transaction—</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/b/8/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> For a new manufactured home, the manufacturer's invoice for the manufactured home securing the transaction, provided that the date of manufacture is no earlier than 18 months prior to the creditor's receipt of the consumer's application for credit;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/8/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A cost estimate of the value of the manufactured home securing the transaction obtained from an independent cost service provider; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/b/8/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> A valuation, as defined in <ref href="/us/cfr/t12/s1026.42/b/3">12 CFR 1026.42(b)(3)</ref>, of the manufactured home <?page num="415"?>performed by a person who has no direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is performed and has training in valuing manufactured homes.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Appraisals required—</heading>
<paragraph identifier="/us/cfr/t12/s226.43/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Except as provided in paragraph (b) of this section, a creditor shall not extend a higher-priced mortgage loan to a consumer without obtaining, prior to consummation, a written appraisal of the property to be mortgaged. The appraisal must be performed by a certified or licensed appraiser who conducts a physical visit of the interior of the property that will secure the transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Safe harbor.</heading>
<chapeau> A creditor obtains a written appraisal that meets the requirements for an appraisal required under paragraph (c)(1) of this section if the creditor:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Orders that the appraiser perform the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (<ref href="/us/usc/t12/s3331">12 U.S.C. 3331</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and any implementing regulations in effect at the time the appraiser signs the appraiser's certification;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Verifies through the National Registry that the appraiser who signed the appraiser's certification was a certified or licensed appraiser in the State in which the appraised property is located as of the date the appraiser signed the appraiser's certification;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Confirms that the elements set forth in appendix N to this part are addressed in the written appraisal; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/c/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Has no actual knowledge contrary to the facts or certifications contained in the written appraisal.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Additional appraisal for certain higher-priced mortgage loans—</heading>
<paragraph identifier="/us/cfr/t12/s226.43/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraphs (b) and (d)(7) of this section, a creditor shall not extend a higher-priced mortgage loan to a consumer to finance the acquisition of the consumer's principal dwelling without obtaining, prior to consummation, two written appraisals, if:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The seller acquired the property 90 or fewer days prior to the date of the consumer's agreement to acquire the property and the price in the consumer's agreement to acquire the property exceeds the seller's acquisition price by more than 10 percent; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The seller acquired the property 91 to 180 days prior to the date of the consumer's agreement to acquire the property and the price in the consumer's agreement to acquire the property exceeds the seller's acquisition price by more than 20 percent.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Different certified or licensed appraisers.</heading>
<content> The two appraisals required under paragraph (d)(1) of this section may not be performed by the same certified or licensed appraiser.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Relationship to general appraisal requirements.</heading>
<content> If two appraisals must be obtained under paragraph (d)(1) of this section, each appraisal shall meet the requirements of paragraph (c)(1) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Required analysis in the additional appraisal.</heading>
<chapeau> One of the two required appraisals must include an analysis of:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/d/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay to acquire the property, as specified in the consumer's agreement to acquire the property from the seller;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Changes in market conditions between the date the seller acquired the property and the date of the consumer's agreement to acquire the property; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Any improvements made to the property between the date the seller acquired the property and the date of the consumer's agreement to acquire the property.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>No charge for the additional appraisal.</heading>
<content> If the creditor must obtain two appraisals under paragraph (d)(1) of this section, the creditor may charge the consumer for only one of the appraisals.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Creditor's determination of prior sale date and price—</heading>
<paragraph identifier="/us/cfr/t12/s226.43/d/6/i" class="inline">
<num value="i">(i) </num>
<heading>Reasonable diligence.</heading>
<content> A creditor must obtain two written appraisals under paragraph (d)(1) of this section unless the creditor can demonstrate by exercising reasonable diligence that the requirement to obtain two appraisals does not apply. A creditor acts with reasonable diligence if the creditor bases its determination on information contained in written <?page num="416"?>source documents, such as the documents listed in appendix O to this part.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Inability to determine prior sale date or price—modified requirements for additional appraisal.</heading>
<content> If, after exercising reasonable diligence, a creditor cannot determine whether the conditions in paragraphs (d)(1)(i) and (d)(1)(ii) are present and therefore must obtain two written appraisals in accordance with paragraphs (d)(1) through (5) of this section, one of the two appraisals shall include an analysis of the factors in paragraph (d)(4) of this section only to the extent that the information necessary for the appraiser to perform the analysis can be determined.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Exemptions from the additional appraisal requirement.</heading>
<chapeau> The additional appraisal required under paragraph (d)(1) of this section shall not apply to extensions of credit that finance a consumer's acquisition of property:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> From a local, State or Federal government agency;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> From a person who acquired title to the property through foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure as a result of the person's exercise of rights as the holder of a defaulted mortgage loan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> From a non-profit entity as part of a local, State, or Federal government program under which the non-profit entity is permitted to acquire title to single-family properties for resale from a seller who acquired title to the property through the process of foreclosure, deed-in-lieu of foreclosure, or other similar judicial or non-judicial procedure;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> From a person who acquired title to the property by inheritance or pursuant to a court order of dissolution of marriage, civil union, or domestic partnership, or of partition of joint or marital assets to which the seller was a party;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> From an employer or relocation agency in connection with the relocation of an employee;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> From a servicemember, as defined in <ref href="/us/usc/t50/app511">50 U.S.C. App. 511</ref>(1), who received a deployment or permanent change of station order after the servicemember purchased the property;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<content> Located in an area designated by the President as a federal disaster area, if and for as long as the Federal financial institutions regulatory agencies, as defined in <ref href="/us/usc/t12/s3350/6">12 U.S.C. 3350(6)</ref>, waive the requirements in title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (<ref href="/us/usc/t12/s3331">12 U.S.C. 3331</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and any implementing regulations in that area; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/d/7/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> Located in a rural county, as defined in <ref href="/us/cfr/t12/s1026.35/b/2/iv/A">12 CFR 1026.35(b)(2)(iv)(A)</ref>.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Required disclosure—</heading>
<paragraph identifier="/us/cfr/t12/s226.43/e/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Except as provided in paragraph (b) of this section, a creditor shall disclose the following statement, in writing, to a consumer who applies for a higher-priced mortgage loan: “We may order an appraisal to determine the property's value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.” Compliance with the disclosure requirement in Regulation B, <ref href="/us/cfr/t12/s1002.14/a/2">12 CFR 1002.14(a)(2)</ref>, satisfies the requirements of this paragraph.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Timing of disclosure.</heading>
<content> The disclosure required by paragraph (e)(1) of this section shall be delivered or placed in the mail no later than the third business day after the creditor receives the consumer's application for a higher-priced mortgage loan subject to this section. In the case of a loan that is not a higher-priced mortgage loan subject to this section at the time of application, but becomes a higher-priced mortgage loan subject to this section after application, the disclosure shall be delivered or placed in the mail not later than the third business day after the creditor determines that the loan is a higher-priced mortgage loan subject to this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Copy of appraisals—</heading>
<paragraph identifier="/us/cfr/t12/s226.43/f/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Except as provided in paragraph (b) of this section, a creditor shall provide to the consumer a copy of any written appraisal performed in connection with a higher-priced mortgage loan pursuant to paragraphs (c) and (d) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Timing.</heading>
<chapeau> A creditor shall provide to the consumer a copy of each written appraisal pursuant to paragraph (f)(1) of this section:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.43/f/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> No later than three business days prior to consummation of the loan; or
<?page num="417"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/f/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In the case of a loan that is not consummated, no later than 30 days after the creditor determines that the loan will not be consummated.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Form of copy.</heading>
<content> Any copy of a written appraisal required by paragraph (f)(1) of this section may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>No charge for copy of appraisal.</heading>
<content> A creditor shall not charge the consumer for a copy of a written appraisal required to be provided to the consumer pursuant to paragraph (f)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.43/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Relation to other rules.</heading>
<content> The rules in this section were adopted jointly by the Board, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Federal Housing Finance Agency, and the Consumer Financial Protection Bureau (Bureau). These rules are substantively identical to the OCC's and the Bureau's higher-priced mortgage loan appraisal rules published separately in <ref href="/us/cfr/t12/p34">12 CFR part 34</ref>, subpart G and <ref href="/us/cfr/t12/p164">12 CFR part 164</ref>, subpart B (for the OCC) and <ref href="/us/cfr/t12/s1026.35/a">12 CFR 1026.35(a)</ref> and (c) (for the Bureau). The Board's rules apply to all creditors who are State member banks, bank holding companies and their subsidiaries (other than a bank), savings and loan holding companies and their subsidiaries (other than a savings and loan association), and insured branches and agencies of foreign banks. Compliance with the Board's rules satisfies the requirements of <ref href="/us/usc/t15/s1639h">15 U.S.C. 1639h</ref>.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/78/10437">78 FR 10437</ref>, <date date="2013-02-13">Feb. 13, 2013</date>, as amended at <ref href="/us/fr/78/78582">78 FR 78582</ref>, 78583, <date date="2013-12-26" role="amended">Dec. 26, 2013</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s226.44-226.45">
<num value="226.44-226.45" style="-uslm-sgm:SECTNO">§§ 226.44–226.45</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spF">
<num value="F" style="-uslm-sgm:HED">Subpart F—</num>
<heading style="-uslm-sgm:HED">Special Rules for Private Education Loans</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/74/41232">74 FR 41232</ref>, <date date="2009-08-14">Aug. 14, 2009</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.46">
<num value="226.46" style="-uslm-sgm:SECTNO">§ 226.46</num>
<heading style="-uslm-sgm:SUBJECT">Special disclosure requirements for private education loans.</heading>
<paragraph identifier="/us/cfr/t12/s226.46/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Coverage.</heading>
<chapeau> The requirements of this subpart apply to private education loans as defined in <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref>. A creditor may, at its option, comply with the requirements of this subpart for an extension of credit subject to <ref href="/us/cfr/t12/s226.17">§§ 226.17</ref> and 226.18 that is extended to a consumer for expenses incurred after graduation from a law, medical, dental, veterinary, or other graduate school and related to relocation, study for a bar or other examination, participation in an internship or residency program, or similar purposes.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.46/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Relation to other subparts in this part.</heading>
<content> Except as otherwise specifically provided, the requirements and limitations of this subpart are in addition to and not in lieu of those contained in other subparts of this part.</content>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s226.46/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> [Reserved]</content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.46/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions.</heading>
<content>
<p> For purposes of this subpart, the following definitions apply:</p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Covered educational institution</inline> means:</p>
<p style="-uslm-sgm:P">(i) An educational institution that meets the definition of an institution of higher education, as defined in paragraph (b)(2) of this section, without regard to the institution's accreditation status; and</p>
<p style="-uslm-sgm:P">(ii) Includes an agent, officer, or employee of the institution of higher education. An agent means an institution-affiliated organization as defined by section 151 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1019">20 U.S.C. 1019</ref>) or an officer or employee of an institution-affiliated organization.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Institution of higher education</inline> has the same meaning as in sections 101 and 102 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1001–1002">20 U.S.C. 1001–1002</ref>) and the implementing regulations published by the U.S. Department of Education.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Postsecondary educational expenses</inline> means any of the expenses that are listed as part of the cost of attendance, as defined under section 472 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1087ll">20 U.S.C. 1087ll</ref>), of a student at a covered educational institution. These expenses include tuition and fees, books, supplies, miscellaneous personal expenses, room and board, and an allowance for any loan fee, origination fee, or insurance <?page num="418"?>premium charged to a student or parent for a loan incurred to cover the cost of the student's attendance.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preferred lender arrangement</inline> has the same meaning as in section 151 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1019">20 U.S.C. 1019</ref>).</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Private education loan</inline> means an extension of credit that:</p>
<p style="-uslm-sgm:P">(i) Is not made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1070">20 U.S.C. 1070</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>);</p>
<p style="-uslm-sgm:P">(ii) Is extended to a consumer expressly, in whole or in part, for postsecondary educational expenses, regardless of whether the loan is provided by the educational institution that the student attends;</p>
<p style="-uslm-sgm:P">(iii) Does not include open-end credit any loan that is secured by real property or a dwelling; and</p>
<p style="-uslm-sgm:P">(iv) Does not include an extension of credit in which the covered educational institution is the creditor if:</p>
<p style="-uslm-sgm:P">(A) The term of the extension of credit is 90 days or less; or</p>
<p style="-uslm-sgm:P">(B) an interest rate will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the credit is payable in more than four installments.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Form of disclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.46/c/1" class="inline">
<num value="1">(1) </num>
<heading>Clear and conspicuous.</heading>
<content> The disclosures required by this subpart shall be made clearly and conspicuously.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Transaction disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.46/c/2/i" class="inline">
<num value="i"> (i)</num>
<content> The disclosures required under <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> and (c) shall be made in writing, in a form that the consumer may keep. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the disclosures required under <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> and (c), which include the disclosures required under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The disclosures may include an acknowledgement of receipt, the date of the transaction, and the consumer's name, address, and account number. The following disclosures may be made together with or separately from other required disclosures: the creditor's identity under <ref href="/us/cfr/t12/s226.18/a">§ 226.18(a)</ref>, insurance or debt cancellation under <ref href="/us/cfr/t12/s226.18/n">§ 226.18(n)</ref>, and certain security interest charges under <ref href="/us/cfr/t12/s226.18/o">§ 226.18(o)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The term “finance charge” and corresponding amount, when required to be disclosed under <ref href="/us/cfr/t12/s226.18/d">§ 226.18(d)</ref>, and the interest rate required to be disclosed under <ref href="/us/cfr/t12/s226.47/b/1/i">§§ 226.47(b)(1)(i)</ref> and (c)(1), shall be more conspicuous than any other disclosure, except the creditor's identity under <ref href="/us/cfr/t12/s228.18/a">§ 228.18(a)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Electronic disclosures.</heading>
<content> The disclosures required under <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> and (c) may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). The disclosures required by <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref> may be provided to the consumer in electronic form on or with an application or solicitation that is accessed by the consumer in electronic form without regard to the consumer consent or other provisions of the E-Sign Act. The form required to be received under <ref href="/us/cfr/t12/s226.48/e">§ 226.48(e)</ref> may be accepted by the creditor in electronic form as provided for in that section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Timing of disclosures—</heading>
<paragraph identifier="/us/cfr/t12/s226.46/d/1" class="inline">
<num value="1">(1) </num>
<heading>Application or solicitation disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.46/d/1/i" class="inline">
<num value="i"> (i)</num>
<content> The disclosures required by <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref> shall be provided on or with any application or solicitation. For purposes of this subpart, the term solicitation means an offer of credit that does not require the consumer to complete an application. A “firm offer of credit” as defined in section 603(l) of the Fair Credit Reporting Act (<ref href="/us/usc/t15/s1681a/l">15 U.S.C. 1681a(l)</ref>) is a solicitation for purposes of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The creditor may, at its option, disclose orally the information in <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref> in a telephone application or solicitation. Alternatively, if the creditor does not disclose orally the information in <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref>, the creditor must provide the disclosures or place them in the mail no later than three business days after the consumer has applied for the credit, except that, if the creditor either denies the consumer's application or provides or places in the mail the disclosures in <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> no later than three business days after the consumer requests the credit, the creditor need not also provide the <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref> disclosures.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Notwithstanding paragraph (d)(1)(i), for a loan that the consumer <?page num="419"?>may use for multiple purposes including, but not limited to, postsecondary educational expenses, the creditor need not provide the disclosures required by <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Approval disclosures.</heading>
<content> The creditor shall provide the disclosures required by <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> before consummation on or with any notice of approval provided to the consumer. If the creditor mails notice of approval, the disclosures must be mailed with the notice. If the creditor communicates notice of approval by telephone, the creditor must mail the disclosures within three business days of providing the notice of approval. If the creditor communicates notice of approval electronically, the creditor may provide the disclosures in electronic form in accordance with <ref href="/us/cfr/t12/s226.46/d/3">§ 226.46(d)(3)</ref>; otherwise the creditor must mail the disclosures within three business days of communicating the notice of approval. If the creditor communicates approval in person, the creditor must provide the disclosures to the consumer at that time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Final disclosures.</heading>
<content> The disclosures required by <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref> shall be provided after the consumer accepts the loan in accordance with <ref href="/us/cfr/t12/s226.48/c/1">§ 226.48(c)(1)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/d/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Receipt of mailed disclosures.</heading>
<content> If the disclosures under paragraphs (d)(1), (d)(2) or (d)(3), are mailed to the consumer, the consumer is considered to have received them three business days after they are mailed.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Basis of disclosures and use of estimates—</heading>
<paragraph identifier="/us/cfr/t12/s226.46/e/1" class="inline">
<num value="1">(1) </num>
<heading>Legal obligation.</heading>
<content> Disclosures shall reflect the terms of the legal obligation between the parties.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Estimates.</heading>
<content> If any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available at the time the disclosure is provided, and shall state clearly that the disclosure is an estimate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Multiple creditors; multiple consumers.</heading>
<content> If a transaction involves more than one creditor, only one set of disclosures shall be given and the creditors shall agree among themselves which creditor will comply with the requirements that this part imposes on any or all of them. If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Effect of subsequent events—</heading>
<paragraph identifier="/us/cfr/t12/s226.46/g/1" class="inline">
<num value="1">(1) </num>
<heading>Approval disclosures.</heading>
<content> If a disclosure under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of Regulation Z (<ref href="/us/cfr/t12/p226">12 CFR part 226</ref>), although new disclosures may be required under <ref href="/us/cfr/t12/s226.48/c">§ 226.48(c)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.46/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Final disclosures.</heading>
<content> If a disclosure under <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref> becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of Regulation Z (<ref href="/us/cfr/t12/p226">12 CFR part 226</ref>).
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.47">
<num value="226.47" style="-uslm-sgm:SECTNO">§ 226.47</num>
<heading style="-uslm-sgm:SUBJECT">Content of disclosures.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Application or solicitation disclosures.</heading>
<chapeau> A creditor shall provide the disclosures required under paragraph (a) of this section on or with a solicitation or an application for a private education loan.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.47/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Interest rates.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/a/1/i" class="inline">
<num value="i"> (i)</num>
<content> The interest rate or range of interest rates applicable to the loan and actually offered by the creditor at the time of application or solicitation. If the rate will depend, in part, on a later determination of the consumer's creditworthiness or other factors, a statement that the rate for which the consumer may qualify will depend on the consumer's creditworthiness and other factors, if applicable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Whether the interest rates applicable to the loan are fixed or variable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If the interest rate may increase after consummation of the transaction, any limitations on the interest rate adjustments, or lack thereof; a statement that the consumer's actual rate could be higher or lower than the rates disclosed under paragraph (a)(1)(i) of this section, if applicable; and, if the limitation is determined by applicable law, that fact.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Whether the applicable interest rates typically will be higher if the loan is not co-signed or guaranteed.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Fees and default or late payment costs.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/a/2/i" class="inline">
<num value="i"> (i)</num>
<content> An itemization of the fees or range of fees required to obtain the private education loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any fees, changes to the interest rate, and adjustments to principal based on the consumer's defaults or late payments.
<?page num="420"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Repayment terms.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/a/3/i" class="inline">
<num value="i"> (i)</num>
<content> The term of the loan, which is the period during which regularly scheduled payments of principal and interest will be due.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A description of any payment deferral options, or, if the consumer does not have the option to defer payments, that fact.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> For each payment deferral option applicable while the student is enrolled at a covered educational institution:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.47/a/3/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Whether interest will accrue during the deferral period; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/3/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If interest accrues, whether payment of interest may be deferred and added to the principal balance.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A statement that if the consumer files for bankruptcy, the consumer may still be required to pay back the loan.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Cost estimates.</heading>
<chapeau> An example of the total cost of the loan calculated as the total of payments over the term of the loan:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.47/a/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Using the highest rate of interest disclosed under paragraph (a)(1) of this section and including all finance charges applicable to loans at that rate;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Using an amount financed of $10,000, or $5000 if the creditor only offers loans of this type for less than $10,000; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Calculated for each payment option.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Eligibility.</heading>
<content> Any age or school enrollment eligibility requirements relating to the consumer or co-signer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Alternatives to private education loans.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/a/6/i" class="inline">
<num value="i"> (i)</num>
<content> A statement that the consumer may qualify for Federal student financial assistance through a program under title IV of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1070">20 U.S.C. 1070</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The interest rates available under each program under title IV of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1070">20 U.S.C. 1070</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) and whether the rates are fixed or variable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that the consumer may obtain additional information concerning Federal student financial assistance from the institution of higher education that the student attends, or at the Web site of the U.S. Department of Education, including an appropriate Web site address.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/6/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> A statement that a covered educational institution may have school-specific education loan benefits and terms not detailed on the disclosure form.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Rights of the consumer.</heading>
<content> A statement that if the loan is approved, the terms of the loan will be available and will not change for 30 days except as a result of adjustments to the interest rate and other changes permitted by law.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/a/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Self-certification information.</heading>
<content> A statement that, before the loan may be consummated, the consumer must complete the self-certification form and that the form may be obtained from the institution of higher education that the student attends.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Approval disclosures.</heading>
<chapeau> On or with any notice of approval provided to the consumer, the creditor shall disclose the information required under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> and the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.47/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Interest rate.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/b/1/i" class="inline">
<num value="i"> (i)</num>
<content> The interest rate applicable to the loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Whether the interest rate is fixed or variable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If the interest rate may increase after consummation of the transaction, any limitations on the rate adjustments, or lack thereof.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Fees and default or late payment costs.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/b/2/i" class="inline">
<num value="i"> (i)</num>
<content> An itemization of the fees or range of fees required to obtain the private education loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any fees, changes to the interest rate, and adjustments to principal based on the consumer's defaults or late payments.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Repayment terms.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/i" class="inline">
<num value="i"> (i)</num>
<content> The principal amount of the loan for which the consumer has been approved.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The term of the loan, which is the period during which regularly scheduled payments of principal and interest will be due.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A description of the payment deferral option chosen by the consumer, if applicable, and any other payment deferral options that the consumer may elect at a later time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Any payments required while the student is enrolled at a covered educational institution, based on the deferral option chosen by the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The amount of any unpaid interest that will accrue while the student is enrolled at a covered educational institution, based on the deferral option chosen by the consumer.
<?page num="421"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> A statement that if the consumer files for bankruptcy, the consumer may still be required to pay back the loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<chapeau> An estimate of the total amount of payments calculated based on:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/vii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The interest rate applicable to the loan. Compliance with <ref href="/us/cfr/t12/s226.18/h">§ 226.18(h)</ref> constitutes compliance with this requirement.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/vii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The maximum possible rate of interest for the loan or, if a maximum rate cannot be determined, a rate of 25%.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/vii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> If a maximum rate cannot be determined, the estimate of the total amount for repayment must include a statement that there is no maximum rate and that the total amount for repayment disclosed under paragraph (b)(3)(vii)(B) of this section is an estimate and will be higher if the applicable interest rate increases.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/3/viii" style="-uslm-sgm:P">
<num value="viii">(viii)</num>
<content> The maximum monthly payment based on the maximum rate of interest for the loan or, if a maximum rate cannot be determined, a rate of 25%. If a maximum cannot be determined, a statement that there is no maximum rate and that the monthly payment amount disclosed is an estimate and will be higher if the applicable interest rate increases.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Alternatives to private education loans.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/b/4/i" class="inline">
<num value="i"> (i)</num>
<content> A statement that the consumer may qualify for Federal student financial assistance through a program under title IV of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1070">20 U.S.C. 1070</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The interest rates available under each program under title IV of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1070">20 U.S.C. 1070</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and whether the rates are fixed or variable.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that the consumer may obtain additional information concerning Federal student financial assistance from the institution of higher education that the student attends, or at the Web site of the U.S. Department of Education, including an appropriate Web site address.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Rights of the consumer.</heading>
<paragraph identifier="/us/cfr/t12/s226.47/b/5/i" class="inline">
<num value="i"> (i)</num>
<content> A statement that the consumer may accept the terms of the loan until the acceptance period under <ref href="/us/cfr/t12/s226.48/c/1">§ 226.48(c)(1)</ref> has expired. The statement must include the specific date on which the acceptance period expires, based on the date upon which the consumer receives the disclosures required under this subsection for the loan. The disclosure must also specify the method or methods by which the consumer may communicate acceptance.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/b/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that, except for changes to the interest rate and other changes permitted by law, the rates and terms of the loan may not be changed by the creditor during the period described in paragraph (b)(5)(i) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Final disclosures.</heading>
<chapeau> After the consumer has accepted the loan in accordance with <ref href="/us/cfr/t12/s226.48/c/1">§ 226.48(c)(1)</ref>, the creditor shall disclose to the consumer the information required by <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> and the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.47/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Interest rate.</heading>
<content> Information required to be disclosed under <ref href="/us/cfr/t12/s226.47/b/1">§§ 226.47(b)(1)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Fees and default or late payment costs.</heading>
<content> Information required to be disclosed under <ref href="/us/cfr/t12/s226.47/b/2">§ 226.47(b)(2)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Repayment terms.</heading>
<content> Information required to be disclosed under <ref href="/us/cfr/t12/s226.47/b/3">§ 226.47(b)(3)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Cancellation right.</heading>
<chapeau> A statement that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.47/c/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> the consumer has the right to cancel the loan, without penalty, at any time before the cancellation period under <ref href="/us/cfr/t12/s226.48/d">§ 226.48(d)</ref> expires, and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.47/c/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> loan proceeds will not be disbursed until after the cancellation period under <ref href="/us/cfr/t12/s226.48/d">§ 226.48(d)</ref> expires. The statement must include the specific date on which the cancellation period expires and state that the consumer may cancel by that date. The statement must also specify the method or methods by which the consumer may cancel. If the creditor permits cancellation by mail, the statement must specify that the consumer's mailed request will be deemed timely if placed in the mail not later than the cancellation date specified on the disclosure. The disclosures required by this paragraph (c)(4) must be made more conspicuous than any other disclosure required under this section, except for the finance charge, the interest rate, and the creditor's identity, which must be disclosed in accordance with the requirements of <ref href="/us/cfr/t12/s226.46/c/2/iii">§ 226.46(c)(2)(iii)</ref>.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.48"><?page num="422"?>
<num value="226.48" style="-uslm-sgm:SECTNO">§ 226.48</num>
<heading style="-uslm-sgm:SUBJECT">Limitations on private education loans.</heading>
<paragraph identifier="/us/cfr/t12/s226.48/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Co-branding prohibited.</heading>
<paragraph identifier="/us/cfr/t12/s226.48/a/1" class="inline">
<num value="1"> (1)</num>
<content> Except as provided in paragraph (b) of this section, a creditor, other than the covered educational institution itself, shall not use the name, emblem, mascot, or logo of a covered educational institution, or other words, pictures, or symbols identified with a covered educational institution, in the marketing of private education loans in a way that implies that the covered education institution endorses the creditor's loans.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A creditor's marketing of private education loans does not imply that the covered education institution endorses the creditor's loans if the marketing includes a clear and conspicuous disclosure that is equally prominent and closely proximate to the reference to the covered educational institution that the covered educational institution does not endorse the creditor's loans and that the creditor is not affiliated with the covered educational institution.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Endorsed lender arrangements.</heading>
<content> If a creditor and a covered educational institution have entered into an arrangement where the covered educational institution agrees to endorse the creditor's private education loans, and such arrangement is not prohibited by other applicable law or regulation, paragraph (a)(1) of this section does not apply if the private education loan marketing includes a clear and conspicuous disclosure that is equally prominent and closely proximate to the reference to the covered educational institution that the creditor's loans are not offered or made by the covered educational institution, but are made by the creditor.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Consumer's right to accept.</heading>
<paragraph identifier="/us/cfr/t12/s226.48/c/1" class="inline">
<num value="1"> (1)</num>
<content> The consumer has the right to accept the terms of a private education loan at any time within 30 calendar days following the date on which the consumer receives the disclosures required under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Except for changes permitted under paragraphs (c)(3) and (c)(4), the rate and terms of the private education loan that are required to be disclosed under <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> and (c) may not be changed by the creditor prior to the earlier of:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.48/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The date of disbursement of the loan; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The expiration of the 30 calendar day period described in paragraph (c)(1) of this section if the consumer has not accepted the loan within that time.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Exceptions not requiring re-disclosure.</heading>
<paragraph identifier="/us/cfr/t12/s226.48/c/3/i" class="inline">
<num value="i"> (i)</num>
<chapeau> Notwithstanding paragraph (c)(2) of this section, nothing in this section prevents the creditor from:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.48/c/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Withdrawing an offer before consummation of the transaction if the extension of credit would be prohibited by law or if the creditor has reason to believe that the consumer has committed fraud in connection with the loan application;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Changing the interest rate based on adjustments to the index used for a loan;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/3/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Changing the interest rate and terms if the change will unequivocally benefit the consumer; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/3/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Reducing the loan amount based upon a certification or other information received from the covered educational institution, or from the consumer, indicating that the student's cost of attendance has decreased or the consumer's other financial aid has increased. A creditor may make corresponding changes to the rate and other terms only to the extent that the consumer would have received the terms if the consumer had applied for the reduced loan amount.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the creditor changes the rate or terms of the loan under this paragraph (c)(3), the creditor need not provide the disclosures required under <ref href="/us/cfr/t12/s228.47/b">§ 228.47(b)</ref> for the new loan terms, nor need the creditor provide an additional 30-day period to the consumer to accept the new terms of the loan under paragraph (c)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Exceptions requiring re-disclosure.</heading>
<paragraph identifier="/us/cfr/t12/s226.48/c/4/i" class="inline">
<num value="i"> (i)</num>
<content> Notwithstanding paragraphs (c)(2) or (c)(3) of this section, nothing in this section prevents the creditor, at its option, from changing the rate or terms of the loan to accommodate a specific request by the consumer. For example, if the consumer requests a different repayment option, the creditor may, but need not, offer to provide the requested repayment option and make any other changes to the rate and terms.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/c/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the creditor changes the rate or terms of the loan under this paragraph <?page num="423"?>(c)(4), the creditor shall provide the disclosures required under <ref href="/us/cfr/t12/s228.47/b">§ 228.47(b)</ref> and shall provide the consumer the 30-day period to accept the loan under paragraph (c)(1) of this section. The creditor shall not make further changes to the rates and terms of the loan, except as specified in paragraphs (c)(3) and (4) of this section. Except as permitted under <ref href="/us/cfr/t12/s226.48/c/3">§ 226.48(c)(3)</ref>, unless the consumer accepts the loan offered by the creditor in response to the consumer's request, the creditor may not withdraw or change the rates or terms of the loan for which the consumer was approved prior to the consumer's request for a change in loan terms.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Consumer's right to cancel.</heading>
<content> The consumer may cancel a private education loan, without penalty, until midnight of the third business day following the date on which the consumer receives the disclosures required by <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref>. No funds may be disbursed for a private education loan until the three-business day period has expired.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Self-certification form.</heading>
<content> For a private education loan intended to be used for the postsecondary educational expenses of a student while the student is attending an institution of higher education, the creditor shall obtain from the consumer or the institution of higher education the form developed by the Secretary of Education under section 155 of the Higher Education Act of 1965, signed by the consumer, in written or electronic form, before consummating the private education loan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.48/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Provision of information by preferred lenders.</heading>
<content> A creditor that has a preferred lender arrangement with a covered educational institution shall provide to the covered educational institution the information required under <ref href="/us/cfr/t12/s226.47/a/1">§§ 226.47(a)(1)</ref> through (5), for each type of private education loan that the lender plans to offer to consumers for students attending the covered educational institution for the period beginning July 1 of the current year and ending June 30 of the following year. The creditor shall provide the information annually by the later of the 1st day of April, or within 30 days after entering into, or learning the creditor is a party to, a preferred lender arrangement.
</content>
</paragraph>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spG">
<num value="G" style="-uslm-sgm:HED">Subpart G—</num>
<heading style="-uslm-sgm:HED">Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students</heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/75/7818">75 FR 7818</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.51">
<num value="226.51" style="-uslm-sgm:SECTNO">§ 226.51</num>
<heading style="-uslm-sgm:SUBJECT">Ability to Pay.</heading>
<paragraph identifier="/us/cfr/t12/s226.51/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule—</heading>
<paragraph identifier="/us/cfr/t12/s226.51/a/1" class="inline">
<num value="1">(1)</num>
<paragraph identifier="/us/cfr/t12/s226.51/a/1/i" class="inline">
<num value="i">(i) </num>
<heading>Consideration of ability to pay.</heading>
<content> A card issuer must not open a credit card account for a consumer under an open-end (not home-secured) consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the consumer's independent ability to make the required minimum periodic payments under the terms of the account based on the consumer's income or assets and current obligations.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Reasonable policies and procedures.</heading>
<content> Card issuers must establish and maintain reasonable written policies and procedures to consider a consumer's independent income or assets and current obligations. Reasonable policies and procedures to consider a consumer's independent ability to make the required payments include the consideration of at least one of the following: The ratio of debt obligations to income; the ratio of debt obligations to assets; or the income the consumer will have after paying debt obligations. It would be unreasonable for a card issuer to not review any information about a consumer's income, assets, or current obligations, or to issue a credit card to a consumer who does not have any independent income or assets.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Minimum periodic payments—</heading>
<paragraph identifier="/us/cfr/t12/s226.51/a/2/i" class="inline">
<num value="i">(i) </num>
<heading>Reasonable method.</heading>
<content> For purposes of paragraph (a)(1) of this section, a card issuer must use a reasonable method for estimating the minimum periodic payments the consumer would be required to pay under the terms of the account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Safe harbor.</heading>
<chapeau> A card issuer complies with paragraph (a)(2)(i) of this section if it estimates required minimum periodic payments using the following method:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.51/a/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The card issuer assumes utilization, from the first day of the billing cycle, of the full credit line that the <?page num="424"?>issuer is considering offering to the consumer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/a/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<chapeau> The card issuer uses a minimum payment formula employed by the issuer for the product the issuer is considering offering to the consumer or, in the case of an existing account, the minimum payment formula that currently applies to that account, provided that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.51/a/2/ii/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> If the applicable minimum payment formula includes interest charges, the card issuer estimates those charges using an interest rate that the issuer is considering offering to the consumer for purchases or, in the case of an existing account, the interest rate that currently applies to purchases; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/a/2/ii/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the applicable minimum payment formula includes mandatory fees, the card issuer must assume that such fees have been charged to the account.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Rules affecting young consumers—</heading>
<paragraph identifier="/us/cfr/t12/s226.51/b/1" class="inline">
<num value="1">(1) </num>
<heading>Applications from young consumers.</heading>
<chapeau> A card issuer may not open a credit card account under an open-end (not home-secured) consumer credit plan for a consumer less than 21 years old, unless the consumer has submitted a written application and the card issuer has:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.51/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Financial information indicating the consumer has an independent ability to make the required minimum periodic payments on the proposed extension of credit in connection with the account, consistent with paragraph (a) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<paragraph identifier="/us/cfr/t12/s226.51/b/1/ii/A" class="inline">
<num value="A">(A)</num>
<content> A signed agreement of a cosigner, guarantor, or joint applicant who is at least 21 years old to be either secondarily liable for any debt on the account incurred by the consumer before the consumer has attained the age of 21 or jointly liable with the consumer for any debt on the account, and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/b/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Financial information indicating such cosigner, guarantor, or joint applicant has the ability to make the required minimum periodic payments on such debts, consistent with paragraph (a) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.51/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Credit line increases for young consumers.</heading>
<content> If a credit card account has been opened pursuant to paragraph (b)(1)(ii) of this section, no increase in the credit limit may be made on such account before the consumer attains the age of 21 unless the cosigner, guarantor, or joint accountholder who assumed liability at account opening agrees in writing to assume liability on the increase.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7818">75 FR 7818</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/23002">76 FR 23002</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.52">
<num value="226.52" style="-uslm-sgm:SECTNO">§ 226.52</num>
<heading style="-uslm-sgm:SUBJECT">Limitations on fees.</heading>
<paragraph identifier="/us/cfr/t12/s226.52/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Limitations prior to account opening and during first year after account opening—</heading>
<paragraph identifier="/us/cfr/t12/s226.52/a/1" class="inline">
<num value="1">(1) </num>
<heading>General rule.</heading>
<content> Except as provided in paragraph (a)(2) of this section, the total amount of fees a consumer is required to pay with respect to a credit card account under an open-end (not home-secured) consumer credit plan prior to account opening and during the first year after account opening must not exceed 25 percent of the credit limit in effect when the account is opened. For purposes of this paragraph, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Fees not subject to limitations.</heading>
<chapeau> Paragraph (a) of this section does not apply to:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.52/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Late payment fees, over-the-limit fees, and returned-payment fees; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Fees that the consumer is not required to pay with respect to the account.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Rule of construction.</heading>
<content> Paragraph (a) of this section does not authorize the imposition or payment of fees or charges otherwise prohibited by law.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Limitations on penalty fees.</heading>
<chapeau> A card issuer must not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan unless the dollar amount of the fee is consistent with paragraphs (b)(1) and (b)(2) of this section.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.52/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>General rule.</heading>
<chapeau> Except as provided in paragraph (b)(2) of this section, a card issuer may impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan if the dollar amount of the fee is consistent with either paragraph (b)(1)(i) or (b)(1)(ii) of this section.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.52/b/1/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Fees based on costs.</heading>
<content> A card issuer may impose a fee for violating the terms or other requirements of an account if the card issuer has determined <?page num="425"?>that the dollar amount of the fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of that type of violation. A card issuer must reevaluate this determination at least once every twelve months. If as a result of the reevaluation the card issuer determines that a lower fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of that type of violation, the card issuer must begin imposing the lower fee within 45 days after completing the reevaluation. If as a result of the reevaluation the card issuer determines that a higher fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of that type of violation, the card issuer may begin imposing the higher fee after complying with the notice requirements in <ref href="/us/cfr/t12/s226.9">§ 226.9</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Safe harbors.</heading>
<chapeau> A card issuer may impose a fee for violating the terms or other requirements of an account if the dollar amount of the fee does not exceed, as applicable:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.52/b/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> $25.00;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> $35.00 if the card issuer previously imposed a fee pursuant to paragraph (b)(1)(ii)(A) of this section for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Three percent of the delinquent balance on a charge card account that requires payment of outstanding balances in full at the end of each billing cycle if the card issuer has not received the required payment for two or more consecutive billing cycles.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/1/ii/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The amounts in paragraphs (b)(1)(ii)(A) and (b)(1)(ii)(B) of this section will be adjusted annually by the Board to reflect changes in the Consumer Price Index.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Prohibited fees—</heading>
<paragraph identifier="/us/cfr/t12/s226.52/b/2/i" class="inline">
<num value="i">(i) </num>
<heading>Fees that exceed dollar amount associated with violation—</heading>
<paragraph identifier="/us/cfr/t12/s226.52/b/2/i/A" class="inline">
<num value="A">(A) </num>
<heading>Generally.</heading>
<content> A card issuer must not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan that exceeds the dollar amount associated with the violation.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/2/i/B" style="-uslm-sgm:P">
<num value="B">(B) </num>
<heading>No dollar amount associated with violation.</heading>
<chapeau> A card issuer must not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan when there is no dollar amount associated with the violation. For purposes of paragraph (b)(2)(i) of this section, there is no dollar amount associated with the following violations:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.52/b/2/i/B/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Transactions that the card issuer declines to authorize;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/2/i/B/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Account inactivity; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/2/i/B/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The closure or termination of an account.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.52/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Multiple fees based on a single event or transaction.</heading>
<content> A card issuer must not impose more than one fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan based on a single event or transaction. A card issuer may, at its option, comply with this prohibition by imposing no more than one fee for violating the terms or other requirements of an account during a billing cycle.</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7818">75 FR 7818</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/75/37571">75 FR 37571</ref>, <date date="2010-06-26" role="amended">June 26, 2010</date>; <ref href="/us/fr/76/23002">76 FR 23002</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.53">
<num value="226.53" style="-uslm-sgm:SECTNO">§ 226.53</num>
<heading style="-uslm-sgm:SUBJECT">Allocation of payments.</heading>
<paragraph identifier="/us/cfr/t12/s226.53/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule.</heading>
<content> Except as provided in paragraph (b) of this section, when a consumer makes a payment in excess of the required minimum periodic payment for a credit card account under an open-end (not home-secured) consumer credit plan, the card issuer must allocate the excess amount first to the balance with the highest annual percentage rate and any remaining portion to the other balances in descending order based on the applicable annual percentage rate.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.53/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Special rules—</heading>
<paragraph identifier="/us/cfr/t12/s226.53/b/1" class="inline">
<num value="1">(1) </num>
<heading>Accounts with balances subject to deferred interest or similar program.</heading>
<chapeau> When a balance on a credit card account under an open-end (not home-secured) consumer credit plan is subject to a deferred interest or similar program that provides that a consumer will not be obligated to pay interest that accrues on the balance if the balance is paid in full prior to the expiration of a specified period of time:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.53/b/1/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Last two billing cycles.</heading>
<content> The card issuer must allocate any amount paid <?page num="426"?>by the consumer in excess of the required minimum periodic payment consistent with paragraph (a) of this section, except that, during the two billing cycles immediately preceding expiration of the specified period, the excess amount must be allocated first to the balance subject to the deferred interest or similar program and any remaining portion allocated to any other balances consistent with paragraph (a) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.53/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Consumer request.</heading>
<content> The card issuer may at its option allocate any amount paid by the consumer in excess of the required minimum periodic payment among the balances on the account in the manner requested by the consumer.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.53/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Accounts with secured balances.</heading>
<content> When a balance on a credit card account under an open-end (not home-secured) consumer credit plan is secured, the card issuer may at its option allocate any amount paid by the consumer in excess of the required minimum periodic payment to that balance if requested by the consumer.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7818">75 FR 7818</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/23003">76 FR 23003</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.54">
<num value="226.54" style="-uslm-sgm:SECTNO">§ 226.54</num>
<heading style="-uslm-sgm:SUBJECT">Limitations on the imposition of finance charges.</heading>
<paragraph identifier="/us/cfr/t12/s226.54/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Limitations on imposing finance charges as a result of the loss of a grace period—</heading>
<paragraph identifier="/us/cfr/t12/s226.54/a/1" class="inline">
<num value="1">(1) </num>
<heading>General rule.</heading>
<chapeau> Except as provided in paragraph (b) of this section, a card issuer must not impose finance charges as a result of the loss of a grace period on a credit card account under an open-end (not home-secured) consumer credit plan if those finance charges are based on:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.54/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Balances for days in billing cycles that precede the most recent billing cycle; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.54/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Any portion of a balance subject to a grace period that was repaid prior to the expiration of the grace period.</content>
</paragraph>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.54/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Definition of grace period.</heading>
<content> For purposes of paragraph (a)(1) of this section, “grace period” has the same meaning as in <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.54/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exceptions.</heading>
<chapeau> Paragraph (a) of this section does not apply to:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.54/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Adjustments to finance charges as a result of the resolution of a dispute under <ref href="/us/cfr/t12/s226.12">§ 226.12</ref> or <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.54/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Adjustments to finance charges as a result of the return of a payment.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.55">
<num value="226.55" style="-uslm-sgm:SECTNO">§ 226.55</num>
<heading style="-uslm-sgm:SUBJECT">Limitations on increasing annual percentage rates, fees, and charges.</heading>
<paragraph identifier="/us/cfr/t12/s226.55/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule.</heading>
<content> Except as provided in paragraph (b) of this section, a card issuer must not increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) on a credit card account under an open-end (not home-secured) consumer credit plan.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exceptions.</heading>
<chapeau> A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) pursuant to an exception set forth in this paragraph even if that increase would not be permitted under a different exception.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Temporary rate, fee, or charge exception.</heading>
<chapeau> A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) upon the expiration of a specified period of six months or longer, provided that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Prior to the commencement of that period, the card issuer disclosed in writing to the consumer, in a clear and conspicuous manner, the length of the period and the annual percentage rate, fee, or charge that would apply after expiration of the period; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Upon expiration of the specified period:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The card issuer must not apply an annual percentage rate, fee, or charge to transactions that occurred prior to the period that exceeds the annual percentage rate, fee, or charge that applied to those transactions prior to the period;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If the disclosures required by paragraph (b)(1)(i) of this section are provided pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, the card issuer must not apply an annual percentage rate, fee, or charge to transactions that occurred within 14 days after provision of the notice that exceeds the annual percentage rate, fee, or charge that applied to that category of transactions prior to provision of the notice; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The card issuer must not apply an annual percentage rate, fee, or charge to transactions that occurred during the period that exceeds the increased annual percentage rate, fee, or charge <?page num="427"?>disclosed pursuant to paragraph (b)(1)(i) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Variable rate exception.</heading>
<chapeau> A card issuer may increase an annual percentage rate when:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The annual percentage rate varies according to an index that is not under the card issuer's control and is available to the general public; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The increase in the annual percentage rate is due to an increase in the index.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Advance notice exception.</heading>
<chapeau> A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) after complying with the applicable notice requirements in <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>, (c), or (g), provided that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> If a card issuer discloses an increased annual percentage rate, fee, or charge pursuant to <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>, the card issuer must not apply that rate, fee, or charge to transactions that occurred prior to provision of the notice;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If a card issuer discloses an increased annual percentage rate, fee, or charge pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g), the card issuer must not apply that rate, fee, or charge to transactions that occurred prior to or within 14 days after provision of the notice; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> This exception does not permit a card issuer to increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (iii), or (xii) during the first year after the account is opened, while the account is closed, or while the card issuer does not permit the consumer to use the account for new transactions. For purposes of this paragraph, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Delinquency exception.</heading>
<chapeau> A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) due to the card issuer not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment, provided that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> The card issuer must disclose in a clear and conspicuous manner in the notice of the increase pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g):</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/4/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A statement of the reason for the increase; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> That the increased annual percentage rate, fee, or charge will cease to apply if the card issuer receives six consecutive required minimum periodic payments on or before the payment due date beginning with the first payment due following the effective date of the increase; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the card issuer receives six consecutive required minimum periodic payments on or before the payment due date beginning with the first payment due following the effective date of the increase, the card issuer must reduce any annual percentage rate, fee, or charge increased pursuant to this exception to the annual percentage rate, fee, or charge that applied prior to the increase with respect to transactions that occurred prior to or within 14 days after provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Workout and temporary hardship arrangement exception.</heading>
<chapeau> A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) due to the consumer's completion of a workout or temporary hardship arrangement or the consumer's failure to comply with the terms of such an arrangement, provided that:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/b/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Prior to commencement of the arrangement (except as provided in <ref href="/us/cfr/t12/s226.9/c/2/v/D">§ 226.9(c)(2)(v)(D)</ref>), the card issuer has provided the consumer with a clear and conspicuous written disclosure of the terms of the arrangement (including any increases due to the completion or failure of the arrangement); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Upon the completion or failure of the arrangement, the card issuer must not apply to any transactions that occurred prior to commencement of the arrangement an annual percentage rate, fee, or charge that exceeds the annual percentage rate, fee, or charge that applied to those transactions prior to commencement of the arrangement.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/b/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Servicemembers Civil Relief Act exception.</heading>
<content> If an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (iii), or (xii) has been decreased pursuant to <ref href="/us/usc/t50">50 U.S.C. </ref><?page num="428"?>app. 527 or a similar Federal or State statute or regulation, a card issuer may increase that annual percentage rate, fee, or charge once <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or the similar statute or regulation no longer applies, provided that the card issuer must not apply to any transactions that occurred prior to the decrease an annual percentage rate, fee, or charge that exceeds the annual percentage rate, fee, or charge that applied to those transactions prior to the decrease.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Treatment of protected balances—</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.55/c/1" class="inline">
<num value="1">(1) </num>
<heading>Definition of protected balance.</heading>
<content> For purposes of this paragraph, “protected balance” means the amount owed for a category of transactions to which an increased annual percentage rate or an increased fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) cannot be applied after the annual percentage rate, fee, or charge for that category of transactions has been increased pursuant to paragraph (b)(3) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Repayment of protected balance.</heading>
<chapeau> The card issuer must not require repayment of the protected balance using a method that is less beneficial to the consumer than one of the following methods:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The method of repayment for the account before the effective date of the increase;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> An amortization period of not less than five years, beginning no earlier than the effective date of the increase; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A required minimum periodic payment that includes a percentage of the balance that is equal to no more than twice the percentage required before the effective date of the increase.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Continuing application.</heading>
<chapeau> This section continues to apply to a balance on a credit card account under an open-end (not home-secured) consumer credit plan after:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.55/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The account is closed or acquired by another creditor; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The balance is transferred from a credit card account under an open-end (not home-secured) consumer credit plan issued by a creditor to another credit account issued by the same creditor or its affiliate or subsidiary (unless the account to which the balance is transferred is subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.55/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Promotional waivers or rebates of interest, fees, and other charges.</heading>
<content> If a card issuer promotes the waiver or rebate of finance charges due to a periodic interest rate or fees or charges required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (iii), or (xii) and applies the waiver or rebate to a credit card account under an open-end (not home-secured) consumer credit plan, any cessation of the waiver or rebate on that account constitutes an increase in an annual percentage rate, fee, or charge for purposes of this section.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7818">75 FR 7818</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/23003">76 FR 23003</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.56">
<num value="226.56" style="-uslm-sgm:SECTNO">§ 226.56</num>
<heading style="-uslm-sgm:SUBJECT">Requirements for over-the-limit transactions.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.56/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definition.</heading>
<content> For purposes of this section, the term “over-the-limit transaction” means any extension of credit by a card issuer to complete a transaction that causes a consumer's credit card account balance to exceed the credit limit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Opt-in requirement—</heading>
<paragraph identifier="/us/cfr/t12/s226.56/b/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<chapeau> A card issuer shall not assess a fee or charge on a consumer's credit card account under an open-end (not home-secured) consumer credit plan for an over-the-limit transaction unless the card issuer:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.56/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Provides the consumer with an oral, written or electronic notice, segregated from all other information, describing the consumer's right to affirmatively consent, or opt in, to the card issuer's payment of an over-the-limit transaction;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Provides a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the card issuer's payment of over-the-limit transactions;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Obtains the consumer's affirmative consent, or opt-in, to the card issuer's payment of such transactions;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Provides the consumer with confirmation of the consumer's consent in writing, or if the consumer agrees, electronically; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/b/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Provides the consumer notice in writing of the right to revoke that consent following the assessment of an over-the-limit fee or charge.
<?page num="429"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Completion of over-the-limit transactions without consumer consent.</heading>
<content> Notwithstanding the absence of a consumer's affirmative consent under paragraph (b)(1)(iii) of this section, a card issuer may pay any over-the-limit transaction on a consumer's account provided that the card issuer does not impose any fee or charge on the account for paying that over-the-limit transaction.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Method of election.</heading>
<content> A card issuer may permit a consumer to consent to the card issuer's payment of any over-the-limit transaction in writing, orally, or electronically, at the card issuer's option. The card issuer must also permit the consumer to revoke his or her consent using the same methods available to the consumer for providing consent.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Timing and placement of notices—</heading>
<paragraph identifier="/us/cfr/t12/s226.56/d/1" class="inline">
<num value="1">(1) </num>
<heading>Initial notice—</heading>
<paragraph identifier="/us/cfr/t12/s226.56/d/1/i" class="inline">
<num value="i">(i) </num>
<heading>General.</heading>
<content> The notice required by paragraph (b)(1)(i) of this section shall be provided prior to the assessment of any over-the-limit fee or charge on a consumer's account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Oral or electronic consent.</heading>
<content> If a consumer consents to the card issuer's payment of any over-the-limit transaction by oral or electronic means, the card issuer must provide the notice required by paragraph (b)(1)(i) of this section immediately prior to obtaining that consent.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Confirmation of opt-in.</heading>
<content> The notice required by paragraph (b)(1)(iv) of this section may be provided no later than the first periodic statement sent after the consumer has consented to the card issuer's payment of over-the-limit transactions.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Notice of right of revocation.</heading>
<content> The notice required by paragraph (b)(1)(v) of this section shall be provided on the front of any page of each periodic statement that reflects the assessment of an over-the-limit fee or charge on a consumer's account.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Content—</heading>
<paragraph identifier="/us/cfr/t12/s226.56/e/1" class="inline">
<num value="1">(1) </num>
<heading>Initial notice.</heading>
<chapeau> The notice required by paragraph (b)(1)(i) of this section shall include all applicable items in this paragraph (e)(1) and may not contain any information not specified in or otherwise permitted by this paragraph.</chapeau>
<paragraph identifier="/us/cfr/t12/s226.56/e/1/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Fees.</heading>
<content> The dollar amount of any fees or charges assessed by the card issuer on a consumer's account for an over-the-limit transaction;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>APRs.</heading>
<content> Any increased periodic rate(s) (expressed as an annual percentage rate(s)) that may be imposed on the account as a result of an over-the-limit transaction; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Disclosure of opt-in right.</heading>
<content> An explanation of the consumer's right to affirmatively consent to the card issuer's payment of over-the-limit transactions, including the method(s) by which the consumer may consent.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Subsequent notice.</heading>
<content> The notice required by paragraph (b)(1)(v) of this section shall describe the consumer's right to revoke any consent provided under paragraph (b)(1)(iii) of this section, including the method(s) by which the consumer may revoke.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Safe harbor.</heading>
<content> Use of Model Forms G–25(A) or G–25(B) of appendix G to this part, or substantially similar notices, constitutes compliance with the notice content requirements of paragraph (e) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Joint relationships.</heading>
<content> If two or more consumers are jointly liable on a credit card account under an open-end (not home-secured) consumer credit plan, the card issuer shall treat the affirmative consent of any of the joint consumers as affirmative consent for that account. Similarly, the card issuer shall treat a revocation of consent by any of the joint consumers as revocation of consent for that account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Continuing right to opt in or revoke opt-in.</heading>
<content> A consumer may affirmatively consent to the card issuer's payment of over-the-limit transactions at any time in the manner described in the notice required by paragraph (b)(1)(i) of this section. Similarly, the consumer may revoke the consent at any time in the manner described in the notice required by paragraph (b)(1)(v) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Duration of opt-in.</heading>
<content> A consumer's affirmative consent to the card issuer's payment of over-the-limit transactions is effective until revoked by the consumer, or until the card issuer decides for any reason to cease paying over-the-limit transactions for the consumer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Time to comply with revocation request.</heading>
<content> A card issuer must comply with a consumer's revocation request as <?page num="430"?>soon as reasonably practicable after the card issuer receives it.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Prohibited practices.</heading>
<chapeau> Notwithstanding a consumer's affirmative consent to a card issuer's payment of over-the-limit transactions, a card issuer is prohibited from engaging in the following practices:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.56/j/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Fees or charges imposed per cycle—</heading>
<paragraph identifier="/us/cfr/t12/s226.56/j/1/i" class="inline">
<num value="i">(i) </num>
<heading>General rule.</heading>
<content> A card issuer may not impose more than one over-the-limit fee or charge on a consumer's credit card account per billing cycle, and, in any event, only if the credit limit was exceeded during the billing cycle. In addition, except as provided in paragraph (j)(1)(ii) of this section, a card issuer may not impose an over-the-limit fee or charge on the consumer's credit card account for more than three billing cycles for the same over-the-limit transaction where the consumer has not reduced the account balance below the credit limit by the payment due date for either of the last two billing cycles.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/j/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Exception.</heading>
<content> The prohibition in paragraph (j)(1)(i) of this section on imposing an over-the-limit fee or charge in more than three billing cycles for the same over-the-limit transaction(s) does not apply if another over-the-limit transaction occurs during either of the last two billing cycles.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/j/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Failure to promptly replenish.</heading>
<content> A card issuer may not impose an over-the-limit fee or charge solely because of the card issuer's failure to promptly replenish the consumer's available credit following the crediting of the consumer's payment under <ref href="/us/cfr/t12/s226.10">§ 226.10</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/j/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Conditioning.</heading>
<content> A card issuer may not condition the amount of a consumer's credit limit on the consumer affirmatively consenting to the card issuer's payment of over-the-limit transactions if the card issuer assesses a fee or charge for such service.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.56/j/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Over-the-limit fees attributed to fees or interest.</heading>
<content> A card issuer may not impose an over-the-limit fee or charge for a billing cycle if a consumer exceeds a credit limit solely because of fees or interest charged by the card issuer to the consumer's account during that billing cycle. For purposes of this paragraph (j)(4), the relevant fees or interest charges are charges imposed as part of the plan under <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref>.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.57">
<num value="226.57" style="-uslm-sgm:SECTNO">§ 226.57</num>
<heading style="-uslm-sgm:SUBJECT">Reporting and marketing rules for college student open-end credit.</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.57/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definitions:</heading>
<content>
<p />
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">College student credit card.</inline> The term “college student credit card” as used in this section means a credit card issued under a credit card account under an open-end (not home-secured) consumer credit plan to any college student.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">College student.</inline> The term “college student” as used in this section means a consumer who is a full-time or part-time student of an institution of higher education.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Institution of higher education.</inline> The term “institution of higher education” as used in this section has the same meaning as in sections 101 and 102 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1001">20 U.S.C. 1001</ref> and 1002).</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliated organization.</inline> The term “affiliated organization” as used in this section means an alumni organization or foundation affiliated with or related to an institution of higher education.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">College credit card agreement.</inline> The term “college credit card agreement” as used in this section means any business, marketing or promotional agreement between a card issuer and an institution of higher education or an affiliated organization in connection with which college student credit cards are issued to college students currently enrolled at that institution.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Public disclosure of agreements.</heading>
<content> An institution of higher education shall publicly disclose any contract or other agreement made with a card issuer or creditor for the purpose of marketing a credit card.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Prohibited inducements.</heading>
<chapeau> No card issuer or creditor may offer a college student any tangible item to induce such student to apply for or open an open-end consumer credit plan offered by such card issuer or creditor, if such offer is made:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.57/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> On the campus of an institution of higher education;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Near the campus of an institution of higher education; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> At an event sponsored by or related to an institution of higher education.
<?page num="431"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Annual report to the Board—</heading>
<paragraph identifier="/us/cfr/t12/s226.57/d/1" class="inline">
<num value="1">(1) </num>
<heading>Requirement to report.</heading>
<content> Any card issuer that was a party to one or more college credit card agreements in effect at any time during a calendar year must submit to the Board an annual report regarding those agreements in the form and manner prescribed by the Board.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Contents of report.</heading>
<chapeau> The annual report to the Board must include the following:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.57/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Identifying information about the card issuer and the agreements submitted, including the issuer's name, address, and identifying number (such as an RSSD ID number or tax identification number);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A copy of any college credit card agreement to which the card issuer was a party that was in effect at any time during the period covered by the report;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A copy of any memorandum of understanding in effect at any time during the period covered by the report between the card issuer and an institution of higher education or affiliated organization that directly or indirectly relates to the college credit card agreement or that controls or directs any obligations or distribution of benefits between any such entities;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The total dollar amount of any payments pursuant to a college credit card agreement from the card issuer to an institution of higher education or affiliated organization during the period covered by the report, and the method or formula used to determine such amounts;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> The total number of credit card accounts opened pursuant to any college credit card agreement during the period covered by the report; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d/2/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> The total number of credit card accounts opened pursuant to any such agreement that were open at the end of the period covered by the report.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.57/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Timing of reports.</heading>
<content> Except for the initial report described in this <ref href="/us/cfr/t12/s226.57/d/3">§ 226.57(d)(3)</ref>, a card issuer must submit its annual report for each calendar year to the Board by the first business day on or after March 31 of the following calendar year. Card issuers must submit the first report following the effective date of this section, providing information for the 2009 calendar year, to the Board by <date date="2010-02-22">February 22, 2010</date>.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.58">
<num value="226.58" style="-uslm-sgm:SECTNO">§ 226.58</num>
<heading style="-uslm-sgm:SUBJECT">Internet posting of credit card agreements.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Applicability.</heading>
<content> The requirements of this section apply to any card issuer that issues credit cards under a credit card account under an open-end (not home-secured) consumer credit plan.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s226.58/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Definitions—</heading>
<content>
<p>(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agreement.</inline> For purposes of this section, “agreement” or “credit card agreement” means the written document or documents evidencing the terms of the legal obligation, or the prospective legal obligation, between a card issuer and a consumer for a credit card account under an open-end (not home-secured) consumer credit plan. “Agreement” or “credit card agreement” also includes the pricing information, as defined in <ref href="/us/cfr/t12/s226.58/b/7">§ 226.58(b)(7)</ref>.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amends.</inline> For purposes of this section, an issuer “amends” an agreement if it makes a substantive change (an “amendment”) to the agreement. A change is substantive if it alters the rights or obligations of the card issuer or the consumer under the agreement. Any change in the pricing information, as defined in <ref href="/us/cfr/t12/s226.58/b/7">§ 226.58(b)(7)</ref>, is deemed to be substantive.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business day.</inline> For purposes of this section, “business day” means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuer.</inline> For purposes of this section, “card issuer” or “issuer” means the entity to which a consumer is legally obligated, or would be legally obligated, under the terms of a credit card agreement.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Offers.</inline> For purposes of this section, an issuer “offers” or “offers to the public” an agreement if the issuer is soliciting or accepting applications for accounts that would be subject to that agreement.</p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open account.</inline> For purposes of this section, an account is an “open account” or “open credit card account” if it is a credit card account under an open-end (not home-secured) consumer credit plan and either:</p>
<p style="-uslm-sgm:P">(i) The cardholder can obtain extensions of credit on the account; or
<?page num="432"?></p>
<p style="-uslm-sgm:P">(ii) There is an outstanding balance on the account that has not been charged off. An account that has been suspended temporarily (for example, due to a report by the cardholder of unauthorized use of the card) is considered an “open account” or “open credit card account.”</p>
<p style="-uslm-sgm:P">(7) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pricing information.</inline> For purposes of this section, “pricing information” means the information listed in <ref href="/us/cfr/t12/s226.6/b/2/i">§ 226.6(b)(2)(i)</ref> through (b)(2)(xii) and (b)(4). Pricing information does not include temporary or promotional rates and terms or rates and terms that apply only to protected balances.</p>
<p style="-uslm-sgm:P">(8) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Private label credit card account and private label credit card plan.</inline> For purposes of this section:</p>
<p style="-uslm-sgm:P">(i) “private label credit card account” means a credit card account under an open-end (not home-secured) consumer credit plan with a credit card that can be used to make purchases only at a single merchant or an affiliated group of merchants; and</p>
<p style="-uslm-sgm:P">(ii) “private label credit card plan” means all of the private label credit card accounts issued by a particular issuer with credit cards usable at the same single merchant or affiliated group of merchants.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Submission of agreements to Board—</heading>
<paragraph identifier="/us/cfr/t12/s226.58/c/1" class="inline">
<num value="1">(1) </num>
<heading>Quarterly submissions.</heading>
<chapeau> A card issuer must make quarterly submissions to the Board, in the form and manner specified by the Board. Quarterly submissions must be sent to the Board no later than the first business day on or after January 31, April 30, July 31, and October 31 of each year. Each submission must contain:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.58/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Identifying information about the card issuer and the agreements submitted, including the issuer's name, address, and identifying number (such as an RSSD ID number or tax identification number);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The credit card agreements that the card issuer offered to the public as of the last business day of the preceding calendar quarter that the card issuer has not previously submitted to the Board;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Any credit card agreement previously submitted to the Board that was amended during the preceding calendar quarter and that the card issuer offered to the public as of the last business day of the preceding calendar quarter, as described in <ref href="/us/cfr/t12/s226.58/c/3">§ 226.58(c)(3)</ref>; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Notification regarding any credit card agreement previously submitted to the Board that the issuer is withdrawing, as described in <ref href="/us/cfr/t12/s226.58/c/4">§ 226.58(c)(4)</ref>, (c)(5), (c)(6), and (c)(7).</content>
</paragraph>
</paragraph>
<paragraph role="reserved" identifier="/us/cfr/t12/s226.58/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> [Reserved]</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Amended agreements.</heading>
<content> If a credit card agreement has been submitted to the Board, the agreement has not been amended and the card issuer continues to offer the agreement to the public, no additional submission regarding that agreement is required. If a credit card agreement that previously has been submitted to the Board is amended and the card issuer offered the amended agreement to the public as of the last business day of the calendar quarter in which the change became effective, the card issuer must submit the entire amended agreement to the Board, in the form and manner specified by the Board, by the first quarterly submission deadline after the last day of the calendar quarter in which the change became effective.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Withdrawal of agreements.</heading>
<content> If a card issuer no longer offers to the public a credit card agreement that previously has been submitted to the Board, the card issuer must notify the Board, in the form and manner specified by the Board, by the first quarterly submission deadline after the last day of the calendar quarter in which the issuer ceased to offer the agreement.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>De minimis exception.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/c/5/i" class="inline">
<num value="i"> (i)</num>
<content> A card issuer is not required to submit any credit card agreements to the Board if the card issuer had fewer than 10,000 open credit card accounts as of the last business day of the calendar quarter.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If an issuer that previously qualified for the de minimis exception ceases to qualify, the card issuer must begin making quarterly submissions to the Board no later than the first quarterly submission deadline after the date as of which the issuer ceased to qualify.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/5/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If a card issuer that did not previously qualify for the de minimis exception qualifies for the de minimis exception, the card issuer must continue to make quarterly submissions to the Board until the issuer notifies the <?page num="433"?>Board that the card issuer is withdrawing all agreements it previously submitted to the Board.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/6" style="-uslm-sgm:P">
<num value="6">(6) </num>
<heading>Private label credit card exception.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/c/6/i" class="inline">
<num value="i"> (i)</num>
<chapeau> A card issuer is not required to submit to the Board a credit card agreement if, as of the last business day of the calendar quarter, the agreement:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.58/c/6/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> is offered for accounts under one or more private label credit card plans each of which has fewer than 10,000 open accounts; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/6/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> is not offered to the public other than for accounts under such a plan.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/6/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If an agreement that previously qualified for the private label credit card exception ceases to qualify, the card issuer must submit the agreement to the Board no later than the first quarterly submission deadline after the date as of which the agreement ceased to qualify.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/6/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If an agreement that did not previously qualify for the private label credit card exception qualifies for the exception, the card issuer must continue to make quarterly submissions to the Board with respect to that agreement until the issuer notifies the Board that the agreement is being withdrawn.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/7" style="-uslm-sgm:P">
<num value="7">(7) </num>
<heading>Product testing exception.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/c/7/i" class="inline">
<num value="i"> (i)</num>
<chapeau> A card issuer is not required to submit to the Board a credit card agreement if, as of the last business day of the calendar quarter, the agreement:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.58/c/7/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> is offered as part of a product test offered to only a limited group of consumers for a limited period of time;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/7/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> is used for fewer than 10,000 open accounts; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/7/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> is not offered to the public other than in connection with such a product test.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/7/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If an agreement that previously qualified for the product testing exception ceases to qualify, the card issuer must submit the agreement to the Board no later than the first quarterly submission deadline after the date as of which the agreement ceased to qualify.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/7/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If an agreement that did not previously qualify for the product testing exception qualifies for the exception, the card issuer must continue to make quarterly submissions to the Board with respect to that agreement until the issuer notifies the Board that the agreement is being withdrawn.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8" style="-uslm-sgm:P">
<num value="8">(8) </num>
<heading>Form and content of agreements submitted to the Board—</heading>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i" class="inline">
<num value="i">(i) </num>
<heading>Form and content generally.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/A" class="inline">
<num value="A"> (A)</num>
<content> Each agreement must contain the provisions of the agreement and the pricing information in effect as of the last business day of the preceding calendar quarter.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Agreements must not include any personally identifiable information relating to any cardholder, such as name, address, telephone number, or account number.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<chapeau> The following are not deemed to be part of the agreement for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>, and therefore are not required to be included in submissions to the Board:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/C/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Disclosures required by State or Federal law, such as affiliate marketing notices, privacy policies, billing rights notices, or disclosures under the E-Sign Act;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/C/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Solicitation materials;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/C/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Periodic statements;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/C/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Ancillary agreements between the issuer and the consumer, such as debt cancellation contracts or debt suspension agreements;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/C/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Offers for credit insurance or other optional products and other similar advertisements; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/C/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Documents that may be sent to the consumer along with the credit card or credit card agreement such as a cover letter, a validation sticker on the card, or other information about card security.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Agreements must be presented in a clear and legible font.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Pricing information.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/ii/A" class="inline">
<num value="A"> (A)</num>
<content> Pricing information must be set forth in a single addendum to the agreement. The addendum must contain all of the pricing information, as defined by <ref href="/us/cfr/t12/s226.58/b/7">§ 226.58(b)(7)</ref>. The addendum may, but is not required to, contain any other information listed in <ref href="/us/cfr/t12/s226.6/b">§ 226.6(b)</ref>, provided that information is complete and accurate as of the applicable date under <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. The addendum may not contain any other information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Pricing information that may vary from one cardholder to another depending on the cardholder's creditworthiness or state of residence or other factors must be disclosed either by setting forth all the possible variations (such as purchase APRs of 13 percent, 15 percent, 17 percent, and 19 <?page num="434"?>percent) or by providing a range of possible variations (such as purchase APRs ranging from 13 percent to 19 percent).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> If a rate included in the pricing information is a variable rate, the issuer must identify the index or formula used in setting the rate and the margin. Rates that may vary from one cardholder to another must be disclosed by providing the index and the possible margins (such as the prime rate plus 5 percent, 8 percent, 10 percent, or 12 percent) or range of margins (such as the prime rate plus from 5 to 12 percent). The value of the rate and the value of the index are not required to be disclosed.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/iii" style="-uslm-sgm:P">
<num value="iii">(iii) </num>
<heading>Optional variable terms addendum.</heading>
<content> Provisions of the agreement other than the pricing information that may vary from one cardholder to another depending on the cardholder's creditworthiness or state of residence or other factors may be set forth in a single addendum to the agreement separate from the pricing information addendum.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/c/8/iv" style="-uslm-sgm:P">
<num value="iv">(iv) </num>
<heading>Integrated agreement.</heading>
<content> Issuers may not provide provisions of the agreement or pricing information in the form of change-in-terms notices or riders (other than the pricing information addendum and the optional variable terms addendum). Changes in provisions or pricing information must be integrated into the text of the agreement, the pricing information addendum or the optional variable terms addendum, as appropriate.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Posting of agreements offered to the public.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/d/1" class="inline">
<num value="1"> (1)</num>
<content> Except as provided below, a card issuer must post and maintain on its publicly available Web site the credit card agreements that the issuer is required to submit to the Board under <ref href="/us/cfr/t12/s226.58/c">§ 226.58(c)</ref>. With respect to an agreement offered solely for accounts under one or more private label credit card plans, an issuer may fulfill this requirement by posting and maintaining the agreement in accordance with the requirements of this section on the publicly available Web site of at least one of the merchants at which credit cards issued under each private label credit card plan with 10,000 or more open accounts may be used.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Except as provided in <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref>, agreements posted pursuant to <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> must conform to the form and content requirements for agreements submitted to the Board specified in <ref href="/us/cfr/t12/s226.58/c/8">§ 226.58(c)(8)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Agreements posted pursuant to <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> may be posted in any electronic format that is readily usable by the general public. Agreements must be placed in a location that is prominent and readily accessible by the public and must be accessible without submission of personally identifiable information.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The card issuer must update the agreements posted on its Web site pursuant to <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> at least as frequently as the quarterly schedule required for submission of agreements to the Board under <ref href="/us/cfr/t12/s226.58/c">§ 226.58(c)</ref>. If the issuer chooses to update the agreements on its Web site more frequently, the agreements posted on the issuer's Web site may contain the provisions of the agreement and the pricing information in effect as of a date other than the last business day of the preceding calendar quarter.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Agreements for all open accounts—</heading>
<paragraph identifier="/us/cfr/t12/s226.58/e/1" class="inline">
<num value="1">(1) </num>
<heading>Availability of individual cardholder's agreement.</heading>
<chapeau> With respect to any open credit card account, a card issuer must either:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.58/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Post and maintain the cardholder's agreement on its Web site; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Promptly provide a copy of the cardholder's agreement to the cardholder upon the cardholder's request. If the card issuer makes an agreement available upon request, the issuer must provide the cardholder with the ability to request a copy of the agreement both by using the issuer's Web site (such as by clicking on a clearly identified box to make the request) and by calling a readily available telephone line the number for which is displayed on the issuer's Web site and clearly identified as to purpose. The card issuer must send to the cardholder or otherwise make available to the cardholder a copy of the cardholder's agreement in electronic or paper form no later than 30 days after the issuer receives the cardholder's request.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Special rule for issuers without interactive Web sites.</heading>
<content> An issuer that does not maintain a Web site from which <?page num="435"?>cardholders can access specific information about their individual accounts, instead of complying with <ref href="/us/cfr/t12/s226.58/e/1">§ 226.58(e)(1)</ref>, may make agreements available upon request by providing the cardholder with the ability to request a copy of the agreement by calling a readily available telephone line, the number for which is displayed on the issuer's Web site and clearly identified as to purpose or included on each periodic statement sent to the cardholder and clearly identified as to purpose. The issuer must send to the cardholder or otherwise make available to the cardholder a copy of the cardholder's agreement in electronic or paper form no later than 30 days after the issuer receives the cardholder's request.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Form and content of agreements.</heading>
<paragraph identifier="/us/cfr/t12/s226.58/e/3/i" class="inline">
<num value="i"> (i)</num>
<content> Except as provided in <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref>, agreements posted on the card issuer's Web site pursuant to <ref href="/us/cfr/t12/s226.58/e/1/i">§ 226.58(e)(1)(i)</ref> or made available upon the cardholder's request pursuant to <ref href="/us/cfr/t12/s226.58/e/1/ii">§ 226.58(e)(1)(ii)</ref> or (e)(2) must conform to the form and content requirements for agreements submitted to the Board specified in <ref href="/us/cfr/t12/s226.58/c/8">§ 226.58(c)(8)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the card issuer posts an agreement on its Web site or otherwise provides an agreement to a cardholder electronically under <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref>, the agreement may be posted or provided in any electronic format that is readily usable by the general public and must be placed in a location that is prominent and readily accessible to the cardholder.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Agreements posted or otherwise provided pursuant to <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref> may contain personally identifiable information relating to the cardholder, such as name, address, telephone number, or account number, provided that the issuer takes appropriate measures to make the agreement accessible only to the cardholder or other authorized persons.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Agreements posted or otherwise provided pursuant to <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref> must set forth the specific provisions and pricing information applicable to the particular cardholder. Provisions and pricing information must be complete and accurate as of a date no more than 60 days prior to: (1) the date on which the agreement is posted on the card issuer's Web site under <ref href="/us/cfr/t12/s226.58/e/1/i">§ 226.58(e)(1)(i)</ref>; or (2) the date the cardholder's request is received under <ref href="/us/cfr/t12/s226.58/e/1/ii">§ 226.58(e)(1)(ii)</ref> or (e)(2).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/e/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Agreements provided upon cardholder request pursuant to <ref href="/us/cfr/t12/s226.58/e/1/ii">§ 226.58(e)(1)(ii)</ref> or (e)(2) may be provided by the issuer in either electronic or paper form, regardless of the form of the cardholder's request.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.58/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>E-Sign Act requirements.</heading>
<content> Card issuers may provide credit card agreements in electronic form under <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> and (e) without regard to the consumer notice and consent requirements of section 101(c) of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7818">75 FR 7818</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/23003">76 FR 23003</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s226.59">
<num value="226.59" style="-uslm-sgm:SECTNO">§ 226.59</num>
<heading style="-uslm-sgm:SUBJECT">Reevaluation of rate increases.</heading>
<paragraph identifier="/us/cfr/t12/s226.59/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General rule—</heading>
<paragraph identifier="/us/cfr/t12/s226.59/a/1" class="inline">
<num value="1">(1) </num>
<heading>Evaluation of increased rate.</heading>
<chapeau> If a card issuer increases an annual percentage rate that applies to a credit card account under an open-end (not home-secured) consumer credit plan, based on the credit risk of the consumer, market conditions, or other factors, or increased such a rate on or after <date date="2009-01-01">January 1, 2009</date>, and 45 days' advance notice of the rate increase is required pursuant to <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> or (g), the card issuer must:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.59/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Evaluate the factors described in paragraph (d) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Based on its review of such factors, reduce the annual percentage rate applicable to the consumer's account, as appropriate.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Rate reductions—</heading>
<paragraph identifier="/us/cfr/t12/s226.59/a/2/i" class="inline">
<num value="i">(i) </num>
<heading>Timing.</heading>
<content> If a card issuer is required to reduce the rate applicable to an account pursuant to paragraph (a)(1) of this section, the card issuer must reduce the rate not later than 45 days after completion of the evaluation described in paragraph (a)(1).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Applicability of rate reduction.</heading>
<chapeau> Any reduction in an annual percentage rate required pursuant to paragraph (a)(1) of this section shall apply to:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.59/a/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Any outstanding balances to which the increased rate described in paragraph (a)(1) of this section has been applied; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/a/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> New transactions that occur after the effective date of the rate reduction <?page num="436"?>that would otherwise have been subject to the increased rate.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Policies and procedures.</heading>
<content> A card issuer must have reasonable written policies and procedures in place to conduct the review described in paragraph (a) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Timing.</heading>
<content> A card issuer that is subject to paragraph (a) of this section must conduct the review described in paragraph (a)(1) of this section not less frequently than once every six months after the rate increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Factors—</heading>
<paragraph identifier="/us/cfr/t12/s226.59/d/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraph (d)(2) of this section, a card issuer must review either:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.59/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The factors on which the increase in an annual percentage rate was originally based; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The factors that the card issuer currently considers when determining the annual percentage rates applicable to similar new credit card accounts under an open-end (not home-secured) consumer credit plan.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Rate increases imposed between <date date="2009-01-01">January 1, 2009</date> and <date date="2010-02-21">February 21, 2010</date>.</heading>
<content> For rate increases imposed between <date date="2009-01-01">January 1, 2009</date> and <date date="2010-02-21">February 21, 2010</date>, an issuer must consider the factors described in paragraph (d)(1)(ii) when conducting the first two reviews required under paragraph (a) of this section, unless the rate increase subject to paragraph (a) of this section was based solely upon factors specific to the consumer, such as a decline in the consumer's credit risk, the consumer's delinquency or default, or a violation of the terms of the account.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Rate increases subject to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref>.</heading>
<content> If an issuer increases a rate applicable to a consumer's account pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> based on the card issuer not receiving the consumer's required minimum periodic payment within 60 days after the due date, the issuer is not required to perform the review described in paragraph (a) of this section prior to the sixth payment due date after the effective date of the increase. However, if the annual percentage rate applicable to the consumer's account is not reduced pursuant to <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref>, the card issuer must perform the review described in paragraph (a) of this section. The first such review must occur no later than six months after the sixth payment due following the effective date of the rate increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Termination of obligation to review factors.</heading>
<chapeau> The obligation to review factors described in paragraph (a) and (d) of this section ceases to apply:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.59/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> If the issuer reduces the annual percentage rate applicable to a credit card account under an open-end (not home-secured) consumer credit plan to the rate applicable immediately prior to the increase, or, if the rate applicable immediately prior to the increase was a variable rate, to a variable rate determined by the same formula (index and margin) that was used to calculate the rate applicable immediately prior to the increase; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the issuer reduces the annual percentage rate to a rate that is lower than the rate described in paragraph (f)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Acquired accounts—</heading>
<paragraph identifier="/us/cfr/t12/s226.59/g/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<content> Except as provided in paragraph (g)(2) of this section, this section applies to credit card accounts that have been acquired by the card issuer from another card issuer. A card issuer that complies with this section by reviewing the factors described in paragraph (d)(1)(i) must review the factors considered by the card issuer from which it acquired the accounts in connection with the rate increase.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Review of acquired portfolio.</heading>
<chapeau> If, not later than six months after the acquisition of such accounts, a card issuer reviews all of the credit card accounts it acquires in accordance with the factors that it currently considers in determining the rates applicable to its similar new credit card accounts:</chapeau>
<paragraph identifier="/us/cfr/t12/s226.59/g/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Except as provided in paragraph (g)(2)(iii), the card issuer is required to conduct reviews described in paragraph (a) of this section only for rate increases that are imposed as a result of its review under this paragraph. See <ref href="/us/cfr/t12/s226.9">§§ 226.9</ref> and 226.55 for additional requirements regarding rate increases on acquired accounts.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/g/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Except as provided in paragraph (g)(2)(iii) of this section, the card issuer is not required to conduct reviews in accordance with paragraph (a) of this section for any rate increases made prior to the card issuer's acquisition of such accounts.
<?page num="437"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/g/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If as a result of the card issuer's review, an account is subject to, or continues to be subject to, an increased rate as a penalty, or due to the consumer's delinquency or default, the requirements of paragraph (a) of this section apply.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Exceptions—</heading>
<paragraph identifier="/us/cfr/t12/s226.59/h/1" class="inline">
<num value="1">(1) </num>
<heading>Servicemembers Civil Relief Act exception.</heading>
<content> The requirements of this section do not apply to increases in an annual percentage rate that was previously decreased pursuant to <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref>, provided that such a rate increase is made in accordance with <ref href="/us/cfr/t12/s226.55/b/6">§ 226.55(b)(6)</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s226.59/h/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Charged off accounts.</heading>
<content> The requirements of this section do not apply to accounts that the card issuer has charged off in accordance with loan-loss provisions.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/37572">75 FR 37572</ref>, <date date="2010-06-26">June 26, 2010</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p226/spNaN">
<heading style="-uslm-sgm:RESERVED"> 
</heading>
</subpart>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. A</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix A to Part 226—</num>
<heading style="-uslm-sgm:HED">Effect on State Laws</heading>
<heading style="-uslm-sgm:HD1">Request for Determination</heading>
<p style="-uslm-sgm:P">A request for a determination that a State law is inconsistent or that a State law is substantially the same as the Act and regulation shall be in writing and addressed to the Secretary, Board of Governors of the Federal Reserve System, Washington, DC 20551. The request shall be made pursuant to the procedures herein and the Board's Rules of Procedure (<ref href="/us/cfr/t12/p262">12 CFR Part 262</ref>).</p>
<heading style="-uslm-sgm:HD1">Supporting Documents</heading>
<p style="-uslm-sgm:P">A request for a determination shall include the following items:</p>
<p style="-uslm-sgm:P">(1) The text of the State statute, regulation, or other document that is the subject of the request.</p>
<p style="-uslm-sgm:P">(2) Any other statute, regulation, or judicial or administrative opinion that implements, interprets, or applies the relevant provision.</p>
<p style="-uslm-sgm:P">(3) A comparison of the State law with the corresponding provision of the Federal law, including a full discussion of the basis for the requesting party's belief that the State provision is either inconsistent or substantially the same.</p>
<p style="-uslm-sgm:P">(4) Any other information that the requesting party believes may assist the Board in its determination.</p>
<heading style="-uslm-sgm:HD1">Public Notice of Determination</heading>
<p style="-uslm-sgm:P">Notice that the Board intends to make a determination (either on request or on its own motion) will be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register,</inline> with an opportunity for public comment, unless the Board finds that notice and opportunity for comment would be impracticable, unnecessary, or contrary to the public interest and publishes its reasons for such decision.</p>
<p style="-uslm-sgm:P">Subject to the Board's Rules Regarding Availability of Information (<ref href="/us/cfr/t12/p261">12 CFR Part 261</ref>), all requests made, including any documents and other material submitted in support of the requests, will be made available for public inspection and copying.</p>
<heading style="-uslm-sgm:HD1">Notice After Determination</heading>
<p style="-uslm-sgm:P">Notice of a final determination will be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register,</inline> and the Board will furnish a copy of such notice to the party who made the request and to the appropriate State official.</p>
<heading style="-uslm-sgm:HD2">Reversal of Determination</heading>
<p style="-uslm-sgm:P">The Board reserves the right to reverse a determination for any reason bearing on the coverage or effect of State or Federal law.</p>
<p style="-uslm-sgm:P">Notice of reversal of a determination will be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> and a copy furnished to the appropriate State official.</p>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>; <ref href="/us/fr/46/29246">46 FR 29246</ref>, <date date="1981-06-01">June 1, 1981</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. B</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix B to Part 226—</num>
<heading style="-uslm-sgm:HED">State Exemptions</heading>
<heading style="-uslm-sgm:HD1">Application</heading>
<p style="-uslm-sgm:P">Any State may apply to the Board for a determination that a class of transactions subject to State law is exempt from the requirements of the Act and this regulation. An application shall be in writing and addressed to the Secretary, Board of Governors of the Federal Reserve System, Washington, DC 20551, and shall be signed by the appropriate State official. The application shall be made pursuant to the procedures herein and the Board's Rules of Procedure (<ref href="/us/cfr/t12/p262">12 CFR Part 262</ref>).</p>
<heading style="-uslm-sgm:HD1">Supporting Documents</heading>
<p style="-uslm-sgm:P">An application shall be accompanied by:</p>
<p style="-uslm-sgm:P">(1) The text of the State statute or regulation that is the subject of the application, and any other statute, regulation, or judicial or administrative opinion that implements, interprets, or applies it.</p>
<p style="-uslm-sgm:P">(2) A comparison of the State law with the corresponding provisions of the Federal law.</p>
<p style="-uslm-sgm:P">(3) The text of the State statute or regulation that provides for civil and criminal liability and administrative enforcement of the State law.</p>
<p style="-uslm-sgm:P">(4) A statement of the provisions for enforcement, including an identification of the State office that administers the relevant law, information on the funding and the <?page num="438"?>number and qualifications of personnel engaged in enforcement, and a description of the enforcement procedures to be followed, including information on examination procedures, practices, and policies. If an exemption application extends to federally chartered institutions, the applicant must furnish evidence that arrangements have been made with the appropriate Federal agencies to ensure adequate enforcement of State law in regard to such creditors.</p>
<p style="-uslm-sgm:P">(5) A statement of reasons to support the applicant's claim that an exemption should be granted.</p>
<heading style="-uslm-sgm:HD1">Public Notice of Application</heading>
<p style="-uslm-sgm:P">Notice of an application will be published, with an opportunity for public comment, in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register,</inline> unless the Board finds that notice and opportunity for comment would be impracticable, unnecessary, or contrary to the public interest and publishes its reasons for such decision.</p>
<p style="-uslm-sgm:P">Subject to the Board's Rules Regarding Availability of Information (<ref href="/us/cfr/t12/p261">12 CFR Part 261</ref>), all applications made, including any documents and other material submitted in support of the applications, will be made available for public inspection and copying. A copy of the application also will be made available at the Federal Reserve Bank of each district in which the applicant is situated. </p>
<heading style="-uslm-sgm:HD1">Favorable Determination</heading>
<p style="-uslm-sgm:P">If the Board determines on the basis of the information before it that an exemption should be granted, notice of the exemption will be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register,</inline> and a copy furnished to the applicant and to each Federal official responsible for administrative enforcement.</p>
<p style="-uslm-sgm:P">The appropriate State official shall inform the Board within 30 days of any change in its relevant law or regulations. The official shall file with the Board such periodic reports as the Board may require.</p>
<p style="-uslm-sgm:P">The Board will inform the appropriate State official of any subsequent amendments to the Federal law, regulation, interpretations, or enforcement policies that might require an amendment to State law, regulation, interpretations, or enforcement procedures.</p>
<heading style="-uslm-sgm:HD1">Adverse Determination</heading>
<p style="-uslm-sgm:P">If the Board makes an initial determination that an exemption should not be granted, the Board will afford the applicant a reasonable opportunity to demonstrate further that an exemption is proper. If the Board ultimately finds that an exemption should not be granted, notice of an adverse determination will be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> and a copy furnished to the applicant.</p>
<heading style="-uslm-sgm:HD1">Revocation of Exemption</heading>
<p style="-uslm-sgm:P">The Board reserves the right to revoke an exemption if at any time it determines that the standards required for an exemption are not met.</p>
<p style="-uslm-sgm:P">Before taking such action, the Board will notify the appropriate State official of its intent, and will afford the official such opportunity as it deems appropriate in the circumstances to demonstrate that revocation is improper. If the Board ultimately finds that revocation is proper, notice of the Board's intention to revoke such exemption will be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> with a reasonable period of time for interested persons to comment.</p>
<p style="-uslm-sgm:P">Notice of revocation of an exemption will be published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register.</inline> A copy of such notice will be furnished to the appropriate State official and to the Federal officials responsible for enforcement. Upon revocation of an exemption, creditors in that State shall then be subject to the requirements of the Federal law.
</p>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. C</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix C to Part 226—</num>
<heading style="-uslm-sgm:HED">Issuance of Staff Interpretations</heading>
<heading style="-uslm-sgm:HD1">Official Staff Interpretations</heading>
<p style="-uslm-sgm:P">Officials in the Board's Division of Consumer and Community Affairs are authorized to issue official staff interpretations of this regulation. These interpretations provide the protection afforded under section 130(f) of the Act. Except in unusual circumstances, such interpretations will not be issued separately but will be incorporated in an official commentary to the regulation which will be amended periodically.</p>
<heading style="-uslm-sgm:HD1">Requests for Issuance of Official Staff Interpretations</heading>
<p style="-uslm-sgm:P">A request for an official staff interpretation shall be in writing and addressed to the Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, DC 20551. The request shall contain a complete statement of all relevant facts concerning the issue, including copies of all pertinent documents.</p>
<heading style="-uslm-sgm:HD1">Scope of Interpretations</heading>
<p style="-uslm-sgm:P">No staff interpretations will be issued approving creditors' forms, statements, or calculation tools or methods. This restriction does not apply to forms, statements, tools, or methods whose use is required or sanctioned by a government agency.
</p>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix D to Part 226—</num>
<heading style="-uslm-sgm:HED">Multiple Advance Construction Loans</heading>
<?page num="439"?>
<ear style="-uslm-sgm:EAR">Pt. 226, App. D</ear>
<p style="-uslm-sgm:P">Section 226.17(c)(6) permits creditors to treat multiple advance loans to finance construction of a dwelling that may be permanently financed by the same creditor either as a single transaction or as more than one transaction. If the actual schedule of advances is not known, the following methods may be used to estimate the interest portion of the finance charge and the annual percentage rate and to make disclosures. If the creditor chooses to disclose the construction phase separately, whether interest is payable periodically or at the end of construction, part I may be used. If the creditor chooses to disclose the construction and the permanent financing as one transaction, part II may be used.</p>
<heading style="-uslm-sgm:HD2">Part I—Construction Period Disclosed Separately</heading>
<p style="-uslm-sgm:P">A. If interest is payable only on the amount actually advanced for the time it is outstanding:</p>
<p style="-uslm-sgm:P">1. Estimated interest—Assume that one-half of the commitment amount is outstanding at the contract interest rate for the entire construction period.</p>
<p style="-uslm-sgm:P">2. Estimated annual percentage rate—Assume a single payment loan that matures at the end of the construction period. The finance charge is the sum of the estimated interest and any prepaid finance charge. The amount financed for computation purposes is determined by subtracting any prepaid finance charge from one-half of the commitment amount.</p>
<p style="-uslm-sgm:P">3. Repayment schedule—The number and amounts of any interest payments may be omitted in disclosing the payment schedule under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>. The fact that interest payments are required and the timing of such payments shall be disclosed.</p>
<p style="-uslm-sgm:P">4. Amount financed—The amount financed for disclosure purposes is the entire commitment amount less any prepaid finance charge.</p>
<p style="-uslm-sgm:P">B. If interest is payable on the entire commitment amount without regard to the dates or amounts of actual disbursement:</p>
<p style="-uslm-sgm:P">1. Estimated interest—Assume that the entire commitment amount is outstanding at the contract interest rate for the entire construction period.</p>
<p style="-uslm-sgm:P">2. Estimated annual percentage rate—Assume a single payment loan that matures at the end of the construction period. The finance charge is the sum of the estimated interest and any prepaid finance charge. The amount financed for computation purposes is determined by subtracting any prepaid finance charge from one-half of the commitment amount.</p>
<p style="-uslm-sgm:P">3. Repayment schedule—Interest payments shall be disclosed in making the repayment schedule disclosure under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>.</p>
<figure style="-uslm-sgm:GPH"><?page num="440"?>
<img src="EC27SE91.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:409; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="441"?>
<img src="EC27SE91.001" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:403; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="442"?>
<img src="EC27SE91.002" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:359; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. E</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix E to Part 226—</num>
<heading style="-uslm-sgm:HED">Rules for Card Issuers That Bill on a Transaction-by-Transaction Basis</heading>
<p style="-uslm-sgm:P">The following provisions of Subpart B apply if credit cards are issued and the card issuer and the seller are the same or related persons; no finance charge is imposed; consumers are billed in full for each use of the card on a transaction-by-transaction basis, by means of an invoice or other statement reflecting each use of the card; and no cumulative account is maintained which reflects the transactions by each consumer during a period of time, such as a month. The term “related person” refers to, for example, a franchised or licensed seller of a creditor's product or service or a seller who assigns or sells sales accounts to a creditor or arranges for credit under a plan that allows the consumer to use the credit only in transactions with that seller. A seller is not related to the creditor merely because the seller and the creditor have an agreement authorizing the seller to honor the creditor's credit card.</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.6(a)(5) or <ref href="/us/cfr/t12/s226.6/b/5/iii">§ 226.6(b)(5)(iii)</ref>.</inline>
</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.6(a)(2) or <ref href="/us/cfr/t12/s226.6/b/3/ii/B">§ 226.6(b)(3)(ii)(B)</ref>, as applicable.</inline> The disclosure required by <ref href="/us/cfr/t12/s226.6/a/2">§ 226.6(a)(2)</ref> or <ref href="/us/cfr/t12/s226.6/b/3/ii/B">§ 226.6(b)(3)(ii)(B)</ref> shall be limited to those charges that are or may be imposed as a result of the deferral of payment by use of the card, such as late payment or delinquency charges. A tabular format is not required.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.6(a)(4) or <ref href="/us/cfr/t12/s226.6/b/5/ii">§ 226.6(b)(5)(ii)</ref>.</inline>
<?page num="443"?> </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.7(a)(2) or <ref href="/us/cfr/t12/s226.7/b/2">§ 226.7(b)(2)</ref>, as applicable; <ref href="/us/cfr/t12/s226.7/a/9">§ 226.7(a)(9)</ref> or <ref href="/us/cfr/t12/s226.7/b/9">§ 226.7(b)(9)</ref>, as applicable.</inline> Creditors may comply by placing the required disclosures on the invoice or statement sent to the consumer for each transaction.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.9(a).</inline> Creditors may comply by mailing or delivering the statement required by <ref href="/us/cfr/t12/s226.6/a/5">§ 226.6(a)(5)</ref> or <ref href="/us/cfr/t12/s226.6/b/5/iii">§ 226.6(b)(5)(iii)</ref> (see appendix G–3 and G–3(A) to this part) to each consumer receiving a transaction invoice during a one-month period chosen by the card issuer or by sending either the statement prescribed by <ref href="/us/cfr/t12/s226.6/a/5">§ 226.6(a)(5)</ref> or <ref href="/us/cfr/t12/s226.6/b/5/iii">§ 226.6(b)(5)(iii)</ref>, or an alternative billing error rights statement substantially similar to that in appendix G–4 and G–4(A) to this part, with each invoice sent to a consumer.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.9(c).</inline> A tabular format is not required.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.10.</inline>
</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.11(a).</inline> This section applies when a card issuer receives a payment or other credit that exceeds by more than $1 the amount due, as shown on the transaction invoice. The requirement to credit amounts to an account may be complied with by other reasonable means, such as by a credit memorandum. Since no periodic statement is provided, a notice of the credit balance shall be sent to the consumer within a reasonable period of time following its occurrence unless a refund of the credit balance is mailed or delivered to the consumer within seven business days of its receipt by the card issuer.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.12 including <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref> and (d), as applicable.</inline> Section 226.12(e) is inapplicable.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.13, as applicable.</inline> All references to “periodic statement” shall be read to indicate the invoice or other statement for the relevant transaction. All actions with regard to correcting and adjusting a consumer's account may be taken by issuing a refund or a new invoice, or by other appropriate means consistent with the purposes of the section.</p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Section 226.15, as applicable.</inline>
</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7824">75 FR 7824</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. F</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix F to Part 226—</num>
<heading style="-uslm-sgm:HED">Optional Annual Percentage Rate Computations for Creditors Offering Open-End Plans Subject to the Requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref></heading>
<p style="-uslm-sgm:P">In determining the denominator of the fraction under <ref href="/us/cfr/t12/s226.14/c/3">§ 226.14(c)(3)</ref>, no amount will be used more than once when adding the sum of the balances <ref id="fnd3e28739" idref="fnd3e28745" style="-uslm-sgm:SU">1</ref> subject to periodic rates to the sum of the amounts subject to specific transaction charges. (Where a portion of the finance charge is determined by application of one or more daily periodic rates, the phrase “sum of the balances” shall also mean the “average of daily balances.”) In every case, the full amount of transactions subject to specific transaction charges shall be included in the denominator. Other balances or parts of balances shall be included according to the manner of determining the balance subject to a periodic rate, as illustrated in the following examples of accounts on monthly billing cycles:</p>
<footnote id="fnd3e28745" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P" role="reserved">
<ref idref="fnd3e28739" style="-uslm-sgm:SU">1</ref> [Reserved]</p>
</content>
</footnote>
<p style="-uslm-sgm:P">1. Previous balance—none.</p>
<p style="-uslm-sgm:P">A specific transaction of $100 occurs on the first day of the billing cycle. The average daily balance is $100. A specific transaction charge of 3 percent is applicable to the specific transaction. The periodic rate is 1<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent applicable to the average daily balance. The numerator is the amount of the finance charge, which is $4.50. The denominator is the amount of the transaction (which is $100), plus the amount by which the balance subject to the periodic rate exceeds the amount of the specific transactions (such excess in this case is 0), totaling $100.</p>
<p style="-uslm-sgm:P">The annual percentage rate is the quotient (which is 4<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent) multiplied by 12 (the number of months in a year), i.e., 54 percent.</p>
<p style="-uslm-sgm:P">2. Previous balance—$100.</p>
<p style="-uslm-sgm:P">A specific transaction of $100 occurs at the midpoint of the billing cycle. The average daily balance is $150. A specific transaction charge of 3 percent is applicable to the specific transaction. The periodic rate is 1<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent applicable to the average daily balance. The numerator is the amount of the finance charge which is $5.25. The denominator is the amount of the transaction (which is $100), plus the amount by which the balance subject to the periodic rate exceeds the amount of the specific transaction (such excess in this case is $50), totaling $150. As explained in example 1, the annual percentage rate is 3<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent × 12 = 42 percent.</p>
<p style="-uslm-sgm:P">3. If, in example 2, the periodic rate applies only to the previous balance, the numerator is $4.50 and the denominator is $200 (the amount of the transaction, $100, plus the balance subject only to the periodic rate, the $100 previous balance). As explained in example 1, the annual percentage rate is 2<inline role="fraction" style="-uslm-sgm:FR">1/4</inline> percent × 12 = 27 percent.</p>
<p style="-uslm-sgm:P">4. If, in example 2, the periodic rate applies only to an adjusted balance (previous balance less payments and credits) and the consumer made a payment of $50 at the midpoint of the billing cycle, the numerator is $3.75 and the denominator is $150 (the amount of the transaction, $100, plus the balance subject to the periodic rate, the $50 adjusted balance). As explained in example 1, the annual percentage rate is 2<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent × 12 = 30 percent.</p>
<p style="-uslm-sgm:P">5. Previous balance—$100.</p>
<p style="-uslm-sgm:P">A specific transaction (check) of $100 occurs at the midpoint of the billing cycle. The average daily balance is $150. The specific transaction charge is $.25 per check. The <?page num="444"?>periodic rate is 1<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent applied to the average daily balance. The numerator is the amount of the finance charge, which is $2.50 and includes the $.25 check charge and the $2.25 resulting from the application of the periodic rate. The denominator is the full amount of the specific transaction (which is $100) plus the amount by which the average daily balance exceeds the amount of the specific transaction (which in this case is $50), totaling $150. As explained in example 1, the annual percentage rate would be 1<inline role="fraction" style="-uslm-sgm:FR">2/3</inline> percent × 12 = 20 percent.</p>
<p style="-uslm-sgm:P">6. Previous balance—none.</p>
<p style="-uslm-sgm:P">A specific transaction of $100 occurs at the midpoint of the billing cycle. The average daily balance is $50. The specific transaction charge is 3 percent of the transaction amount or $3.00. The periodic rate is 1<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent per month applied to the average daily balance. The numerator is the amount of the finance charge, which is $3.75, including the $3.00 transaction charge and $.75 resulting from application of the periodic rate. The denominator is the full amount of the specific transaction ($100) plus the amount by which the balance subject to the periodic rate exceeds the amount of the transaction ($0). Where the specific transaction amount exceeds the balance subject to the periodic rate, the resulting number is considered to be zero rather than a negative number ($50 − $100 = −$50). The denominator, in this case, is $100. As explained in example 1, the annual percentage rate is 3<inline role="fraction" style="-uslm-sgm:FR">3/4</inline> percent × 12 = 45 percent. </p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7824">75 FR 7824</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. G</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix G to Part 226—</num>
<heading style="-uslm-sgm:HED">Open-End Model Forms and Clauses </heading>
<p style="-uslm-sgm:FP-2">G–1 Balance Computation Methods Model Clauses (Home-equity Plans) (<ref href="/us/cfr/t12/s226.6">§§ 226.6</ref> and 226.7)</p>
<p style="-uslm-sgm:FP-2">G–1(A) Balance Computation Methods Model Clauses (Plans other than Home-equity Plans) (<ref href="/us/cfr/t12/s226.6">§§ 226.6</ref> and 226.7)</p>
<p style="-uslm-sgm:FP-2">G–2 Liability for Unauthorized Use Model Clause (Home-equity Plans) (<ref href="/us/cfr/t12/s226.12">§ 226.12</ref>)</p>
<p style="-uslm-sgm:FP-2">G–2(A) Liability for Unauthorized Use Model Clause (Plans Other Than Home-equity Plans) (<ref href="/us/cfr/t12/s226.12">§ 226.12</ref>)</p>
<p style="-uslm-sgm:FP-2">G–3 Long-Form Billing-Error Rights Model Form (Home-equity Plans) (<ref href="/us/cfr/t12/s226.6">§§ 226.6</ref> and 226.9)</p>
<p style="-uslm-sgm:FP-2">G–3(A) Long-Form Billing-Error Rights Model Form (Plans Other Than Home-equity Plans) (<ref href="/us/cfr/t12/s226.6">§§ 226.6</ref> and 226.9)</p>
<p style="-uslm-sgm:FP-2">G–4 Alternative Billing-Error Rights Model Form (Home-equity Plans) (<ref href="/us/cfr/t12/s226.9">§ 226.9</ref>)</p>
<p style="-uslm-sgm:FP-2">G–4(A) Alternative Billing-Error Rights Model Form (Plans Other Than Home-equity Plans) (<ref href="/us/cfr/t12/s226.9">§ 226.9</ref>)</p>
<p style="-uslm-sgm:FP-2">G–5 Rescission Model Form (When Opening an Account) (<ref href="/us/cfr/t12/s226.15">§ 226.15</ref>)</p>
<p style="-uslm-sgm:FP-2">G–6 Rescission Model Form (For Each Transaction) (<ref href="/us/cfr/t12/s226.15">§ 226.15</ref>)</p>
<p style="-uslm-sgm:FP-2">G–7 Rescission Model Form (When Increasing the Credit Limit) (<ref href="/us/cfr/t12/s226.15">§ 226.15</ref>)</p>
<p style="-uslm-sgm:FP-2">G–8 Rescission Model Form (When Adding a Security Interest) (<ref href="/us/cfr/t12/s226.15">§ 226.15</ref>)</p>
<p style="-uslm-sgm:FP-2">G–9 Rescission Model Form (When Increasing the Security) (<ref href="/us/cfr/t12/s226.15">§ 226.15</ref>)</p>
<p style="-uslm-sgm:FP-2">G–10(A) Applications and Solicitations Model Form (Credit Cards) (<ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–10(B) Applications and Solicitations Sample (Credit Cards) (<ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–10(C) Applications and Solicitations Sample (Credit Cards) (<ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–10(D) Applications and Solicitations Model Form (Charge Cards) (<ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–10(E) Applications and Solicitations Sample (Charge Cards) (<ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–11 Applications and Solicitations Made Available to General Public Model Clauses (<ref href="/us/cfr/t12/s226.5a/e">§ 226.5a(e)</ref>)</p>
<p style="-uslm-sgm:FP-2" role="reserved">G–12 [Reserved]</p>
<p style="-uslm-sgm:FP-2">G–13(A) Change in Insurance Provider Model Form (Combined Notice) (<ref href="/us/cfr/t12/s226.9/f">§ 226.9(f)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–13(B) Change in Insurance Provider Model Form (<ref href="/us/cfr/t12/s226.9/f/2">§ 226.9(f)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–14A Home-equity Sample</p>
<p style="-uslm-sgm:FP-2">G–14B Home-equity Sample</p>
<p style="-uslm-sgm:FP-2">G–15 Home-equity Model Clauses</p>
<p style="-uslm-sgm:FP-2">G–16(A) Debt Suspension Model Clause (<ref href="/us/cfr/t12/s226.4/d/3">§ 226.4(d)(3)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–16(B) Debt Suspension Sample (<ref href="/us/cfr/t12/s226.4/d/3">§ 226.4(d)(3)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–17(A) Account-opening Model Form (<ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–17(B) Account-opening Sample (<ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–17(C) Account-opening Sample (<ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–17(D) Account-opening Sample (<ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–18(A) Transactions; Interest Charges; Fees Sample (<ref href="/us/cfr/t12/s226.7/b">§ 226.7(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–18(B) Late Payment Fee Sample (<ref href="/us/cfr/t12/s226.7/b">§ 226.7(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–18(C)(1) Minimum Payment Warning (When Amortization Occurs and the 36-Month Disclosures Are Required) (<ref href="/us/cfr/t12/s226.7/b">§ 226.7(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–18(C)(2) Minimum Payment Warning (When Amortization Occurs and the 36-Month Disclosures Are Not Required) (<ref href="/us/cfr/t12/s226.7/b">§ 226.7(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–18(C)(3) Minimum Payment Warning (When Negative or No Amortization Occurs) (<ref href="/us/cfr/t12/s226.7/b">§ 226.7(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–18(D) Periodic Statement New Balance, Due Date, Late Payment and Minimum Payment Sample (Credit cards) (<ref href="/us/cfr/t12/s226.7/b">§ 226.7(b)</ref>)</p>
<p style="-uslm-sgm:FP-2" role="reserved">G–18(E) [Reserved]</p>
<p style="-uslm-sgm:FP-2">G–18(F) Periodic Statement Form</p>
<p style="-uslm-sgm:FP-2">G–18(G) Periodic Statement Form</p>
<p style="-uslm-sgm:FP-2">G–18(H) Deferred Interest Periodic Statement Clause</p>
<p style="-uslm-sgm:FP-2">G–19 Checks Accessing a Credit Card Account Sample (<ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref>)
<?page num="445"?></p>
<p style="-uslm-sgm:FP-2">G–20 Change-in-Terms Sample (Increase in Annual Percentage Rate) (<ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–21 Change-in-Terms Sample (Increase in Fees) (<ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–22 Penalty Rate Increase Sample (Payment 60 or Fewer Days Late) (<ref href="/us/cfr/t12/s226.9/g/3">§ 226.9(g)(3)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–23 Penalty Rate Increase Sample (Payment More Than 60 Days Late) (<ref href="/us/cfr/t12/s226.9/g/3">§ 226.9(g)(3)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–24 Deferred Interest Offer Clauses (<ref href="/us/cfr/t12/s226.16/h">§ 226.16(h)</ref>)</p>
<p style="-uslm-sgm:FP-2">G–25(A) Consent Form for Over-the-Limit Transactions (<ref href="/us/cfr/t12/s226.56">§ 226.56</ref>)</p>
<p style="-uslm-sgm:FP-2">G–25(B) Revocation Notice for Periodic Statement Regarding Over-the-Limit Transactions (<ref href="/us/cfr/t12/s226.56">§ 226.56</ref>)</p>
<heading style="-uslm-sgm:HD1">G–1—Balance Computation Methods Model Clauses (Home-Equity Plans)</heading>
<p style="-uslm-sgm:P">(a) Adjusted balance method</p>
<p style="-uslm-sgm:P">We figure [a portion of] the finance charge on your account by applying the periodic rate to the “adjusted balance” of your account. We get the “adjusted balance” by taking the balance you owed at the end of the previous billing cycle and subtracting [any unpaid finance charges and] any payments and credits received during the present billing cycle.</p>
<p style="-uslm-sgm:P">(b) Previous balance method</p>
<p style="-uslm-sgm:P">We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the beginning of each billing cycle [minus any unpaid finance charges]. We do not subtract any payments or credits received during the billing cycle. [The amount of payments and credits to your account this billing cycle was $ ___.]</p>
<p style="-uslm-sgm:P">(c) Average daily balance method (excluding current transactions)</p>
<p style="-uslm-sgm:P">We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (excluding current transactions). To get the “average daily balance” we take the beginning balance of your account each day and subtract any payments or credits [and any unpaid finance charges]. We do not add in any new [purchases/advances/loans]. This gives us the daily balance. Then, we add all the daily balances for the billing cycle together and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.”</p>
<p style="-uslm-sgm:P">(d) Average daily balance method (including current transactions)</p>
<p style="-uslm-sgm:P">We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (including current transactions). To get the “average daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/loans], and subtract any payments or credits, [and unpaid finance charges]. This gives us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.”</p>
<p style="-uslm-sgm:P">(e) Ending balance method</p>
<p style="-uslm-sgm:P">We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the end of each billing cycle (including new purchases and deducting payments and credits made during the billing cycle).</p>
<p style="-uslm-sgm:P">(f) Daily balance method (including current transactions)</p>
<p style="-uslm-sgm:P">We figure [a portion of] the finance charge on your account by applying the periodic rate to the “daily balance” of your account for each day in the billing cycle. To get the “daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid finance charges and] any payments or credits. This gives us the daily balance.</p>
<heading style="-uslm-sgm:HD1">G–1(A)—Balance Computation Methods Model Clauses (Plans Other Than Home-Equity Plans)</heading>
<p style="-uslm-sgm:P">(a) Adjusted balance method</p>
<p style="-uslm-sgm:P">We figure the interest charge on your account by applying the periodic rate to the “adjusted balance” of your account. We get the “adjusted balance” by taking the balance you owed at the end of the previous billing cycle and subtracting [any unpaid interest or other finance charges and] any payments and credits received during the present billing cycle.</p>
<p style="-uslm-sgm:P">(b) Previous balance method</p>
<p style="-uslm-sgm:P">We figure the interest charge on your account by applying the periodic rate to the amount you owe at the beginning of each billing cycle. We do not subtract any payments or credits received during the billing cycle.</p>
<p style="-uslm-sgm:P">(c) Average daily balance method (excluding current transactions)</p>
<p style="-uslm-sgm:P">We figure the interest charge on your account by applying the periodic rate to the “average daily balance” of your account. To get the “average daily balance” we take the beginning balance of your account each day and subtract [any unpaid interest or other finance charges and] any payments or credits. We do not add in any new [purchases/advances/fees]. This gives us the daily balance. Then, we add all the daily balances for the billing cycle together and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.”</p>
<p style="-uslm-sgm:P">(d) Average daily balance method (including current transactions)</p>
<p style="-uslm-sgm:P">We figure the interest charge on your account by applying the periodic rate to the “average daily balance” of your account. To get the “average daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and <?page num="446"?>subtract [any unpaid interest or other finance charges and] any payments or credits. This gives us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.”</p>
<p style="-uslm-sgm:P">(e) Ending balance method</p>
<p style="-uslm-sgm:P">We figure the interest charge on your account by applying the periodic rate to the amount you owe at the end of each billing cycle (including new [purchases/advances/fees] and deducting payments and credits made during the billing cycle).</p>
<p style="-uslm-sgm:P">(f) Daily balance method (including current transactions)</p>
<p style="-uslm-sgm:P">We figure the interest charge on your account by applying the periodic rate to the “daily balance” of your account for each day in the billing cycle. To get the “daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid interest or other finance charges and] any payments or credits. This gives us the daily balance.</p>
<heading style="-uslm-sgm:HD1">G–2—Liability for Unauthorized Use Model Clause (Home-Equity Plans)</heading>
<p style="-uslm-sgm:P">You may be liable for the unauthorized use of your credit card [or other term that describes the credit card]. You will not be liable for unauthorized use that occurs after you notify [name of card issuer or its designee] at [address], orally or in writing, of the loss, theft, or possible unauthorized use. [You may also contact us on the Web: [Creditor Web or email address]] In any case, your liability will not exceed [insert $50 or any lesser amount under agreement with the cardholder].</p>
<heading style="-uslm-sgm:HD1">G–2(A)—Liability for Unauthorized Use Model Clause (Plans Other Than Home-Equity Plans)</heading>
<p style="-uslm-sgm:P">If you notice the loss or theft of your credit card or a possible unauthorized use of your card, you should write to us immediately at: [address] [address listed on your bill], </p>
<p style="-uslm-sgm:FP">or call us at [telephone number].</p>
<p style="-uslm-sgm:P">[You may also contact us on the Web: [Creditor Web or email address]]</p>
<p style="-uslm-sgm:P">You will not be liable for any unauthorized use that occurs after you notify us. You may, however, be liable for unauthorized use that occurs before your notice to us. In any case, your liability will not exceed [insert $50 or any lesser amount under agreement with the cardholder].</p>
<heading style="-uslm-sgm:HD1">G–3—Long-Form Billing-Error Rights Model Form (Home-Equity Plans)</heading>
<heading style="-uslm-sgm:HD3">YOUR BILLING RIGHTS</heading>
<heading style="-uslm-sgm:HD3">KEEP THIS NOTICE FOR FUTURE USE</heading>
<p style="-uslm-sgm:P">This notice contains important information about your rights and our responsibilities under the Fair Credit Billing Act.</p>
<heading style="-uslm-sgm:HD1">Notify Us in Case of Errors or Questions About Your Bill</heading>
<p style="-uslm-sgm:P">If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address listed on your bill]. Write to us as soon as possible. We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. [You may also contact us on the Web: [Creditor Web or email address]] You can telephone us, but doing so will not preserve your rights.</p>
<p style="-uslm-sgm:P">In your letter, give us the following information:</p>
<p style="-uslm-sgm:P">• Your name and account number.</p>
<p style="-uslm-sgm:P">• The dollar amount of the suspected error.</p>
<p style="-uslm-sgm:P">• Describe the error and explain, if you can, why you believe there is an error. If you need more information, describe the item you are not sure about.</p>
<p style="-uslm-sgm:P">If you have authorized us to pay your credit card bill automatically from your savings or checking account, you can stop the payment on any amount you think is wrong. To stop the payment your letter must reach us three business days before the automatic payment is scheduled to occur.</p>
<heading style="-uslm-sgm:HD1">Your Rights and Our Responsibilities After We Receive Your Written Notice</heading>
<p style="-uslm-sgm:P">We must acknowledge your letter within 30 days, unless we have corrected the error by then. Within 90 days, we must either correct the error or explain why we believe the bill was correct.</p>
<p style="-uslm-sgm:P">After we receive your letter, we cannot try to collect any amount you question, or report you as delinquent. We can continue to bill you for the amount you question, including finance charges, and we can apply any unpaid amount against your credit limit. You do not have to pay any questioned amount while we are investigating, but you are still obligated to pay the parts of your bill that are not in question.</p>
<p style="-uslm-sgm:P">If we find that we made a mistake on your bill, you will not have to pay any finance charges related to any questioned amount. If we didn't make a mistake, you may have to pay finance charges, and you will have to make up any missed payments on the questioned amount. In either case, we will send you a statement of the amount you owe and the date that it is due.
<?page num="447"?></p>
<p style="-uslm-sgm:P">If you fail to pay the amount that we think you owe, we may report you as delinquent. However, if our explanation does not satisfy you and you write to us within ten days telling us that you still refuse to pay, we must tell anyone we report you to that you have a question about your bill. And, we must tell you the name of anyone we reported you to. We must tell anyone we report you to that the matter has been settled between us when it finally is.</p>
<p style="-uslm-sgm:P">If we don't follow these rules, we can't collect the first $50 of the questioned amount, even if your bill was correct.</p>
<heading style="-uslm-sgm:HD1">Special Rule for Credit Card Purchases</heading>
<p style="-uslm-sgm:P">If you have a problem with the quality of property or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the property or services.</p>
<p style="-uslm-sgm:P">There are two limitations on this right:</p>
<p style="-uslm-sgm:P">(a) You must have made the purchase in your home state or, if not within your home state within 100 miles of your current mailing address; and</p>
<p style="-uslm-sgm:P">(b) The purchase price must have been more than $50.</p>
<p style="-uslm-sgm:P">These limitations do not apply if we own or operate the merchant, or if we mailed you the advertisement for the property or services.</p>
<heading style="-uslm-sgm:HD1">G–3(A)—Long-Form Billing-Error Rights Model Form (Plans Other Than Home-Equity Plans)</heading>
<heading style="-uslm-sgm:HD2">Your Billing Rights: Keep This Document For Future Use</heading>
<p style="-uslm-sgm:P">This notice tells you about your rights and our responsibilities under the Fair Credit Billing Act.</p>
<heading style="-uslm-sgm:HD2">What To Do If You Find A Mistake On Your Statement</heading>
<p style="-uslm-sgm:P">If you think there is an error on your statement, write to us at:</p>
<p style="-uslm-sgm:P">[Creditor Name]</p>
<p style="-uslm-sgm:P">[Creditor Address]</p>
<p style="-uslm-sgm:FP">[You may also contact us on the Web: [Creditor Web or email address]]</p>
<p style="-uslm-sgm:P">In your letter, give us the following information:</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account information:</inline> Your name and account number.</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dollar amount:</inline> The dollar amount of the suspected error.</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Description of problem:</inline> If you think there is an error on your bill, describe what you believe is wrong and why you believe it is a mistake.</p>
<p style="-uslm-sgm:P">You must contact us:</p>
<p style="-uslm-sgm:P">• Within 60 days after the error appeared on your statement.</p>
<p style="-uslm-sgm:P">• At least 3 business days before an automated payment is scheduled, if you want to stop payment on the amount you think is wrong.</p>
<p style="-uslm-sgm:P">You must notify us of any potential errors <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in writing</inline> [or electronically]. You may call us, but if you do we are not required to investigate any potential errors and you may have to pay the amount in question.</p>
<heading style="-uslm-sgm:HD2">What Will Happen After We Receive Your Letter</heading>
<p style="-uslm-sgm:FP">When we receive your letter, we must do two things:</p>
<p style="-uslm-sgm:P">1. Within 30 days of receiving your letter, we must tell you that we received your letter. We will also tell you if we have already corrected the error.</p>
<p style="-uslm-sgm:P">2. Within 90 days of receiving your letter, we must either correct the error or explain to you why we believe the bill is correct.</p>
<p style="-uslm-sgm:FP">While we investigate whether or not there has been an error:</p>
<p style="-uslm-sgm:P">• We cannot try to collect the amount in question, or report you as delinquent on that amount.</p>
<p style="-uslm-sgm:P">• The charge in question may remain on your statement, and we may continue to charge you interest on that amount.</p>
<p style="-uslm-sgm:P">• While you do not have to pay the amount in question, you are responsible for the remainder of your balance.</p>
<p style="-uslm-sgm:P">• We can apply any unpaid amount against your credit limit.</p>
<p style="-uslm-sgm:FP">After we finish our investigation, one of two things will happen:</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">If we made a mistake:</inline> You will not have to pay the amount in question or any interest or other fees related to that amount.</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">If we do not believe there was a mistake:</inline> You will have to pay the amount in question, along with applicable interest and fees. We will send you a statement of the amount you owe and the date payment is due. We may then report you as delinquent if you do not pay the amount we think you owe.</p>
<p style="-uslm-sgm:P">If you receive our explanation but still believe your bill is wrong, you must write to us within <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">10 days</inline> telling us that you still refuse to pay. If you do so, we cannot report you as delinquent without also reporting that you are questioning your bill. We must tell you the name of anyone to whom we reported you as delinquent, and we must let those organizations know when the matter has been settled between us.</p>
<p style="-uslm-sgm:P">If we do not follow all of the rules above, you do not have to pay the first $50 of the amount you question even if your bill is correct.</p>
<heading style="-uslm-sgm:HD2">Your Rights If You Are Dissatisfied With Your Credit Card Purchases</heading>
<p style="-uslm-sgm:P">If you are dissatisfied with the goods or services that you have purchased with your credit card, and you have tried in good faith to correct the problem with the merchant, <?page num="448"?>you may have the right not to pay the remaining amount due on the purchase.</p>
<p style="-uslm-sgm:P">To use this right, all of the following must be true:</p>
<p style="-uslm-sgm:P">1. The purchase must have been made in your home state or within 100 miles of your current mailing address, and the purchase price must have been more than $50. (Note: Neither of these are necessary if your purchase was based on an advertisement we mailed to you, or if we own the company that sold you the goods or services.)</p>
<p style="-uslm-sgm:P">2. You must have used your credit card for the purchase. Purchases made with cash advances from an ATM or with a check that accesses your credit card account do not qualify.</p>
<p style="-uslm-sgm:P">3. You must not yet have fully paid for the purchase.</p>
<p style="-uslm-sgm:P">If all of the criteria above are met and you are still dissatisfied with the purchase, contact us <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in writing</inline> [or electronically] at:</p>
<p style="-uslm-sgm:P">[Creditor Name]</p>
<p style="-uslm-sgm:P">[Creditor Address]</p>
<p style="-uslm-sgm:P">[[Creditor Web or e-mail address]]</p>
<p style="-uslm-sgm:P">While we investigate, the same rules apply to the disputed amount as discussed above. After we finish our investigation, we will tell you our decision. At that point, if we think you owe an amount and you do not pay, we may report you as delinquent.</p>
<heading style="-uslm-sgm:HD1">G–4—Alternative Billing-Error Rights Model Form (Home-Equity Plans)</heading>
<heading style="-uslm-sgm:HD3">BILLING RIGHTS SUMMARY</heading>
<heading style="-uslm-sgm:HD2">In Case of Errors or Questions About Your Bill</heading>
<p style="-uslm-sgm:P">If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address shown on your bill] as soon as possible. [You may also contact us on the Web: [Creditor Web or e-mail address]] We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. You can telephone us, but doing so will not preserve your rights.</p>
<p style="-uslm-sgm:P">In your letter, give us the following information:</p>
<p style="-uslm-sgm:P">• Your name and account number.</p>
<p style="-uslm-sgm:P">• The dollar amount of the suspected error.</p>
<p style="-uslm-sgm:P">• Describe the error and explain, if you can, why you believe there is an error. If you need more information, describe the item you are unsure about.</p>
<p style="-uslm-sgm:P">You do not have to pay any amount in question while we are investigating, but you are still obligated to pay the parts of your bill that are not in question. While we investigate your question, we cannot report you as delinquent or take any action to collect the amount you question.</p>
<heading style="-uslm-sgm:HD2">Special Rule for Credit Card Purchases</heading>
<p style="-uslm-sgm:P">If you have a problem with the quality of goods or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may not have to pay the remaining amount due on the goods or services. You have this protection only when the purchase price was more than $50 and the purchase was made in your home state or within 100 miles of your mailing address. (If we own or operate the merchant, or if we mailed you the advertisement for the property or services, all purchases are covered regardless of amount or location of purchase.)</p>
<heading style="-uslm-sgm:HD1">G–4(A)—Alternative Billing-Error Rights Model Form (Plans Other Than Home-Equity Plans)</heading>
<heading style="-uslm-sgm:HD2">What To Do If You Think You Find A Mistake On Your Statement</heading>
<p style="-uslm-sgm:P">If you think there is an error on your statement, write to us at:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">[Creditor Name]</p>
<p style="-uslm-sgm:FP-1">[Creditor Address]</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">[You may also contact us on the Web: [Creditor Web or e-mail address]]</p>
<p style="-uslm-sgm:P">In your letter, give us the following information:</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account information:</inline> Your name and account number.</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dollar amount:</inline> The dollar amount of the suspected error.</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Description of Problem:</inline> If you think there is an error on your bill, describe what you believe is wrong and why you believe it is a mistake.</p>
<p style="-uslm-sgm:P">You must contact us within 60 days after the error appeared on your statement.</p>
<p style="-uslm-sgm:P">You must notify us of any potential errors <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in writing</inline> [or electronically]. You may call us, but if you do we are not required to investigate any potential errors and you may have to pay the amount in question.</p>
<p style="-uslm-sgm:P">While we investigate whether or not there has been an error, the following are true:</p>
<p style="-uslm-sgm:P">• We cannot try to collect the amount in question, or report you as delinquent on that amount.</p>
<p style="-uslm-sgm:P">• The charge in question may remain on your statement, and we may continue to charge you interest on that amount. But, if we determine that we made a mistake, you will not have to pay the amount in question or any interest or other fees related to that amount.</p>
<p style="-uslm-sgm:P">• While you do not have to pay the amount in question, you are responsible for the remainder of your balance.</p>
<p style="-uslm-sgm:P">• We can apply any unpaid amount against your credit limit.
<?page num="449"?></p>
<heading style="-uslm-sgm:HD2">Your Rights If You Are Dissatisfied With Your Credit Card Purchases</heading>
<p style="-uslm-sgm:P">If you are dissatisfied with the goods or services that you have purchased with your credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the purchase.</p>
<p style="-uslm-sgm:P">To use this right, all of the following must be true:</p>
<p style="-uslm-sgm:P">1. The purchase must have been made in your home state or within 100 miles of your current mailing address, and the purchase price must have been more than $50. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Note:</inline> Neither of these are necessary if your purchase was based on an advertisement we mailed to you, or if we own the company that sold you the goods or services.)</p>
<p style="-uslm-sgm:P">2. You must have used your credit card for the purchase. Purchases made with cash advances from an ATM or with a check that accesses your credit card account do not qualify.</p>
<p style="-uslm-sgm:P">3. You must not yet have fully paid for the purchase.</p>
<p style="-uslm-sgm:P">If all of the criteria above are met and you are still dissatisfied with the purchase, contact us <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">in writing</inline> [or electronically] at:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">[Creditor Name]</p>
<p style="-uslm-sgm:FP-1">[Creditor Address]</p>
<p style="-uslm-sgm:FP-1">[[Creditor Web address]]</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">While we investigate, the same rules apply to the disputed amount as discussed above. After we finish our investigation, we will tell you our decision. At that point, if we think you owe an amount and you do not pay we may report you as delinquent.</p>
<figure style="-uslm-sgm:GPH">
<img src="EC27SE91.006" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:259; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="450"?>
<img src="EC27SE91.007" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:312; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="451"?>
<img src="EC27SE91.008" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:314; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="452"?>
<img src="EC27SE91.009" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:267; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="453"?>
<img src="EC27SE91.010" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:290; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="454"?>
<img src="ER22FE10.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="455"?>
<img src="ER29JN10.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:439; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="456"?>
<img src="ER29JN10.001" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="457"?>
<img src="ER22FE10.003" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:212; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER29JN10.002" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:225; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<?page num="458"?>
<heading style="-uslm-sgm:HD1">G–11—Applications and Solicitations Made Available to the General Public Model Clauses</heading>
<heading style="-uslm-sgm:HD3">(a) Disclosure of Required Credit Information</heading>
<p style="-uslm-sgm:P">The information about the costs of the card described in this [application]/[solicitation] is accurate as of (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">month/year</inline>). This information may have changed after that date. To find out what may have changed, [call us at (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">telephone number</inline>)][write to us at (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">address</inline>)].</p>
<heading style="-uslm-sgm:HD3">(b) No Disclosure of Credit Information</heading>
<p style="-uslm-sgm:P">There are costs associated with the use of this card. To obtain information about these costs, call us at (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">telephone number</inline>) or write to us at (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">address</inline>).</p>
<heading style="-uslm-sgm:HD1" role="reserved">G–12 [Reserved]</heading>
<heading style="-uslm-sgm:HD1">G–13(A)—Change in Insurance Provider Model Form (Combined Notice)</heading>
<p style="-uslm-sgm:P">The credit card account you have with us is insured. This is to notify you that we plan to replace your current coverage with insurance coverage from a different insurer.</p>
<p style="-uslm-sgm:P">If we obtain insurance for your account from a different insurer, you may cancel the insurance.</p>
<p style="-uslm-sgm:FP-1">[Your premium rate will increase to $ __ per __.]</p>
<p style="-uslm-sgm:P">[Your coverage will be affected by the following:</p>
<p style="-uslm-sgm:P">[ ] The elimination of a type of coverage previously provided to you. [(explanation)] [See __ of the attached policy for details.]</p>
<p style="-uslm-sgm:P">[ ] A lowering of the age at which your coverage will terminate or will become more restrictive. [(explanation)] [See __ of the attached policy or certificate for details.]</p>
<p style="-uslm-sgm:P">[ ] A decrease in your maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or any other decrease in the dollar amount of your coverage or benefits. [(explanation)] [See __ of the attached policy or certificate for details.]</p>
<p style="-uslm-sgm:P">[ ] A restriction on the eligibility for benefits for you or others. [(explanation)] [See __ of the attached policy or certificate for details.]</p>
<p style="-uslm-sgm:P">[ ] A restriction in the definition of “disability” or other key term of coverage. [(explanation)] [See __ of the attached policy or certificate for details.]</p>
<p style="-uslm-sgm:P">[ ] The addition of exclusions or limitations that are broader or other than those under the current coverage. [(explanation)] [See __ of the attached policy or certificate for details.]</p>
<p style="-uslm-sgm:P">[ ] An increase in the elimination (waiting) period or a change to nonretroactive coverage. [(explanation)] [See __ of the attached policy or certificate for details).]</p>
<p style="-uslm-sgm:P">[The name and mailing address of the new insurer providing the coverage for your account is (name and address).]</p>
<heading style="-uslm-sgm:HD1">G–13(B)—Change in Insurance Provider Model Form</heading>
<p style="-uslm-sgm:P">We have changed the insurer providing the coverage for your account. The new insurer's name and address are (name and address). A copy of the new policy or certificate is attached.</p>
<p style="-uslm-sgm:P">You may cancel the insurance for your account.</p>
<figure style="-uslm-sgm:GPH"><?page num="459"?>
<img src="EC27SE91.016" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:331; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="460"?>
<img src="EC27SE91.017" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:436; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="461"?>
<img src="EC27SE91.018" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:363; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="462"?>
<img src="EC27SE91.019" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:285; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="463"?>
<img src="EC27SE91.020" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:399; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="464"?>
<img src="EC27SE91.021" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:391; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="465"?>
<img src="EC27SE91.022" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:255; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<heading style="-uslm-sgm:HD1">G–16(A) Debt Suspension Model Clause</heading>
<p style="-uslm-sgm:P">Please enroll me in the optional [insert name of program], and bill my account the fee of [how cost is determined]. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​[To Enroll, Sign Here]/[To Enroll, Initial Here]. X </p>
<heading style="-uslm-sgm:HD1">G–16(B) Debt Suspension Sample</heading>
<p style="-uslm-sgm:P">Please enroll me in the optional [name of program], and bill my account the fee of $.83 per $100 of my month-end account balance. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​To Enroll, Initial Here. X </p>
<figure style="-uslm-sgm:GPH"><?page num="466"?>
<img src="ER22FE10.005" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:448; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="467"?>
<img src="ER29JN10.003" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:468; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="468"?>
<img src="ER29JN10.004" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="469"?>
<img src="ER22FE10.008" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:220; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="470"?>
<img src="ER22FE10.009" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:375; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="471"?>
<img src="ER29JN10.005" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:221; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER22FE10.011" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:21; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER22FE10.012" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:139; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="472"?>
<img src="ER22FE10.013" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:186; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="473"?>
<img src="ER29JN10.006" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="474"?>
<img src="ER22FE10.015" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:211; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="475"?>
<img src="ER29JN10.007" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:443; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="476"?>
<img src="ER29JN10.008" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="477"?>
<img src="ER22FE10.018" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:433; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="478"?>
<img src="ER29JN10.009" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:265; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER29JN10.010" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:146; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<heading style="-uslm-sgm:HD1">G–18(H)—Deferred Interest Periodic Statement Clause</heading>
<p style="-uslm-sgm:P">[You must pay your promotional balance in full by [date] to avoid paying accrued interest charges.]</p>
<figure style="-uslm-sgm:GPH"><?page num="479"?>
<img src="ER22FE10.021" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:254; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER29JN10.011" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:125; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER29JN10.012" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:122; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="480"?>
<img src="ER22FE10.024" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:170; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER22FE10.025" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:188; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<heading style="-uslm-sgm:HD1">G–24—Deferred Interest Offer Clauses</heading>
<p style="-uslm-sgm:P">(a) For Credit Card Accounts Under an Open-End (Not Home-Secured) Consumer Credit Plan</p>
<p style="-uslm-sgm:P">[Interest will be charged to your account from the purchase date if the purchase balance is not paid in full within the/by [deferred interest period/date] or if you make a late payment.]</p>
<p style="-uslm-sgm:P">(b) For Other Open-End Plans</p>
<p style="-uslm-sgm:P">[Interest will be charged to your account from the purchase date if the purchase balance is not paid in full within the/by [deferred interest period/date] or if your account is otherwise in default.]</p>
<p style="-uslm-sgm:P">G–25(A)—Consent Form for Over-the-Credit Limit Transactions</p>
<heading style="-uslm-sgm:HD2">Your choice regarding over-the-credit limit coverage</heading>
<p style="-uslm-sgm:P">Unless you tell us otherwise, we will decline any transaction that causes you to go over your credit limit. If you want us to authorize these transactions, you can request over-the-credit limit coverage.</p>
<p style="-uslm-sgm:P">If you have over-the-credit limit coverage and you go over your credit limit, we will charge you a fee of up to $35. We may also increase your APRs to the Penalty APR of XX.XX%. You will only pay one fee per billing cycle, even if you go over your limit multiple times in the same cycle.</p>
<p style="-uslm-sgm:P">Even if you request over-the-credit limit coverage, in some cases we may still decline a transaction that would cause you to go <?page num="481"?>over your limit, such as if you are past due or significantly over your credit limit.</p>
<p style="-uslm-sgm:P">If you want over-the-limit coverage and to allow us to authorize transactions that go over your credit limit, please:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">—Call us at [telephone number]; </p>
<p style="-uslm-sgm:FP-1">—Visit [Web site]; or </p>
<p style="-uslm-sgm:FP-1">—Check or initial the box below, and return the form to us at [address]. </p>
<p style="-uslm-sgm:FP-DASH">​</p>
<p style="-uslm-sgm:P">_ I want over-the-limit coverage. I understand that if I go over my credit limit, my APRs may be increased and I will be charged a fee of up to $35. [I have the right to cancel this coverage at any time.]</p>
<p style="-uslm-sgm:P">[_ I <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">do not</inline> want over-the-limit coverage. I understand that transactions that exceed my credit limit will not be authorized.]</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​Printed Name:</p>
<p style="-uslm-sgm:FP-DASH">​Date:</p>
<p style="-uslm-sgm:FP-DASH">​[Account Number]:</p>
<heading style="-uslm-sgm:HD3">G–25(B)—Revocation Notice for Periodic Statement Regarding Over-the-Credit Limit Transactions</heading>
<p style="-uslm-sgm:P">You currently have over-the-credit limit coverage on your account, which means that we pay transactions that cause you go to over your credit limit. If you do go over your credit limit, we will charge you a fee of up to $35. We may also increase your APRs. To remove over-the-credit-limit coverage from your account, call us at 1–800-xxxxxxx or visit [insert web site]. [You may also write us at: [insert address].]</p>
<p style="-uslm-sgm:P">[You may also check or initial the box below and return this form to us at: [insert address].</p>
<p style="-uslm-sgm:P">_ I want to cancel over-the-limit coverage for my account.</p>
<p style="-uslm-sgm:FP-DASH">​Printed Name:</p>
<p style="-uslm-sgm:FP-DASH">​Date:</p>
<p style="-uslm-sgm:FP-DASH">​[Account Number]:</p>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/46/60191">46 FR 60191</ref>, <date date="1981-12-09" role="amended">Dec. 9, 1981</date>; <ref href="/us/fr/54/13868">54 FR 13868</ref>, <date date="1989-04-06" role="amended">Apr. 6, 1989</date>; <ref href="/us/fr/54/24689">54 FR 24689</ref>, <date date="1989-06-09" role="amended">June 9, 1989</date>; <ref href="/us/fr/55/38312">55 FR 38312</ref>, <date date="1990-09-18" role="amended">Sept. 18, 1990</date>; <ref href="/us/fr/65/58908">65 FR 58908</ref>, <date date="2000-10-03" role="amended">Oct. 3, 2000</date>; <ref href="/us/fr/75/7825">75 FR 7825</ref>, <date date="2010-02-22" role="amended">Feb. 22, 2010</date>; <ref href="/us/fr/75/37573">75 FR 37573</ref>, <date date="2010-06-26" role="amended">June 26, 2010</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. H</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix H to Part 226—</num>
<heading style="-uslm-sgm:HED"> Closed-End Model Forms and Clauses</heading>
<p style="-uslm-sgm:FP-2">H–1 Credit Sale Model Form (<ref href="/us/cfr/t12/s226.18">§ 226.18</ref>)</p>
<p style="-uslm-sgm:FP-2">H–2 Loan Model Form (<ref href="/us/cfr/t12/s226.18">§ 226.18</ref>)</p>
<p style="-uslm-sgm:FP-2">H–3 Amount Financed Itemization Model Form (<ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(A) Variable-Rate Model Clauses (<ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(B) Variable-Rate Model Clauses (<ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(C) Variable-Rate Model Clauses (<ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(D) Variable-Rate Model Clauses (<ref href="/us/cfr/t12/s226.20/c">§ 226.20(c)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(E)—Fixed-Rate Mortgage Interest Rate and Payment Summary Model Clause (<ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(F)—Adjustable-Rate Mortgage or Step-Rate Mortgage Interest Rate and Payment Summary Model Clause (<ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(G)—Mortgage with Negative Amortization Interest Rate and Payment Summary Model Clause (<ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(H)—Fixed-Rate Mortgage with Interest-Only Interest Rate and Payment Summary Model Clause (<ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(I)—Adjustable-Rate Mortgage Introductory Rate Disclosure Model Clause (<ref href="/us/cfr/t12/s226.18/s/2/iii">§ 226.18(s)(2)(iii)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(J)—Balloon Payment Disclosure Model Clause (<ref href="/us/cfr/t12/s226.18/s/5">§ 226.18(s)(5)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–4(K)—No Guarantee to Refinance Statement Model Clause (<ref href="/us/cfr/t12/s226.18/t">§ 226.18(t)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–5 Demand Feature Model Clauses (<ref href="/us/cfr/t12/s226.18/i">§ 226.18(i)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–6 Assumption Policy Model Clause (<ref href="/us/cfr/t12/s226.18/q">§ 226.18(q)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–7 Required Deposit Model Clause (<ref href="/us/cfr/t12/s226.18/r">§ 226.18(r)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–8 Rescission Model Form (General) (<ref href="/us/cfr/t12/s226.23">§ 226.23</ref>)</p>
<p style="-uslm-sgm:FP-2">H–9 Rescission Model Form (Refinancing (with Original Creditor)) (<ref href="/us/cfr/t12/s226.23">§ 226.23</ref>)</p>
<p style="-uslm-sgm:FP-2">H–10 Credit Sale Sample</p>
<p style="-uslm-sgm:FP-2">H–11 Installment Loan Sample</p>
<p style="-uslm-sgm:FP-2">H–12 Refinancing Sample</p>
<p style="-uslm-sgm:FP-2">H–13 Mortgage with Demand Feature Sample</p>
<p style="-uslm-sgm:FP-2">H–14 Variable-Rate Mortgage Sample (<ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>)</p>
<p style="-uslm-sgm:FP-2">H–15 Graduated-Payment Mortgage Sample</p>
<p style="-uslm-sgm:FP-2">H–16 Mortgage Sample</p>
<p style="-uslm-sgm:FP-2">H–17(A) Debt Suspension Model Clause</p>
<p style="-uslm-sgm:FP-2">H–17(B) Debt Suspension Sample</p>
<figure style="-uslm-sgm:GPH"><?page num="482"?>
<img src="EC27SE91.023" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:407; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="483"?>
<img src="EC27SE91.024" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:407; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="484"?>
<img src="EC27SE91.025" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:252; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="EC27SE91.026" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:248; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<?page num="485"?>
<heading style="-uslm-sgm:HD2">H–4(C)—Variable-Rate Model Clauses</heading>
<p style="-uslm-sgm:P">This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request.</p>
<heading style="-uslm-sgm:HD2">How Your Interest Rate and Payment Are Determined</heading>
<p style="-uslm-sgm:P">• Your interest rate will be based on [an index plus a margin] [a formula].</p>
<p style="-uslm-sgm:P">• Your payment will be based on the interest rate, loan balance, and loan term.</p>
<p style="-uslm-sgm:FP-1">—[The interest rate will be based on (identification of index) plus our margin. Ask for our current interest rate and margin.]</p>
<p style="-uslm-sgm:FP-1">—[The interest rate will be based on (identification of formula). Ask us for our current interest rate.]</p>
<p style="-uslm-sgm:FP-1">—Information about the index [formula for rate adjustments] is published [can be found] ________.</p>
<p style="-uslm-sgm:FP-1">—[The initial interest rate is not based on the (index) (formula) used to make later adjustments. Ask us for the amount of current interest rate discounts.]</p>
<heading style="-uslm-sgm:HD2">How Your Interest Rate Can Change</heading>
<p style="-uslm-sgm:P">• Your interest rate can change (frequency).</p>
<p style="-uslm-sgm:P">• [Your interest rate cannot increase or decrease more than ___ percentage points at each adjustment.]</p>
<p style="-uslm-sgm:P">• Your interest rate cannot increase [or decrease] more than ___ percentage points over the term of the loan.</p>
<heading style="-uslm-sgm:HD2">How Your Payment Can Change</heading>
<p style="-uslm-sgm:P">• Your payment can change (frequency) based on changes in the interest rate.</p>
<p style="-uslm-sgm:P">• [Your payment cannot increase more than (amount or percentage) at each adjustment.]</p>
<p style="-uslm-sgm:P">• You will be notified in writing ____ days before the due date of a payment at a new level. This notice will contain information about your interest rates, payment amount, and loan balance.</p>
<p style="-uslm-sgm:P">• [You will be notified once each year during which interest rate adjustments, but no payment adjustments, have been made to your loan. This notice will contain information about your interest rates, payment amount, and loan balance.]</p>
<p style="-uslm-sgm:P">• [For example, on a $10,000 [term] loan with an initial interest rate of ____ [(the rate shown in the interest rate column below for the year 19 ____)] [(in effect (month) (year)], the maximum amount that the interest rate can rise under this program is ____ percentage points, to ____%, and the monthly payment can rise from a first-year payment of $____ to a maximum of $____ in the _____ year. To see what your payments would be, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, the monthly payment for a mortgage amount of $60,000 would be: $60,000 ÷ $10,000 = 6; 6 × ____ = $____ per month.)]</p>
<heading style="-uslm-sgm:HD2">[Example</heading>
<p style="-uslm-sgm:P">The example below shows how your payments would have changed under this ARM program based on actual changes in the index from 1982 to 1996. This does not necessarily indicate how your index will change in the future.</p>
<p style="-uslm-sgm:P">The example is based on the following assumptions:</p>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L0,7/8,g1,t1,s50,xls50">
<xhtml:tfoot>
<xhtml:tr>
<xhtml:td colspan="2">
<footnote style="-uslm-sgm:TNOTE">
<content>* This is a margin we have used recently, your margin may be different.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td colspan="2">
<footnote style="-uslm-sgm:TNOTE">
<content>** This is the amount of a discount we have provided recently; your loan may be discounted by a different amount.]</content>
</footnote>
</xhtml:td>
</xhtml:tr>
</xhtml:tfoot>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Amount</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$10,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Term</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">_____</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Change date</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">_____</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Payment adjustment</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">(frequency)</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Interest adjustment</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">(frequency)</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">[Margin] *</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">____</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td colspan="2" style="-uslm-sgm:ENT; -uslm-sgm-I:I22">Caps ____ [periodic interest rate cap]</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">   ____ [lifetime interest rate cap</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">   ____ [payment cap]</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">[Interest rate carryover]</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">[Negative amortization]</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">[Interest rate discount] **</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">Index.......(identification of index or formula)</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<xhtml:table cols="6" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c6,L2,s10,7,7,7,7,7">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Year</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Index<br style="-uslm-sgm:LI" />(%)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Margin<br style="-uslm-sgm:LI" />(Percentage<br style="-uslm-sgm:LI" />points)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Interest<br style="-uslm-sgm:LI" />Rate<br style="-uslm-sgm:LI" />(%)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Monthly<br style="-uslm-sgm:LI" />Payment<br style="-uslm-sgm:LI" />($)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Remaining<br style="-uslm-sgm:LI" />Balance<br style="-uslm-sgm:LI" />($)</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tfoot>
<xhtml:tr>
<xhtml:td colspan="6">
<footnote style="-uslm-sgm:TNOTE">
<content>Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: $60,000 ÷ $10,000 = 6; 6 × ____ = $____ per month.)</content>
</footnote>
</xhtml:td>
</xhtml:tr>
</xhtml:tfoot>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1982</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1983</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1984</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1985</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1986</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1987</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1988</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1989</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1990</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1991</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1992</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1993</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1994</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1995</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1996</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
<xhtml:td style="-uslm-sgm:ENT" />
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<figure style="-uslm-sgm:GPH"><?page num="486"?>
<img src="ER25OC10.001" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:90; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER24SE10.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:131; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="487"?>
<img src="ER24SE10.001" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:352; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH">
<img src="ER24SE10.002" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:147; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<?page num="488"?>
<heading style="-uslm-sgm:HD1">H–4(I)—Introductory Rate Model Clause</heading>
<p style="-uslm-sgm:FP-1">[Introductory Rate Notice</p>
<p style="-uslm-sgm:FP-1">You have a discounted introductory rate of ____ % that ends after (period).</p>
<p style="-uslm-sgm:FP-1">In the (period in sequence), even if market rates do not change, this rate will increase to __ %.]</p>
<heading style="-uslm-sgm:HD1">H–4(J)—Balloon Payment Model Clause</heading>
<p style="-uslm-sgm:FP-1">[Final Balloon Payment due (date): $____]</p>
<heading style="-uslm-sgm:HD1">H–4(K)—“No-Guarantee-to-Refinance” Statement Model Clause</heading>
<p style="-uslm-sgm:P">There is no guarantee that you will be able to refinance to lower your rate and payments.</p>
<figure style="-uslm-sgm:GPH">
<img src="ER25OC10.002" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:134; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="489"?>
<img src="EC27SE91.030" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:454; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<?page num="490"?>
<heading style="-uslm-sgm:HD1">H–9—Rescission Model Form (Refinancing with Original Creditor) </heading>
<heading style="-uslm-sgm:HD3">NOTICE OF RIGHT TO CANCEL </heading>
<heading style="-uslm-sgm:HD3">Your Right To Cancel</heading>
<p style="-uslm-sgm:P">You are entering into a new transaction to increase the amount of credit previously provided to you. Your home is the security for this new transaction. You have a legal right under federal law to cancel this new transaction, without cost, within three business days from whichever of the following events occurs last: </p>
<p style="-uslm-sgm:P">(1) the date of this new transaction, which is ________; or </p>
<p style="-uslm-sgm:P">(2) the date you received your new Truth in Lending disclosures; or </p>
<p style="-uslm-sgm:P">(3) the date you received this notice of your right to cancel. </p>
<p style="-uslm-sgm:P">If you cancel this new transaction, it will not affect any amount that you presently owe. Your home is the security for that amount. Within 20 calendar days after we receive your notice of cancellation of this new transaction, we must take the steps necessary to reflect the fact that your home does not secure the increase of credit. We must also return any money you have given to us or anyone else in connection with this new transaction. </p>
<p style="-uslm-sgm:P">You may keep any money we have given you in this new transaction until we have done the things mentioned above, but you must then offer to return the money at the address below.</p>
<p style="-uslm-sgm:P">If we do not take possession of the money within 20 calendar days of your offer, you may keep it without further obligation. </p>
<heading style="-uslm-sgm:HD1">How To Cancel </heading>
<p style="-uslm-sgm:P">If you decide to cancel this new transaction, you may do so by notifying us in writing, at </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​</p>
<p style="-uslm-sgm:FP-1">(Creditor's name and business address). </p>
<p style="-uslm-sgm:P">You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights. </p>
<p style="-uslm-sgm:P">If you cancel by mail or telegram, you must send the notice no later than midnight of</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">(Date) </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">(or midnight of the third business day following the latest of the three events listed above). </p>
<p style="-uslm-sgm:P">If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">I WISH TO CANCEL</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">Consumer's Signature </p>
<p style="-uslm-sgm:FP-DASH">​</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">Date </p>
<figure style="-uslm-sgm:GPH"><?page num="491"?>
<img src="EC27SE91.031" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:433; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="492"?>
<img src="EC27SE91.032" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:313; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="493"?>
<img src="EC27SE91.033" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:452; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="494"?>
<img src="EC27SE91.034" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:349; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<heading style="-uslm-sgm:HD2">H–14—Variable-Rate Mortgage Sample</heading>
<p style="-uslm-sgm:P">This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request.</p>
<heading style="-uslm-sgm:HD2">How Your Interest Rate and Payment Are Determined</heading>
<p style="-uslm-sgm:P">• Your interest rate will be based on an index rate plus a margin.</p>
<p style="-uslm-sgm:P">• Your payment will be based on the interest rate, loan balance, and loan term.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">—The interest rate will be based on the weekly average yield on United States Treasury securities adjusted to a constant maturity of 1 year (your index), plus our margin. Ask us for our current interest rate and margin.</p>
<p style="-uslm-sgm:FP-1">—Information about the index rate is published weekly in the Wall Street Journal.</p>
<p style="-uslm-sgm:P">• Your interest rate will equal the index rate plus our margin unless your interest rate “caps” limit the amount of change in the interest rate.</p>
<heading style="-uslm-sgm:HD2">How Your Interest Rate Can Change</heading>
<p style="-uslm-sgm:P">• Your interest rate can change yearly.</p>
<p style="-uslm-sgm:P">• Your interest rate cannot increase or decrease more than 2 percentage points per year.</p>
<p style="-uslm-sgm:P">• Your interest rate cannot increase or decrease more than 5 percentage points over the term of the loan.
<?page num="495"?></p>
<heading style="-uslm-sgm:HD2">How Your Monthly Payment Can Change</heading>
<p style="-uslm-sgm:P">• Your monthly payment can increase or decrease substantially based on annual changes in the interest rate.</p>
<p style="-uslm-sgm:P">• [For example, on a $10,000, 30-year loan with an initial interest rate of 12.41 percent in effect in July 1996, the maximum amount that the interest rate can rise under this program is 5 percentage points, to 17.41 percent, and the monthly payment can rise from a first-year payment of $106.03 to a maximum of $145.34 in the fourth year. To see what your payment is, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, the monthly payment for a mortgage amount of $60,000 would be: $60,000 ÷ $10,000 = 6; 6 × 106.03 = $636.18 per month.)</p>
<p style="-uslm-sgm:P">• You will be notified in writing 25 days before the annual payment adjustment may be made. This notice will contain information about your interest rates, payment amount and loan balance.]</p>
<heading style="-uslm-sgm:HD2">[Example</heading>
<p style="-uslm-sgm:P">The example below shows how your payments would have changed under this ARM program based on actual changes in the index from 1982 to 1996. This does not necessarily indicate how your index will change in the future. The example is based on the following assumptions:</p>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L0,7/8,g1,t1,s50,xls60">
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Amount</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$10,000</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Term</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">30 years</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Payment adjustment</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1 year</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Interest adjustment</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1 year</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Margin</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3 percentage points</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td colspan="2" style="-uslm-sgm:ENT; -uslm-sgm-I:I22">Caps____ 2 percentage points annual interest rate</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">  ____ 5 percentage points lifetime interest rate</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22">Index____ Weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year.</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<xhtml:table cols="6" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c6,L2,s100,11,11,11,11,11">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Year<br style="-uslm-sgm:LI" />(as of 1st week ending in July)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Index<br style="-uslm-sgm:LI" />(%)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Margin*<br style="-uslm-sgm:LI" />(percentage<br style="-uslm-sgm:LI" />points)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Interest<br style="-uslm-sgm:LI" />Rate<br style="-uslm-sgm:LI" />(%)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Monthly<br style="-uslm-sgm:LI" />Payment<br style="-uslm-sgm:LI" />($)</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Remaining<br style="-uslm-sgm:LI" />Balance<br style="-uslm-sgm:LI" />($)</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tfoot>
<xhtml:tr>
<xhtml:td colspan="6">
<footnote style="-uslm-sgm:TNOTE">
<content>*This is a margin we have used recently; your margin may be different.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td colspan="6">
<footnote style="-uslm-sgm:TNOTE">
<content>**This interest rate reflects a 2 percentage point annual interest rate cap.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td colspan="6">
<footnote style="-uslm-sgm:TNOTE">
<content>***This interest rate reflects a 5 percentage point lifetime interest rate cap.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
<xhtml:tr>
<xhtml:td colspan="6">
<footnote style="-uslm-sgm:TNOTE">
<content>Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: $60,000 ÷ $10,000 = 6; 6 × $106.73 = $640.38.)</content>
</footnote>
</xhtml:td>
</xhtml:tr>
</xhtml:tfoot>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1982</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">14.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">17.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">145.90</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,989.37</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1983</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9.78</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">**15.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">129.81</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,969.66</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1984</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">12.17</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">15.17</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">127.91</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,945.51</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1985</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7.66</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">**13.17</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">112.43</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,903.70</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1986</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6.36</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,848.94</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1987</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6.71</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,786.98</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1988</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7.52</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,716.88</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1989</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7.97</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,637.56</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1990</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8.06</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,547.83</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1991</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6.40</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,446.29</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1992</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3.96</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,331.56</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1993</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3.42</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,201.61</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1994</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5.47</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9,054.72</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1995</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5.53</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8,888.52</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1996</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5.82</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">***12.41</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">106.73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8,700.37</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">• You will be notified in writing 25 days before the annual payment adjustment may be made. This notice will contain information about your interest rates, payment amount and loan balance.]</p>
<figure style="-uslm-sgm:GPH"><?page num="496"?>
<img src="EC27SE91.037" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:382; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="497"?>
<img src="ER20DE01.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:413; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="498"?>
<img src="ER14AU09.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="499"?>
<img src="ER14AU09.001" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:430; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="500"?>
<img src="ER14AU09.002" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="501"?>
<img src="ER14AU09.003" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:433; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="502"?>
<img src="ER14AU09.004" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="503"?>
<img src="ER14AU09.005" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:142; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="504"?>
<img src="ER14AU09.006" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="505"?>
<img src="ER14AU09.007" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:419; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="506"?>
<img src="ER14AU09.008" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="507"?>
<img src="ER14AU09.009" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:429; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="508"?>
<img src="ER14AU09.010" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="509"?>
<img src="ER14AU09.011" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:177; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<heading style="-uslm-sgm:HD1">H–17(A) Debt Suspension Model Clause</heading>
<p style="-uslm-sgm:P">Please enroll me in the optional [insert name of program], and bill my account the fee of [insert charge for the initial term of coverage]. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.</p>
<p style="-uslm-sgm:P">[To Enroll, Sign Here]/[To Enroll, Initial Here]. X __________</p>
<heading style="-uslm-sgm:HD1">H–17(B) Debt Suspension Sample</heading>
<p style="-uslm-sgm:P">Please enroll me in the optional [name of program], and bill my account the fee of $200.00. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.</p>
<p style="-uslm-sgm:P">To Enroll, Initial Here. X __________</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/46/29246">46 FR 29246</ref>, <date date="1981-06-01" role="amended">June 1, 1981</date>; <ref href="/us/fr/52/48671">52 FR 48671</ref>, <date date="1987-12-24" role="amended">Dec. 24, 1987</date>; <ref href="/us/fr/53/467">53 FR 467</ref>, <date date="1988-01-07" role="amended">Jan. 7, 1988</date>; Reg. Z, <ref href="/us/fr/60/15473">60 FR 15473</ref>, <date date="1995-03-24" role="amended">Mar. 24, 1995</date>; <ref href="/us/fr/61/49247">61 FR 49247</ref>, <date date="1996-09-19" role="amended">Sept. 19, 1996</date>; <ref href="/us/fr/62/63444">62 FR 63444</ref>, 63445, <date date="1997-12-01" role="amended">Dec. 1, 1997</date>; <ref href="/us/fr/62/66179">62 FR 66179</ref>, <date date="1997-12-17" role="amended">Dec. 17, 1997</date>; Reg. Z, <ref href="/us/fr/63/2723">63 FR 2723</ref>, <date date="1998-01-16" role="amended">Jan. 16, 1998</date>; <ref href="/us/fr/66/65618">66 FR 65618</ref>, <date date="2001-12-20" role="amended">Dec. 20, 2001</date>; <ref href="/us/fr/74/41236">74 FR 41236</ref>, <date date="2009-08-14" role="amended">Aug. 14, 2009</date>; <ref href="/us/fr/75/7845">75 FR 7845</ref>, <date date="2010-02-22" role="amended">Feb. 22, 2010</date>; <ref href="/us/fr/75/58484">75 FR 58484</ref>, <date date="2010-09-24" role="amended">Sept. 24, 2010</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. I</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix I to Part 226—</num>
<heading style="-uslm-sgm:HED">Federal Enforcement Agencies</heading>
<p style="-uslm-sgm:P">The following list indicates which federal agency enforces Regulation Z for particular classes of businesses. Any questions concerning compliance by a particular business should be directed to the appropriate enforcement agency. Terms that are not defined in the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813/s">12 U.S.C. 1813(s)</ref>) shall have the meaning given to them in the International Banking Act of 1978 (<ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref>).</p>
<heading style="-uslm-sgm:HD2">National banks and federal branches and federal agencies of foreign banks</heading>
<p style="-uslm-sgm:P">District office of the Office of the Comptroller of the Currency for the district in which the institution is located.</p>
<heading style="-uslm-sgm:HD2">State member banks, branches and agencies of foreign banks (other than federal branches, federal agencies, and insured state branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act</heading>
<p style="-uslm-sgm:P">Federal Reserve Bank serving the district in which the institution is located.
<?page num="510"?></p>
<heading style="-uslm-sgm:HD2">Non-member insured banks and insured state branches of foreign banks</heading>
<p style="-uslm-sgm:P">Federal Deposit Insurance Corporation Regional director for the region in which the institution is located. </p>
<heading style="-uslm-sgm:HD1">Savings institutions insured under the Savings Association Insurance Fund of the FDIC and federally chartered savings banks insured under the Bank Insurance Fund of the FDIC (but not including state-chartered savings banks insured under the Bank Insurance Fund).</heading>
<p style="-uslm-sgm:P">Office of Thrift Supervision Regional Director for the region in which the institution is located.</p>
<heading style="-uslm-sgm:HD1">Federal Credit Unions</heading>
<p style="-uslm-sgm:P">Regional office of the National Credit Union Administration serving the area in which the Federal credit union is located.</p>
<heading style="-uslm-sgm:HD1">Air Carriers</heading>
<p style="-uslm-sgm:P">Assistant General Counsel for Aviation Enforcement and Proceedings, Department of Transportation, 400 Seventh Street, SW., Washington, DC 20590.</p>
<heading style="-uslm-sgm:HD1">Creditors Subject to Packers and Stockyards Act</heading>
<p style="-uslm-sgm:P">Nearest Packers and Stockyards Administration area supervisor.</p>
<heading style="-uslm-sgm:HD1">Federal Land Banks, Federal Land Bank Associations, Federal Intermediate Credit Banks and Production Credit Associations.</heading>
<p style="-uslm-sgm:P">Farm Credit Administration, 490 L'Enfant Plaza, SW., Washington, DC 20578.</p>
<heading style="-uslm-sgm:HD1">Retail, Department Stores, Consumer Finance Companies, All Other Creditors, and All Nonbank Credit Card Issuers (Creditors operating on a local or regional basis should use the address of the FTC Regional Office in which they operate.)</heading>
<p style="-uslm-sgm:P">Division of Credit Practices, Bureau of Consumer Protection, Federal Trade Commission, Washington, DC 20580. </p>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/50/8708">50 FR 8708</ref>, <date date="1985-03-05" role="amended">Mar. 5, 1985</date>; <ref href="/us/fr/54/53539">54 FR 53539</ref>, <date date="1989-12-29" role="amended">Dec. 29, 1989</date>; <ref href="/us/fr/56/51322">56 FR 51322</ref>, <date date="1991-10-11" role="amended">Oct. 11, 1991</date>; <ref href="/us/fr/57/20400">57 FR 20400</ref>, <date date="1992-05-13" role="amended">May 13, 1992</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. J</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix J to Part 226—</num>
<heading style="-uslm-sgm:HED">Annual Percentage Rate Computations for Closed-End Credit Transactions</heading>
<heading style="-uslm-sgm:HD1">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">a</inline>) Introduction</heading>
<p style="-uslm-sgm:P">(1) Section 226.22(a) of Regulation Z provides that the annual percentage rate for other than open end credit transactions shall be determined in accordance with either the actuarial method or the United States Rule method. This appendix contains an explanation of the actuarial method as well as equations, instructions and examples of how this method applies to single advance and multiple advance transactions.</p>
<p style="-uslm-sgm:P">(2) Under the actuarial method, at the end of each unit-period (or fractional unit-period) the unpaid balance of the amount financed is increased by the finance charge earned during that period and is decreased by the total payment (if any) made at the end of that period. The determination of unit-periods and fractional unit-periods shall be consistent with the definitions and rules in paragraphs (b) (3), (4) and (5) of this section and the general equation in paragraph (b)(8) of this section.</p>
<p style="-uslm-sgm:P">(3) In contrast, under the United States Rule method, at the end of each payment period, the unpaid balance of the amount financed is increased by the finance charge earned during that payment period and is decreased by the payment made at the end of that payment period. If the payment is less than the finance charge earned, the adjustment of the unpaid balance of the amount financed is postponed until the end of the next payment period. If at that time the sum of the two payments is still less than the total earned finance charge for the two payment periods, the adjustment of the unpaid balance of the amount financed is postponed still another payment period, and so forth.</p>
<heading style="-uslm-sgm:HD1">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">b</inline>) Instructions and Equations for the Actuarial Method</heading>
<heading style="-uslm-sgm:HD2">(1) General Rule</heading>
<p style="-uslm-sgm:P">The annual percentage rate shall be the nominal annual percentage rate determined by multiplying the unit-period rate by the number of unit-periods in a year.</p>
<heading style="-uslm-sgm:HD2">(2) Term of the Transaction</heading>
<p style="-uslm-sgm:P">The term of the transaction begins on the date of its consummation, except that if the finance charge or any portion of it is earned beginning on a later date, the term begins on the later date. The term ends on the date the last payment is due, except that if an advance is scheduled after that date, the term ends on the later date. For computation purposes, the length of the term shall be equal to the time interval between any point in time on the beginning date to the same point in time on the ending date.</p>
<heading style="-uslm-sgm:HD2">(3) Definitions of Time Intervals</heading>
<p style="-uslm-sgm:P">(i) A period is the interval of time between advances or between payments and includes the interval of time between the date the finance charge begins to be earned and the date of the first advance thereafter or the <?page num="511"?>date of the first payment thereafter, as applicable.</p>
<p style="-uslm-sgm:P">(ii) A common period is any period that occurs more than once in a transaction.</p>
<p style="-uslm-sgm:P">(iii) A standard interval of time is a day, week, semimonth, month, or a multiple of a week or a month up to, but not exceeding, 1 year.</p>
<p style="-uslm-sgm:P">(iv) All months shall be considered equal. Full months shall be measured from any point in time on a given date of a given month to the same point in time on the same date of another month. If a series of payments (or advances) is scheduled for the last day of each month, months shall be measured from the last day of the given month to the last day of another month. If payments (or advances) are scheduled for the 29th or 30th of each month, the last day of February shall be used when applicable.</p>
<heading style="-uslm-sgm:HD2">(4) Unit-period</heading>
<p style="-uslm-sgm:P">(i) In all transactions other than a single advance, single payment transaction, the unit-period shall be that common period, not to exceed 1 year, that occurs most frequently in the transaction, except that</p>
<p style="-uslm-sgm:P">(A) If 2 or more common periods occur with equal frequency, the smaller of such common periods shall be the unit-period; or</p>
<p style="-uslm-sgm:P">(B) If there is no common period in the transaction, the unit-period shall be that period which is the average of all periods rounded to the nearest whole standard interval of time. If the average is equally near 2 standard intervals of time, the lower shall be the unit-period.</p>
<p style="-uslm-sgm:P">(ii) In a single advance, single payment transaction, the unit-period shall be the term of the transaction, but shall not exceed 1 year.</p>
<heading style="-uslm-sgm:HD2">(5) Number of Unit-periods Between 2 Given Dates</heading>
<p style="-uslm-sgm:P">(i) The number of days between 2 dates shall be the number of 24-hour intervals between any point in time on the first date to the same point in time on the second date.</p>
<p style="-uslm-sgm:P">(ii) If the unit-period is a month, the number of full unit-periods between 2 dates shall be the number of months measured back from the later date. The remaining fraction of a unit-period shall be the number of days measured forward from the earlier date to the beginning of the first full unit-period, divided by 30. If the unit-period is a month, there are 12 unit-periods per year. </p>
<p style="-uslm-sgm:P">(iii) If the unit-period is a semimonth or a multiple of a month not exceeding 11 months, the number of days between 2 dates shall be 30 times the number of full months measured back from the later date, plus the number of remaining days. The number of full unit-periods and the remaining fraction of a unit-period shall be determined by dividing such number of days by 15 in the case of a semimonthly unit-period or by the appropriate multiple of 30 in the case of a multimonthly unit-period. If the unit-period is a semimonth, the number of unit-periods per year shall be 24. If the number of unit-periods is a multiple of a month, the number of unit-periods per year shall be 12 divided by the number of months per unit-period.</p>
<p style="-uslm-sgm:P">(iv) If the unit-period is a day, a week, or a multiple of a week, the number of full unit-periods and the remaining fractions of a unit-period shall be determined by dividing the number of days between the 2 given dates by the number of days per unit-period. If the unit-period is a day, the number of unit-periods per year shall be 365. If the unit-period is a week or a multiple of a week, the number of unit-periods per year shall be 52 divided by the number of weeks per unit-period.</p>
<p style="-uslm-sgm:P">(v) If the unit-period is a year, the number of full unit-periods between 2 dates shall be the number of full years (each equal to 12 months) measured back from the later date. The remaining fraction of a unit-period shall be</p>
<p style="-uslm-sgm:P">(A) The remaining number of months divided by 12 if the remaining interval is equal to a whole number of months, or</p>
<p style="-uslm-sgm:P">(B) The remaining number of days divided by 365 if the remaining interval is <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> equal to a whole number of months.</p>
<p style="-uslm-sgm:P">(vi) In a single advance, single payment transaction in which the term is less than a year and is equal to a whole number of months, the number of unit-periods in the term shall be 1, and the number of unit-periods per year shall be 12 divided by the number of months in the term or 365 divided by the number of days in the term.</p>
<p style="-uslm-sgm:P">(vii) In a single advance, single payment transaction in which the term is less than a year and is <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> equal to a whole number of months, the number of unit-periods in the term shall be 1, and the number of unit-periods per year shall be 365 divided by the number of days in the term.</p>
<heading style="-uslm-sgm:HD2">(6) Percentage Rate for a Fraction of a Unit-period</heading>
<p style="-uslm-sgm:P">The percentage rate of finance charge for a fraction (less than 1) of a unit-period shall be equal to such fraction multiplied by the percentage rate of finance charge per unit-period.</p>
<figure style="-uslm-sgm:GPH"><?page num="512"?>
<img src="EC27SE91.038" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:389; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="513"?>
<img src="EC27SE91.039" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="514"?>
<img src="EC27SE91.040" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="515"?>
<img src="EC27SE91.041" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:454; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="516"?>
<img src="EC27SE91.042" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="517"?>
<img src="EC27SE91.043" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:454; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="518"?>
<img src="EC27SE91.044" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:453; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="519"?>
<img src="EC27SE91.045" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:411; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="520"?>
<img src="EC27SE91.046" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:GPH"><?page num="521"?>
<img src="EC27SE91.047" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:470; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/46/20892">46 FR 20892</ref>, <date date="1981-04-07">Apr. 7, 1981</date>, as amended at <ref href="/us/fr/46/29246">46 FR 29246</ref>, <date date="1981-06-01" role="amended">June 1, 1981</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix K to Part 226—</num>
<heading style="-uslm-sgm:HED">Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions</heading>
<?page num="522"?>
<ear style="-uslm-sgm:EAR">Pt. 226, App. K</ear>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Introduction.</inline> Creditors are required to disclose a series of total annual loan cost rates for each reverse mortgage transaction. This appendix contains the equations creditors must use in computing the total annual loan cost rate for various transactions, as well as instructions, explanations, and examples for various transactions. This appendix is modeled after appendix J of this part (Annual Percentage Rates Computations for Closed-end Credit Transactions); creditors should consult appendix J of this part for additional guidance in using the formulas for reverse mortgages. </p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Instructions and equations for the total annual loan cost rate</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> The total annual loan cost rate shall be the nominal total annual loan cost rate determined by multiplying the unit-period rate by the number of unit-periods in a year. </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Term of the transaction.</inline> For purposes of total annual loan cost disclosures, the term of a reverse mortgage transaction is assumed to begin on the first of the month in which consummation is expected to occur. If a loan cost or any portion of a loan cost is initially incurred beginning on a date later than consummation, the term of the transaction is assumed to begin on the first of the month in which that loan cost is incurred. For purposes of total annual loan cost disclosures, the term ends on each of the assumed loan periods specified in <ref href="/us/cfr/t12/s226.33/c/6">§ 226.33(c)(6)</ref>. </p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definitions of time intervals.</inline>
</p>
<p style="-uslm-sgm:P">(i) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">period</inline> is the interval of time between advances. </p>
<p style="-uslm-sgm:P">(ii) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">common period</inline> is any period that occurs more than once in a transaction. </p>
<p style="-uslm-sgm:P">(iii) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">standard interval of time</inline> is a day, week, semimonth, month, or a multiple of a week or a month up to, but not exceeding, 1 year. </p>
<p style="-uslm-sgm:P">(iv) All months shall be considered to have an equal number of days. </p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unit-period.</inline> (i) In all transactions other than single-advance, single-payment transactions, the unit-period shall be that common period, not to exceed one year, that occurs most frequently in the transaction, except that: </p>
<p style="-uslm-sgm:P">(A) If two or more common periods occur with equal frequency, the smaller of such common periods shall be the unit-period; or </p>
<p style="-uslm-sgm:P">(B) If there is no common period in the transaction, the unit-period shall be that period which is the average of all periods rounded to the nearest whole standard interval of time. If the average is equally near two standard intervals of time, the lower shall be the unit-period. </p>
<p style="-uslm-sgm:P">(ii) In a single-advance, single-payment transaction, the unit-period shall be the term of the transaction, but shall not exceed one year. </p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Number of unit-periods between two given dates.</inline> (i) The number of days between two dates shall be the number of 24-hour intervals between any point in time on the first date to the same point in time on the second date. </p>
<p style="-uslm-sgm:P">(ii) If the unit-period is a month, the number of full unit-periods between two dates shall be the number of months. If the unit-period is a month, the number of unit-periods per year shall be 12. </p>
<p style="-uslm-sgm:P">(iii) If the unit-period is a semimonth or a multiple of a month not exceeding 11 months, the number of days between two dates shall be 30 times the number of full months. The number of full unit-periods shall be determined by dividing the number of days by 15 in the case of a semimonthly unit-period or by the appropriate multiple of 30 in the case of a multimonthly unit-period. If the unit-period is a semimonth, the number of unit-periods per year shall be 24. If the number of unit-periods is a multiple of a month, the number of unit-periods per year shall be 12 divided by the number of months per unit-period. </p>
<p style="-uslm-sgm:P">(iv) If the unit-period is a day, a week, or a multiple of a week, the number of full unit-periods shall be determined by dividing the number of days between the two given dates by the number of days per unit-period. If the unit-period is a day, the number of unit-periods per year shall be 365. If the unit-period is a week or a multiple of a week, the number of unit-periods per year shall be 52 divided by the number of weeks per unit-period. </p>
<p style="-uslm-sgm:P">(v) If the unit-period is a year, the number of full unit-periods between two dates shall be the number of full years (each equal to 12 months). </p>
<p style="-uslm-sgm:P">(6) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Symbols.</inline> The symbols used to express the terms of a transaction in the equation set forth in paragraph (b)(8) of this appendix are defined as follows:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">A<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">j</inline> = The amount of each periodic or lump-sum advance to the consumer under the reverse mortgage transaction. </p>
<p style="-uslm-sgm:FP-2">i = Percentage rate of the total annual loan cost per unit-period, expressed as a decimal equivalent. </p>
<p style="-uslm-sgm:FP-2">j = The number of unit-periods until the jth advance. </p>
<p style="-uslm-sgm:FP-2">n = The number of unit-periods between consummation and repayment of the debt. </p>
<p style="-uslm-sgm:FP-2">P<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline> = Min (Bal<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline>, Val<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline>). This is the maximum amount that the creditor can be repaid at the specified loan term. </p>
<p style="-uslm-sgm:FP-2">Bal<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline> = Loan balance at time of repayment, including all costs and fees incurred by the consumer (including any shared appreciation or shared equity amount) compounded to time n at the creditor's contract rate of interest.
<?page num="523"?></p>
<p style="-uslm-sgm:FP-2">Val<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline> = Val<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">0</inline> (1 + σ)<sup style="-uslm-sgm:SU">y</sup>, where Val<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">0</inline> is the property value at consummation, σ is the assumed annual rate of appreciation for the dwelling, and y is the number of years in the assumed term. Val<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline> must be reduced by the amount of any equity reserved for the consumer by agreement between the parties, or by 7 percent (or the amount or percentage specified in the credit agreement), if the amount required to be repaid is limited to the net proceeds of sale. </p>
<p style="-uslm-sgm:FP-2">σ = The summation operator.</p>
<p style="-uslm-sgm:P">Symbols used in the examples shown in this appendix are defined as follows:</p>
<figure style="-uslm-sgm:MATH">
<img src="ER24MR95.015" style="-uslm-sgm:MID; -uslm-sgm-SPAN:1; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:32; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<figure style="-uslm-sgm:MATH">
<img src="ER24MR95.007" style="-uslm-sgm:MID; -uslm-sgm-SPAN:1; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:78; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:FP-2">w = The number of unit-periods per year. </p>
<p style="-uslm-sgm:FP-2">I = wi × 100 = the nominal total annual loan cost rate. </p>
<p style="-uslm-sgm:P">(7) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General equation.</inline> The total annual loan cost rate for a reverse mortgage transaction must be determined by first solving the following formula, which sets forth the relationship between the advances to the consumer and the amount owed to the creditor under the terms of the reverse mortgage agreement for the loan cost rate per unit-period (the loan cost rate per unit-period is then multiplied by the number of unit-periods per year to obtain the total annual loan cost rate I; that is, I = wi): </p>
<figure style="-uslm-sgm:MATH">
<img src="ER24MR95.008" style="-uslm-sgm:MID; -uslm-sgm-SPAN:1; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:32; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:P">(8) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Solution of general equation by iteration process.</inline> (i) The general equation in paragraph (b)(7) of this appendix, when applied to a simple transaction for a reverse mortgage loan of equal monthly advances of $350 each, and with a total amount owed of $14,313.08 at an assumed repayment period of two years, takes the special form:</p>
<figure style="-uslm-sgm:MATH">
<img src="ER24MR95.009" style="-uslm-sgm:MID; -uslm-sgm-SPAN:1; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:47; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:FP">Using the iteration procedures found in steps 1 through 4 of (b)(9)(i) of appendix J of this part, the total annual loan cost rate, correct to two decimals, is 48.53%. </p>
<p style="-uslm-sgm:P">(ii) In using these iteration procedures, it is expected that calculators or computers will be programmed to carry all available decimals throughout the calculation and that enough iterations will be performed to make virtually certain that the total annual loan cost rate obtained, when rounded to two decimals, is correct. Total annual loan cost rates in the examples below were obtained by using a 10-digit programmable calculator and the iteration procedure described in appendix J of this part. </p>
<p style="-uslm-sgm:P">(9) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumption for discretionary cash advances.</inline> If the consumer controls the timing of advances made after consummation (such as in a credit line arrangement), the creditor must use the general formula in paragraph (b)(7) of this appendix. The total annual loan cost rate shall be based on the assumption that 50 percent of the principal loan amount is advanced at closing, or in the case of an open-end transaction, at the time the consumer becomes obligated under the plan. Creditors shall assume the advances are made at the interest rate then in effect and that no further advances are made to, or repayments made by, the consumer during the term of the transaction or plan. </p>
<p style="-uslm-sgm:P">(10) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumption for variable-rate reverse mortgage transactions.</inline> If the interest rate for a reverse mortgage transaction may increase during the loan term and the amount or timing is not known at consummation, creditors shall base the disclosures on the initial interest rate in effect at the time the disclosures are provided. </p>
<p style="-uslm-sgm:P">(11) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumption for closing costs.</inline> In calculating the total annual loan cost rate, creditors shall assume all closing and other consumer costs are financed by the creditor. </p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of total annual loan cost rate computations</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lump-sum advance at consummation.</inline>
</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">Lump-sum advance to consumer at consummation: $30,000 </p>
<p style="-uslm-sgm:FP-1">Total of consumer's loan costs financed at consummation: $4,500 </p>
<p style="-uslm-sgm:FP-1">Contract interest rate: 11.60% </p>
<p style="-uslm-sgm:FP-1">Estimated time of repayment (based on life expectancy of a consumer at age 78): 10 years </p>
<p style="-uslm-sgm:FP-1">Appraised value of dwelling at consummation: $100,000 </p>
<p style="-uslm-sgm:FP-1">Assumed annual dwelling appreciation rate: 4%</p>
<p style="-uslm-sgm:FP-1">P<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">10</inline> = Min (103,385.84, 137,662.72) </p>
<figure style="-uslm-sgm:MATH"><?page num="524"?>
<img src="ER29SE95.004" style="-uslm-sgm:MID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:32; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:FP-1">i = .1317069438 </p>
<p style="-uslm-sgm:FP-1">Total annual loan cost rate (100(.1317069438 × 1)) = 13.17% </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Monthly advance beginning at consummation.</inline>
</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">Monthly advance to consumer, beginning at consummation: $492.51 </p>
<p style="-uslm-sgm:FP-1">Total of consumer's loan costs financed at consummation: $4,500 </p>
<p style="-uslm-sgm:FP-1">Contract interest rate: 9.00% </p>
<p style="-uslm-sgm:FP-1">Estimated time of repayment (based on life expectancy of a consumer at age 78): 10 years </p>
<p style="-uslm-sgm:FP-1">Appraised value of dwelling at consummation: $100,000 </p>
<p style="-uslm-sgm:FP-1">Assumed annual dwelling appreciation rate: 8% </p>
<figure style="-uslm-sgm:MATH">
<img src="ER24MR95.011" style="-uslm-sgm:MID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:60; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:FP-1">Total annual loan cost rate (100(.009061140 × 12)) = 10.87%</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lump sum advance at consummation and monthly advances thereafter.</inline>
</p>
<p style="-uslm-sgm:FP-1">Lump sum advance to consumer at consummation: $10,000 </p>
<p style="-uslm-sgm:FP-1">Monthly advance to consumer, beginning at consummation: $725 </p>
<p style="-uslm-sgm:FP-1">Total of consumer's loan costs financed at consummation: $4,500 </p>
<p style="-uslm-sgm:FP-1">Contract rate of interest: 8.5% </p>
<p style="-uslm-sgm:FP-1">Estimated time of repayment (based on life expectancy of a consumer at age 75): 12 years </p>
<p style="-uslm-sgm:FP-1">Appraised value of dwelling at consummation: $100,000 </p>
<p style="-uslm-sgm:FP-1">Assumed annual dwelling appreciation rate: 8% </p>
<figure style="-uslm-sgm:MATH">
<img src="ER24MR95.012" style="-uslm-sgm:MID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:57; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:FP-1">Total annual loan cost rate (100(.007708844 × 12)) = 9.25% </p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reverse mortgage model form and sample form</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model form.</inline>
</p>
<heading style="-uslm-sgm:HD1">Total Annual Loan Cost Rate </heading>
<heading style="-uslm-sgm:HD2">Loan Terms </heading>
<p style="-uslm-sgm:FP-1">Age of youngest borrower: </p>
<p style="-uslm-sgm:FP-1">Appraised property value: </p>
<p style="-uslm-sgm:FP-1">Interest rate: </p>
<p style="-uslm-sgm:FP-1">Monthly advance: </p>
<p style="-uslm-sgm:FP-1">Initial draw: </p>
<p style="-uslm-sgm:FP-1">Line of credit: </p>
<heading style="-uslm-sgm:HD2">Initial Loan Charges </heading>
<p style="-uslm-sgm:FP-1">Closing costs: </p>
<p style="-uslm-sgm:FP-1">Mortgage insurance premium: </p>
<p style="-uslm-sgm:FP-1">Annuity cost: </p>
<heading style="-uslm-sgm:HD2">Monthly Loan Charges</heading>
<p style="-uslm-sgm:FP-1">Servicing fee: </p>
<heading style="-uslm-sgm:HD2">Other Charges: </heading>
<p style="-uslm-sgm:FP-1">Mortgage insurance: </p>
<p style="-uslm-sgm:FP-1">Shared Appreciation: </p>
<heading style="-uslm-sgm:HD2">Repayment Limits</heading>
<?page num="525"?>
<xhtml:table cols="5" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c5,L2,s25,10,10,10,10">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED" rowspan="2">Assumed annual appreciation </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED" colspan="4">Total annual loan cost rate </xhtml:th>
</xhtml:tr>
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">2-year loan term </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">[ ]-year loan term] </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">[ ]-year loan term </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">[ ]-year loan term </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">0%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[ ]</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">4%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[ ]</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">8%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[ ]</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">The cost of any reverse mortgage loan depends on how long you keep the loan and how much your house appreciates in value. Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be. </p>
<p style="-uslm-sgm:P">This table shows the estimated cost of your reverse mortgage loan, expressed as an annual rate. It illustrates the cost for three [four] loan terms: 2 years, [half of life expectancy for someone your age,] that life expectancy, and 1.4 times that life expectancy. The table also shows the cost of the loan, assuming the value of your home appreciates at three different rates: 0%, 4% and 8%. </p>
<p style="-uslm-sgm:P">The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not costs when you sell the home). </p>
<p style="-uslm-sgm:P">The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the interest rate on your mortgage changes. </p>
<heading style="-uslm-sgm:HD1">Signing an Application or Receiving These Disclosures Does Not Require You To Complete This Loan </heading>
<p style="-uslm-sgm:P">(2) Sample Form. </p>
<heading style="-uslm-sgm:HD1">Total Annual Loan Cost Rate </heading>
<heading style="-uslm-sgm:HD2">Loan Terms </heading>
<p style="-uslm-sgm:FP-1">Age of youngest borrower: 75 </p>
<p style="-uslm-sgm:FP-1">Appraised property value: $100,000 </p>
<p style="-uslm-sgm:FP-1">Interest rate: 9% </p>
<p style="-uslm-sgm:FP-1">Monthly advance: $301.80 </p>
<p style="-uslm-sgm:FP-1">Initial draw: $1,000 </p>
<p style="-uslm-sgm:FP-1">Line of credit: $4,000 </p>
<heading style="-uslm-sgm:HD2">Initial Loan Charges </heading>
<p style="-uslm-sgm:FP-1">Closing costs: $5,000 </p>
<p style="-uslm-sgm:FP-1">Mortgage insurance premium: None </p>
<p style="-uslm-sgm:FP-1">Annuity cost: None </p>
<heading style="-uslm-sgm:HD2">Monthly Loan Charges </heading>
<p style="-uslm-sgm:FP-1">Servicing fee: None </p>
<heading style="-uslm-sgm:HD2">Other Charges </heading>
<p style="-uslm-sgm:FP-1">Mortgage insurance: None </p>
<p style="-uslm-sgm:FP-1">Shared Appreciation: None </p>
<heading style="-uslm-sgm:HD2">Repayment Limits </heading>
<p style="-uslm-sgm:FP-1">Net proceeds estimated at 93% of projected home sale</p>
<xhtml:table cols="5" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c5,L2,s25,10,10,10,10">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED" rowspan="2">Assumed annual appreciation </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED" colspan="4">Total annual loan cost rate </xhtml:th>
</xhtml:tr>
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">2-year loan term </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">[6-year loan term] </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">12-year loan term </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">17-year loan term </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">0%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">39.00%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[14.94%]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9.86%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3.87% </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">4%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">39.00%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[14.94%]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">11.03%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10.14% </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">8%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">39.00%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[14.94%]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">11.03%</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10.20%</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">The cost of any reverse mortgage loan depends on how long you keep the loan and how much your house appreciates in value. Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be. </p>
<p style="-uslm-sgm:P">This table shows the estimated cost of your reverse mortgage loan, expressed as an annual rate. It illustrates the cost for three [four] loan terms: 2 years, [half of life expectancy for someone your age,] that life expectancy, and 1.4 times that life expectancy. The table also shows the cost of the loan, assuming the value of your home appreciates at three different rates: 0%,4% and 8%. </p>
<p style="-uslm-sgm:P">The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not disposition costs—costs when you sell the home). </p>
<p style="-uslm-sgm:P">The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the interest rate on your mortgage changes.
<?page num="526"?></p>
<heading style="-uslm-sgm:HD1">Signing an Application or Receiving These Disclosures Does Not Require You To Complete This Loan </heading>
<source style="-uslm-sgm:CITA">[Reg. Z, <ref href="/us/fr/60/15474">60 FR 15474</ref>, <date date="1995-03-24">Mar. 24, 1995</date>, as amended at <ref href="/us/fr/60/50400">60 FR 50400</ref>, <date date="1995-09-29" role="amended">Sept. 29, 1995</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. L</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix L to Part 226—</num>
<heading style="-uslm-sgm:HED">Assumed Loan Periods for Computations of Total Annual Loan Cost Rates</heading>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Required tables.</inline> In calculating the total annual loan cost rates in accordance with appendix K of this part, creditors shall assume three loan periods, as determined by the following table. </p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan periods.</inline> (1) Loan Period 1 is a two-year loan period. </p>
<p style="-uslm-sgm:P">(2) Loan Period 2 is the life expectancy in years of the youngest borrower to become obligated on the reverse mortgage loan, as shown in the U.S. Decennial Life Tables for 1979–1981 for females, rounded to the nearest whole year. </p>
<p style="-uslm-sgm:P">(3) Loan Period 3 is the life expectancy figure in Loan Period 3, multiplied by 1.4 and rounded to the nearest full year (life expectancy figures at .5 have been rounded up to 1). </p>
<p style="-uslm-sgm:P">(4) At the creditor's option, an additional period may be included, which is the life expectancy figure in Loan Period 2, multiplied by .5 and rounded to the nearest full year (life expectancy figures at .5 have been rounded up to 1).</p>
<xhtml:table cols="5" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c5,L2,s50,10,10,10,10">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Age of youngest borrower </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Loan period 1 (in years) </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">[Optional loan period (in years)] </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Loan period 2 (life expectancy) (in years) </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Loan period 3 (in years) </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">62</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[11]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">21</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">29 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">63</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[10]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">20</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">28 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">64</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[10]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">19</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">27 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">65</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[9]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">18</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">25 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">66</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[9]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">18</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">25 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">67</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[9]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">17</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">24 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">68</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[8]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">16</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">22 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">69</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[8]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">16</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">22 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">70</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[8]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">15</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">21 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">71</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[7]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">14</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">20 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">72</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[7]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">13</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">18 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">73</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[7]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">13</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">18 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">74</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[6]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">12</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">17 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">75</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[6]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">12</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">17 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">76</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[6]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">11</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">15 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">77</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[5]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">14 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">78</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[5]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">14 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">79</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[5]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">13 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">80</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[5]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">13 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">81</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[4]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">11 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">82</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[4]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">11 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">83</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[4]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">84</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[4]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">85</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[3]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">86</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[3]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">87</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[3]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">8 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">88</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[3]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">89</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[3]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">90</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[3]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">91</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[2]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">4</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">92</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[2]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">4</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">93</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[2]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">4</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">94</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[2]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">4</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6 </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">95 and over</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">[2]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">4</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/60/15476">60 FR 15476</ref>, <date date="1995-03-24">Mar. 24, 1995</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. M1</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix M1 to Part 226—</num>
<heading style="-uslm-sgm:HED">Repayment Disclosures</heading>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definitions.</inline> (1) “Promotional terms” means terms of a cardholder's account that will expire in a fixed period of time, as set forth by the card issuer.</p>
<p style="-uslm-sgm:P">(2) “Deferred interest or similar plan” means a plan where a consumer will not be obligated to pay interest that accrues on balances or transactions if those balances or transactions are paid in full prior to the expiration of a specified period of time.</p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating minimum payment repayment estimates.</inline> (1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minimum payment formulas.</inline> When calculating the minimum payment repayment estimate, card issuers must use the minimum payment formula(s) that apply to a cardholder's account. If more than one <?page num="527"?>minimum payment formula applies to an account, the issuer must apply each minimum payment formula to the portion of the balance to which the formula applies. In this case, the issuer must disclose the longest repayment period calculated. For example, assume that an issuer uses one minimum payment formula to calculate the minimum payment amount for a general revolving feature, and another minimum payment formula to calculate the minimum payment amount for special purchases, such as a “club plan purchase.” Also, assume that based on a consumer's balances in these features and the annual percentage rates that apply to such features, the repayment period calculated pursuant to this Appendix for the general revolving feature is 5 years, while the repayment period calculated for the special purchase feature is 3 years. This issuer must disclose 5 years as the repayment period for the entire balance to the consumer. If any promotional terms related to payments apply to a cardholder's account, such as a deferred billing plan where minimum payments are not required for 12 months, card issuers may assume no promotional terms apply to the account. For example, assume that a promotional minimum payment of $10 applies to an account for six months, and then after the promotional period expires, the minimum payment is calculated as 2 percent of the outstanding balance on the account or $20 whichever is greater. An issuer may assume during the promotional period that the $10 promotional minimum payment does not apply, and instead calculate the minimum payment disclosures based on the minimum payment formula of 2 percent of the outstanding balance or $20, whichever is greater. Alternatively, during the promotional period, an issuer in calculating the minimum payment repayment estimate may apply the promotional minimum payment until it expires and then apply the minimum payment formula that applies after the promotional minimum payment expires. In the above example, an issuer could calculate the minimum payment repayment estimate during the promotional period by applying the $10 promotional minimum payment for the first six months and then applying the 2 percent or $20 (whichever is greater) minimum payment formula after the promotional minimum payment expires. In calculating the minimum payment repayment estimate during a promotional period, an issuer may not assume that the promotional minimum payment will apply until the outstanding balance is paid off by making only minimum payments (assuming the repayment estimate is longer than the promotional period). In the above example, the issuer may not calculate the minimum payment repayment estimate during the promotional period by assuming that the $10 promotional minimum payment will apply beyond the six months until the outstanding balance is repaid.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual percentage rate.</inline> When calculating the minimum payment repayment estimate, a card issuer must use the annual percentage rates that apply to a cardholder's account, based on the portion of the balance to which the rate applies. If any promotional terms related to annual percentage rates apply to a cardholder's account, other than deferred interest or similar plans, a card issuer in calculating the minimum payment repayment estimate during the promotional period must apply the promotional annual percentage rate(s) until it expires and then must apply the rate that applies after the promotional rate(s) expires. If the rate that applies after the promotional rate(s) expires is a variable rate, a card issuer must calculate that rate based on the applicable index or formula. This variable rate is accurate if it was in effect within the last 30 days before the minimum payment repayment estimate is provided. For deferred interest plans or similar plans, if minimum payments under the deferred interest or similar plan will repay the balances or transactions in full prior to the expiration of the specified period of time, a card issuer must assume that the consumer will not be obligated to pay the accrued interest. This means, in calculating the minimum payment repayment estimate, the card issuer must apply a zero percent annual percentage rate to the balance subject to the deferred interest or similar plan. If, however, minimum payments under the deferred interest plan or similar plan may not repay the balances or transactions in full prior to the expiration of the specified period of time, a card issuer must assume that a consumer will not repay the balances or transactions in full prior to the expiration of the specified period of time and thus the consumer will be obligated to pay the accrued interest. This means, in calculating the minimum payment repayment estimate, the card issuer must apply the annual percentage rate at which interest is accruing to the balance subject to the deferred interest or similar plan.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Beginning balance.</inline> When calculating the minimum payment repayment estimate, a card issuer must use as the beginning balance the outstanding balance on a consumer's account as of the closing date of the last billing cycle. When calculating the minimum payment repayment estimate, a card issuer may round the beginning balance as described above to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumptions.</inline> When calculating the minimum payment repayment estimate, a card issuer for each of the terms below, may either make the following assumption about that term, or use the account term that applies to a consumer's account.</p>
<p style="-uslm-sgm:P">(i) Only minimum monthly payments are made each month. In addition, minimum <?page num="528"?>monthly payments are made each month—for example, a debt cancellation or suspension agreement, or skip payment feature does not apply to the account.</p>
<p style="-uslm-sgm:P">(ii) No additional extensions of credit are obtained, such as new purchases, transactions, fees, charges or other activity. No refunds or rebates are given.</p>
<p style="-uslm-sgm:P">(iii) The annual percentage rate or rates that apply to a cardholder's account will not change, through either the operation of a variable rate or the change to a rate, except as provided in paragraph (b)(2) of this Appendix. For example, if a penalty annual percentage rate currently applies to a consumer's account, a card issuer may assume that the penalty annual percentage rate will apply to the consumer's account indefinitely, even if the consumer may potentially return to a non-penalty annual percentage rate in the future under the account agreement.</p>
<p style="-uslm-sgm:P">(iv) There is no grace period.</p>
<p style="-uslm-sgm:P">(v) The final payment pays the account in full (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> there is no residual finance charge after the final month in a series of payments).</p>
<p style="-uslm-sgm:P">(vi) The average daily balance method is used to calculate the balance.</p>
<p style="-uslm-sgm:P">(vii) All months are the same length and leap year is ignored. A monthly or daily periodic rate may be assumed. If a daily periodic rate is assumed, the issuer may either assume (1) a year is 365 days long, and all months are 30.41667 days long, or (2) a year is 360 days long, and all months are 30 days long.</p>
<p style="-uslm-sgm:P">(viii) Payments are credited either on the last day of the month or the last day of the billing cycle.</p>
<p style="-uslm-sgm:P">(ix) Payments are allocated to lower annual percentage rate balances before higher annual percentage rate balances.</p>
<p style="-uslm-sgm:P">(x) The account is not past due and the account balance does not exceed the credit limit.</p>
<p style="-uslm-sgm:P">(xi) When calculating the minimum payment repayment estimate, the assumed payments, current balance and interest charges for each month may be rounded to the nearest cent, as shown in Appendix M2 to this part.</p>
<p style="-uslm-sgm:P">(5) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tolerance.</inline> A minimum payment repayment estimate shall be considered accurate if it is not more than 2 months above or below the minimum payment repayment estimate determined in accordance with the guidance in this Appendix (prior to rounding described in <ref href="/us/cfr/t12/s226.7/b/12/i/B">§ 226.7(b)(12)(i)(B)</ref> and without use of the assumptions listed in paragraph (b)(4) of this Appendix to the extent a card issuer chooses instead to use the account terms that apply to a consumer's account). For example, assume the minimum payment repayment estimate calculated using the guidance in this Appendix is 28 months (2 years, 4 months), and the minimum payment repayment estimate calculated by the issuer is 30 months (2 years, 6 months). The minimum payment repayment estimate should be disclosed as 2 years, due to the rounding rule set forth in <ref href="/us/cfr/t12/s226.7/b/12/i/B">§ 226.7(b)(12)(i)(B)</ref>. Nonetheless, based on the 30-month estimate, the issuer disclosed 3 years, based on that rounding rule. The issuer would be in compliance with this guidance by disclosing 3 years, instead of 2 years, because the issuer's estimate is within the 2 months' tolerance, prior to rounding. In addition, even if an issuer's estimate is more than 2 months above or below the minimum payment repayment estimate calculated using the guidance in this Appendix, so long as the issuer discloses the correct number of years to the consumer based on the rounding rule set forth in <ref href="/us/cfr/t12/s226.7/b/12/i/B">§ 226.7(b)(12)(i)(B)</ref>, the issuer would be in compliance with this guidance. For example, assume the minimum payment repayment estimate calculated using the guidance in this Appendix is 32 months (2 years, 8 months), and the minimum payment repayment estimate calculated by the issuer is 38 months (3 years, 2 months). Under the rounding rule set forth in <ref href="/us/cfr/t12/s226.7/b/12/i/B">§ 226.7(b)(12)(i)(B)</ref>, both of these estimates would be rounded and disclosed to the consumer as 3 years. Thus, if the issuer disclosed 3 years to the consumer, the issuer would be in compliance with this guidance even though the minimum payment repayment estimate calculated by the issuer is outside the 2 months' tolerance amount.</p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating the minimum payment total cost estimate.</inline> When calculating the minimum payment total cost estimate, a card issuer must total the dollar amount of the interest and principal that the consumer would pay if he or she made minimum payments for the length of time calculated as the minimum payment repayment estimate under paragraph (b) of this Appendix. The minimum payment total cost estimate is deemed to be accurate if it is based on a minimum payment repayment estimate that is within the tolerance guidance set forth in paragraph (b)(5) of this Appendix. For example, assume the minimum payment repayment estimate calculated using the guidance in this Appendix is 28 months (2 years, 4 months), and the minimum payment repayment estimate calculated by the issuer is 30 months (2 years, 6 months). The minimum payment total cost estimate will be deemed accurate even if it is based on the 30 month estimate for length of repayment, because the issuer's minimum payment repayment estimate is within the 2 months' tolerance, prior to rounding. In addition, assume the minimum payment repayment estimate calculated under this Appendix is 32 months (2 years, 8 months), and the minimum payment repayment estimate calculated by the issuer is 38 months (3 years, 2 months). Under the rounding rule set forth in <ref href="/us/cfr/t12/s226.7/b/12/i/B">§ 226.7(b)(12)(i)(B)</ref>, both of these estimates <?page num="529"?>would be rounded and disclosed to the consumer as 3 years. If the issuer based the minimum payment total cost estimate on 38 months (or any other minimum payment repayment estimate that would be rounded to 3 years), the minimum payment total cost estimate would be deemed to be accurate.</p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating the estimated monthly payment for repayment in 36 months.</inline> (1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> When calculating the estimated monthly payment for repayment in 36 months, a card issuer must calculate the estimated monthly payment amount that would be required to pay off the outstanding balance shown on the statement within 36 months, assuming the consumer paid the same amount each month for 36 months.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Weighted annual percentage rate.</inline> In calculating the estimated monthly payment for repayment in 36 months, an issuer may use a weighted annual percentage rate that is based on the annual percentage rates that apply to a cardholder's account and the portion of the balance to which the rate applies, as shown in Appendix M2 to this part. If a card issuer uses a weighted annual percentage rate and any promotional terms related to annual percentage rates apply to a cardholder's account, other than deferred interest plans or similar plans, in calculating the weighted annual percentage rate, the issuer must calculate a weighted average of the promotional rate and the rate that will apply after the promotional rate expires based on the percentage of 36 months each rate will apply, as shown in Appendix M2 to this part. For deferred interest plans or similar plans, if minimum payments under the deferred interest or similar plan will repay the balances or transactions in full prior to the expiration of the specified period of time, if a card issuer uses a weighted annual percentage rate, the card issuer must assume that the consumer will not be obligated to pay the accrued interest. This means, in calculating the weighted annual percentage rate, the card issuer must apply a zero percent annual percentage rate to the balance subject to the deferred interest or similar plan. If, however, minimum payments under the deferred interest plan or similar plan may not repay the balances or transactions in full prior to the expiration of the specified period of time, a card issuer in calculating the weighted annual percentage rate must assume that a consumer will not repay the balances or transactions in full prior to the expiration of the specified period of time and thus the consumer will be obligated to pay the accrued interest. This means, in calculating the weighted annual percentage rate, the card issuer must apply the annual percentage rate at which interest is accruing to the balance subject to the deferred interest or similar plan. A card issuer may use a method of calculating the estimated monthly payment for repayment in 36 months other than a weighted annual percentage rate, so long as the calculation results in the same payment amount each month and so long as the total of the payments would pay off the outstanding balance shown on the periodic statement within 36 months.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumptions.</inline> In calculating the estimated monthly payment for repayment in 36 months, a card issuer must use the same terms described in paragraph (b) of this Appendix, as appropriate.</p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tolerance.</inline> An estimated monthly payment for repayment in 36 months shall be considered accurate if it is not more than 10 percent above or below the estimated monthly payment for repayment in 36 months determined in accordance with the guidance in this Appendix (after rounding described in <ref href="/us/cfr/t12/s226.7/b/12/i/F">§ 226.7(b)(12)(i)(F)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i</inline>)).</p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating the total cost estimate for repayment in 36 months.</inline> When calculating the total cost estimate for repayment in 36 months, a card issuer must total the dollar amount of the interest and principal that the consumer would pay if he or she made the estimated monthly payment calculated under paragraph (d) of this appendix each month for 36 months. The total cost estimate for repayment in 36 months shall be considered accurate if it is based on the estimated monthly payment for repayment in 36 months that is calculated in accordance with paragraph (d) of this appendix.</p>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating the savings estimate for repayment in 36 months.</inline> When calculating the savings estimate for repayment in 36 months, if a card issuer chooses under <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> to round the disclosures to the nearest whole dollar when disclosing them on the periodic statement, the card issuer must calculate the savings estimate for repayment in 36 months by subtracting the total cost estimate for repayment in 36 months calculated under paragraph (e) of this appendix (rounded to the nearest whole dollar) from the minimum payment total cost estimate calculated under paragraph (c) of this appendix (rounded to the nearest whole dollar). If a card issuer chooses under <ref href="/us/cfr/t12/s227.7/b/12/i">§ 227.7(b)(12)(i)</ref>, however, to round the disclosures to the nearest cent when disclosing them on the periodic statement, the card issuer must calculate the savings estimate for repayment in 36 months by subtracting the total cost estimate for repayment in 36 months calculated under paragraph (e) of this appendix (rounded to the nearest cent) from the minimum payment total cost estimate calculated under paragraph (c) of this appendix (rounded to the nearest cent). The savings estimate for repayment in 36 months shall be considered accurate if it is based on the total cost estimate for repayment in 36 months that is calculated in accordance with paragraph (e) of this appendix and the minimum payment <?page num="530"?>total cost estimate calculated under paragraph (c) of this appendix.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7846">75 FR 7846</ref>, <date date="2010-02-22">Feb. 22, 2010</date>, as amended at <ref href="/us/fr/76/23004">76 FR 23004</ref>, <date date="2011-04-25" role="amended">Apr. 25, 2011</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. M2</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix M2 to Part 226—</num>
<heading style="-uslm-sgm:HED">Sample Calculations of Repayment Disclosures</heading>
<p style="-uslm-sgm:P">The following is an example of how to calculate the minimum payment repayment estimate, the minimum payment total cost estimate, the estimated monthly payment for repayment in 36 months, the total cost estimate for repayment in 36 months, and the savings estimate for repayment in 36 months using the guidance in Appendix M1 to this part where three annual percentage rates apply (where one of the rates is a promotional APR), the total outstanding balance is $1000, and the minimum payment formula is 2 percent of the outstanding balance or $20, whichever is greater. The following calculation is written in SAS code.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">data one;</p>
<p style="-uslm-sgm:FP-2">/*</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Note:</inline> pmt01 = estimated monthly payment to repay balance in 36 months sumpmts36 = sum of payments for repayment in 36 months</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">month = number of months to repay total balance if making only minimum payments</p>
<p style="-uslm-sgm:FP-2">pmt = minimum monthly payment</p>
<p style="-uslm-sgm:FP-2">fc = monthly finance charge</p>
<p style="-uslm-sgm:FP-2">sumpmts = sum of payments for minimum payments</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">*/</p>
<p style="-uslm-sgm:FP-2">* inputs;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* annual percentage rates; apr1 = 0.0; apr2 = 0.17; apr3 = 0.21; * insert in ascending order;</p>
<p style="-uslm-sgm:FP-2">* outstanding balances; cbal1 = 500; cbal2 = 250; cbal3 = 250;</p>
<p style="-uslm-sgm:FP-2">* dollar minimum payment; dmin = 20;</p>
<p style="-uslm-sgm:FP-2">* percent minimum payment; pmin = 0.02; * (0.02 + perrate);</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* promotional rate information;</p>
<p style="-uslm-sgm:FP-2">* last month for promotional rate; expm = 6; * = 0 if no promotional rate;</p>
<p style="-uslm-sgm:FP-2">* regular rate; rrate = .17; * = 0 if no promotional rate;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">array apr(3); array perrate(3);</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">days = 365/12; * calculate days in month;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* calculate estimated monthly payment to pay off balances in 36 months, and total cost of repaying balance in 36 months;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">array xperrate(3);</p>
<p style="-uslm-sgm:FP-2">do I = 1 to 3;</p>
<p style="-uslm-sgm:FP-2">xperrate(I) = (apr(I)/365)*days; * calculate periodic rate;</p>
<p style="-uslm-sgm:FP-2">end;</p>
<p style="-uslm-sgm:FP-2">if expm gt 0 then xperrate1a = (expm/36) * xperrate1 + (1 - (expm/36)) * (rrate/365) * days; else xperrate1a = xperrate1;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">tbal = cbal1 + cbal2 + cbal3;</p>
<p style="-uslm-sgm:FP-2">perrate36 = (cbal1 * xperrate1a + cbal2 * xperrate2 + cbal3 * xperrate3) / (cbal1 + cbal2 + cbal3);</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* months to repay; dmonths = 36;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* initialize counters for sum of payments for repayment in 36 months; Sumpmts36 = 0;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">pvaf = (1 - (1 + perrate36) ** -dmonths) / perrate36; * calculate present value of annuity factor;</p>
<p style="-uslm-sgm:FP-2">pmt01 = round(tbal/pvaf,0.01); * calculate monthly payment for designated number of months;</p>
<p style="-uslm-sgm:FP-2">sumpmts36 = pmt01 * 36;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* calculate time to repay and total cost of making minimum payments each month;</p>
<p style="-uslm-sgm:FP-2">* initialize counter for months, and sum of payments;</p>
<p style="-uslm-sgm:FP-2">month = 0;</p>
<p style="-uslm-sgm:FP-2">sumpmts = 0;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">do I = 1 to 3;</p>
<p style="-uslm-sgm:FP-2">perrate(I) = (apr(I) / 365) * days; * calculate periodic rate;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">end;</p>
<p style="-uslm-sgm:FP-2">put perrate1 = perrate2 = perrate3 = ;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">eins:</p>
<p style="-uslm-sgm:FP-2">month = month + 1; * increment month counter;</p>
<p style="-uslm-sgm:FP-2">pmt = round(pmin*tbal,0.01); * calculate payment as percentage of balance;</p>
<p style="-uslm-sgm:FP-2">if month ge expm and expm ne 0 then perrate1 = (rrate / 365) * days;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">if pmt lt dmin then pmt = dmin; * set dollar minimum payment;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">array xxxbal(3); array cbal(3);</p>
<p style="-uslm-sgm:FP-2">do I = 1 to 3;</p>
<p style="-uslm-sgm:FP-2">xxxbal(I) = round(cbal(I) * (1 + perrate(I)),0.01);</p>
<p style="-uslm-sgm:FP-2">end;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">fc = xxxbal1 + xxxbal2 + xxxbal3 − tbal;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">if pmt gt (tbal + fc) then do;</p>
<p style="-uslm-sgm:FP-2">do I = 1 to 3;</p>
<p style="-uslm-sgm:FP-2">if cbal(I) gt 0 then pmt = round(cbal(I) * (1 + perrate(I)),0.01); * set final payment amount;</p>
<p style="-uslm-sgm:FP-2">end;</p>
<p style="-uslm-sgm:FP-2">end;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">if pmt le xxxbal1 then do;</p>
<p style="-uslm-sgm:FP-2">cbal1 = xxxbal1 − pmt;</p>
<p style="-uslm-sgm:FP-2">cbal2 = xxxbal2;</p>
<p style="-uslm-sgm:FP-2">cbal3 = xxxbal3;</p>
<p style="-uslm-sgm:FP-2">end;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">if pmt gt xxxbal1 and xxxbal2 gt 0 and pmt le (xxxbal1 + xxxbal2) then do;</p>
<p style="-uslm-sgm:FP-2">cbal2 = xxxbal2 − (pmt − xxxbal1);</p>
<p style="-uslm-sgm:FP-2">cbal1 = 0;</p>
<p style="-uslm-sgm:FP-2">cbal3 = xxxbal3;</p>
<p style="-uslm-sgm:FP-2">end;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">if pmt gt xxxbal2 and xxxbal3 gt 0 then do;
<?page num="531"?></p>
<p style="-uslm-sgm:FP-2">cbal3 = xxxbal3 − (pmt − xxxbal1 − xxxbal2);</p>
<p style="-uslm-sgm:FP-2">cbal2 = 0;</p>
<p style="-uslm-sgm:FP-2">end;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">sumpmts = sumpmts + pmt; * increment sum of payments;</p>
<p style="-uslm-sgm:FP-2">tbal = cbal1 + cbal2 + cbal3; * calculate new total balance;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* print month, balance, payment amount, and finance charge;</p>
<p style="-uslm-sgm:FP-2">put month = tbal = cbal1 = cbal2 = cbal3 = pmt = fc = ;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">if tbal gt 0 then go to eins; * go to next month if balance is greater than zero;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* initialize total cost savings;</p>
<p style="-uslm-sgm:FP-2">savtot = 0;</p>
<p style="-uslm-sgm:FP-2">savtot = round(sumpmts,1) − round (sumpmts36,1);</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">* print number of months to repay debt if minimum payments made, final balance (zero), total cost if minimum payments made, estimated monthly payment for repayment in 36 months, total cost for repayment in 36 months, and total savings if repaid in 36 months;</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-2">put title = ‘ ’;</p>
<p style="-uslm-sgm:FP-2">put title = ‘number of months to repay debt if minimum payment made, final balance, total cost if minimum payments made, estimated monthly payment for repayment in 36 months, total cost for repayment in 36 months, and total savings if repaid in 36 months’;</p>
<p style="-uslm-sgm:FP-2">put month = tbal = sumpmts = pmt01 = sumpmts36 = savto t =;</p>
<p style="-uslm-sgm:FP-2">put title = ‘ ’; </p>
<p style="-uslm-sgm:FP-2">run;</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/75/7846">75 FR 7846</ref>, <date date="2010-02-22">Feb. 22, 2010</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. N</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix N to Part 226—</num>
<heading style="-uslm-sgm:HED">Higher-Priced Mortgage Loan Appraisal Safe Harbor Review</heading>
<p style="-uslm-sgm:P">To qualify for the safe harbor provided in <ref href="/us/cfr/t12/s226.43/c/2">§ 226.43(c)(2)</ref>, a creditor must confirm that the written appraisal:</p>
<p style="-uslm-sgm:P">1. Identifies the creditor who ordered the appraisal and the property and the interest being appraised.</p>
<p style="-uslm-sgm:P">2. Indicates whether the contract price was analyzed.</p>
<p style="-uslm-sgm:P">3. Addresses conditions in the property's neighborhood.</p>
<p style="-uslm-sgm:P">4. Addresses the condition of the property and any improvements to the property.</p>
<p style="-uslm-sgm:P">5. Indicates which valuation approaches were used, and includes a reconciliation if more than one valuation approach was used.</p>
<p style="-uslm-sgm:P">6. Provides an opinion of the property's market value and an effective date for the opinion.</p>
<p style="-uslm-sgm:P">7. Indicates that a physical property visit of the interior of the property was performed, as applicable.</p>
<p style="-uslm-sgm:P">8. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of the Uniform Standards of Professional Appraisal Practice.</p>
<p style="-uslm-sgm:P">9. Includes a certification signed by the appraiser that the appraisal was prepared in accordance with the requirements of title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended (<ref href="/us/usc/t12/s3331">12 U.S.C. 3331</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), and any implementing regulations.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/78/10439">78 FR 10439</ref>, <date date="2013-02-13">Feb. 13, 2013</date>, as amended at <ref href="/us/fr/78/78583">78 FR 78583</ref>, <date date="2013-12-26" role="amended">Dec. 26, 2013</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, App. O</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix O to Part 226—</num>
<heading style="-uslm-sgm:HED">Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules</heading>
<p style="-uslm-sgm:P">A creditor acts with reasonable diligence under <ref href="/us/cfr/t12/s226.43/d/6/i">§ 226.43(d)(6)(i)</ref> if the creditor bases its determination on information contained in written source documents, such as:</p>
<p style="-uslm-sgm:P">1. A copy of the recorded deed from the seller.</p>
<p style="-uslm-sgm:P">2. A copy of a property tax bill.</p>
<p style="-uslm-sgm:P">3. A copy of any owner's title insurance policy obtained by the seller.</p>
<p style="-uslm-sgm:P">4. A copy of the RESPA settlement statement from the seller's acquisition (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the HUD–1 or any successor form).</p>
<p style="-uslm-sgm:P">5. A property sales history report or title report from a third-party reporting service.</p>
<p style="-uslm-sgm:P">6. Sales price data recorded in multiple listing services.</p>
<p style="-uslm-sgm:P">7. Tax assessment records or transfer tax records obtained from local governments.</p>
<p style="-uslm-sgm:P">8. A written appraisal performed in compliance with <ref href="/us/cfr/t12/s226.43/c/1">§ 226.43(c)(1)</ref> for the same transaction.</p>
<p style="-uslm-sgm:P">9. A copy of a title commitment report detailing the seller's ownership of the property, the date it was acquired, or the price at which the seller acquired the property.</p>
<p style="-uslm-sgm:P">10. A property abstract. </p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/78/10439">78 FR 10439</ref>, <date date="2013-02-13">Feb. 13, 2013</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 226, Supp. I</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Supplement I to Part 226—</num>
<heading style="-uslm-sgm:HED">Official Staff Interpretations
</heading>
<heading style="-uslm-sgm:HD2">Introduction</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Official status.</inline> This commentary is the vehicle by which the staff of the Division of Consumer and Community Affairs of the Federal Reserve Board issues official staff interpretations of Regulation Z. Good faith compliance with this commentary affords protection from liability under 130(f) of the Truth in Lending Act. Section 130(f) (<ref href="/us/usc/t15/s1640">15 U.S.C. 1640</ref>) protects creditors from civil liability for any act done or omitted in good faith in conformity with any interpretation issued by a duly authorized official or employee of the Federal Reserve System.
<?page num="532"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Procedure for requesting interpretations.</inline> Under appendix C of the regulation, anyone may request an official staff interpretation. Interpretations that are adopted will be incorporated in this commentary following publication in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register.</inline> No official staff interpretations are expected to be issued other than by means of this commentary.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rules of construction.</inline> (a) Lists that appear in the commentary may be exhaustive or illustrative; the appropriate construction should be clear from the context. In most cases, illustrative lists are introduced by phrases such as “including, but not limited to,” “among other things,” “for example,” or “such as.”</p>
<p style="-uslm-sgm:P">(b) Throughout the commentary, reference to “this section” or “this paragraph” means the section or paragraph in the regulation that is the subject of the comment.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Comment designations.</inline> Each comment in the commentary is identified by a number and the regulatory section or paragraph which it interprets. The comments are designated with as much specificity as possible according to the particular regulatory provision addressed. For example, some of the comments to <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref> are further divided by subparagraph, such as comment 18(b)(1)–1 and comment 18(b)(2)–1. In other cases, comments have more general application and are designated, for example, as comment 18–1 or comment 18(b)–1. This introduction may be cited as comments I–1 through I–4. Comments to the appendices may be cited, for example, as comment app. A–1.</p>
<heading style="-uslm-sgm:HD1">Subpart A—General</heading>
<heading style="-uslm-sgm:HD2">Section 226.1—Authority, Purpose, Coverage, Organization, Enforcement and Liability</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1(c) Coverage.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign applicability.</inline> Regulation Z applies to all persons (including branches of foreign banks and sellers located in the United States) that extend consumer credit to residents (including resident aliens) of any state as defined in <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>. If an account is located in the United States and credit is extended to a U.S. resident, the transaction is subject to the regulation. This will be the case whether or not a particular advance or purchase on the account takes place in the United States and whether or not the extender of credit is chartered or based in the United States or a foreign country. For example, if a U.S. resident has a credit card account located in the consumer's state issued by a bank (whether U.S. or foreign-based), the account is covered by the regulation, including extensions of credit under the account that occur outside the United States. In contrast, if a U.S. resident residing or visiting abroad, or a foreign national abroad, opens a credit card account issued by a foreign branch of a U.S. bank, the account is not covered by the regulation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1(d) Organization.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 1(d)(1).</inline>
</p>
<p style="-uslm-sgm:P" role="reserved">1. [Reserved]</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 1(d)(2).</inline>
</p>
<p style="-uslm-sgm:P" role="reserved">1. [Reserved]</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 1(d)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective date.</inline> The Board's amendments to Regulation Z published on <date date="2009-05-19">May 19, 2009</date> apply to covered loans (including refinance loans and assumptions considered new transactions under <ref href="/us/cfr/t12/s226.20">§ 226.20</ref>) for which the creditor receives an application on or after <date date="2009-07-30">July 30, 2009</date>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 1(d)(4).</inline>
</p>
<p style="-uslm-sgm:P" role="reserved">1. [Reserved]</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 1(d)(5).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective dates.</inline>
</p>
<p style="-uslm-sgm:P">i. The Board's revisions published on <date date="2008-07-30">July 30, 2008</date> (the “final rules”) apply to covered loans (including refinance loans and assumptions considered new transactions under <ref href="/us/cfr/t12/s226.20">§ 226.20</ref>) for which the creditor receives an application on or after <date date="2009-10-01">October 1, 2009</date>, except for the final rules on advertising, escrows, and loan servicing. But see comment 1(d)(3)–1. The final rules on escrow in <ref href="/us/cfr/t12/s226.35/b/3">§ 226.35(b)(3)</ref> are effective for covered loans (including refinancings and assumptions in <ref href="/us/cfr/t12/s226.20">§ 226.20</ref>) for which the creditor receives an application on or after <date date="2010-04-01">April 1, 2010</date>; but for such loans secured by manufactured housing on or after <date date="2010-10-01">October 1, 2010</date>. The final rules applicable to servicers in <ref href="/us/cfr/t12/s226.36/c">§ 226.36(c)</ref> apply to all covered loans serviced on or after <date date="2009-10-01">October 1, 2009</date>. The final rules on advertising apply to advertisements occurring on or after <date date="2009-10-01">October 1, 2009</date>. For example, a radio ad occurs on the date it is first broadcast; a solicitation occurs on the date it is mailed to the consumer. The following examples illustrate the application of the effective dates for the final rules.</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A refinancing or assumption as defined in <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref> or (b) is a new transaction and is covered by a provision of the final rules if the creditor receives an application for the transaction on or after that provision's effective date. For example, if a creditor receives an application for a refinance loan covered by <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref> on or after <date date="2009-10-01">October 1, 2009</date>, and the refinance loan is consummated on <date date="2009-10-15">October 15, 2009</date>, the provision restricting prepayment penalties in <ref href="/us/cfr/t12/s226.35/b/2">§ 226.35(b)(2)</ref> applies. However, if the transaction were a modification of an existing obligation's terms that does not constitute a refinance loan under <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref>, the final rules, including for example the restriction on prepayment penalties, would not apply.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrows.</inline> Assume a consumer applies for a refinance loan to be secured by a dwelling (that is not a manufactured home) on <date date="2010-03-15">March 15, 2010</date>, and the loan is consummated on <date date="2010-04-02">April 2, 2010</date>. The escrow rule in <ref href="/us/cfr/t12/s226.35/b/3">§ 226.35(b)(3)</ref> does not apply.
<?page num="533"?></p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Servicing.</inline> Assume that a consumer applies for a new loan on <date date="2009-08-01">August 1, 2009</date>. The loan is consummated on <date date="2009-09-01">September 1, 2009</date>. The servicing rules in <ref href="/us/cfr/t12/s226.36/c">§ 226.36(c)</ref> apply to the servicing of that loan as of <date date="2009-10-01">October 1, 2009</date>.</p>
<p style="-uslm-sgm:P">(ii) The interim final rule on appraisal independence in <ref href="/us/cfr/t12/s226.42">§ 226.42</ref> published on <date date="2010-10-28">October 28, 2010</date> is mandatory on <date date="2011-04-01">April 1, 2011</date>, for open- and closed-end extensions of consumer credit secured by the consumer's principal dwelling. Section 226.36(b), which is substantially similar to <ref href="/us/cfr/t12/s226.42/b">§ 226.42(b)</ref> and (e), is removed effective <date date="2011-04-01">April 1, 2011</date>. Applications for closed-end extensions of credit secured by the consumer's principal dwelling that are received by creditors before <date date="2011-04-01">April 1, 2011</date>, are subject to <ref href="/us/cfr/t12/s226.36/b">§ 226.36(b)</ref> regardless of the date on which the transaction is consummated. However, parties subject to <ref href="/us/cfr/t12/s226.36/b">§ 226.36(b)</ref> may, at their option, choose to comply with <ref href="/us/cfr/t12/s226.42">§ 226.42</ref> instead of <ref href="/us/cfr/t12/s226.36/b">§ 226.36(b)</ref>, for applications received before <date date="2011-04-01">April 1, 2011</date>. Thus, an application for a closed-end extension of credit secured by the consumer's principal dwelling that is received by a creditor on <date date="2011-03-20">March 20, 2011</date>, and consummated on <date date="2011-05-01">May 1, 2011</date>, is subject to <ref href="/us/cfr/t12/s226.36/b">§ 226.36(b)</ref>, however, the creditor may choose to comply with <ref href="/us/cfr/t12/s226.42">§ 226.42</ref> instead. For an application for open- or closed-end credit secured by the consumer's principal dwelling that is received on or after <date date="2011-04-01">April 1, 2011</date>, the creditor must comply with <ref href="/us/cfr/t12/s226.42">§ 226.42</ref>.</p>
<p style="-uslm-sgm:P">iii. The final rule revising escrow requirements under <ref href="/us/cfr/t12/s226.35/b/3">§ 226.35(b)(3)</ref> published on <date date="2011-03-02">March 2, 2011</date> applies to certain closed-end extensions of consumer credit secured by the consumer's principal dwelling. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref>. Covered transactions for which an application is received by a creditor on or after <date date="2011-04-01">April 1, 2011</date> are subject to <ref href="/us/cfr/t12/s226.35/b/3">§ 226.35(b)(3)</ref>, as revised.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 1(d)(6).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mandatory compliance dates.</inline> Compliance with the Board's revisions to Regulation Z published on <date date="2009-08-14">August 14, 2009</date> is mandatory for private education loans for which the creditor receives an application on or after <date date="2010-02-14">February 14, 2010</date>. Compliance with the final rules on co-branding in § <ref href="/us/cfr/t12/s226.48/a">§ 226.48(a)</ref> and (b) is mandatory for marketing occurring on or after <date date="2010-02-14">February 14, 2010</date>. Compliance with the final rules is optional for private education loan transactions for which an application was received prior to <date date="2010-02-14">February 14, 2010</date>, even if consummated after the mandatory compliance date.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Optional compliance.</inline> A creditor may, at its option, provide the approval and final disclosures required under <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> or (c) for private education loans where an application was received prior to the mandatory compliance date. If the creditor opts to provide the disclosures, the creditor must also comply with the applicable timing and other rules in <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref> and 226.48 (including providing the consumer with the 30-day acceptance period under <ref href="/us/cfr/t12/s226.48/c">§ 226.48(c)</ref>, and the right to cancel under <ref href="/us/cfr/t12/s226.48/d">§ 226.48(d)</ref>). For example if the creditor receives an application on <date date="2010-01-25">January 25, 2010</date> and approves the consumer's application on or after <date date="2010-02-14">February 14, 2010</date>, the creditor may, at its option, provide the approval disclosures under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref>, the final disclosures under <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref> and comply with the applicable requirements <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref> and 226.48. The creditor must also obtain the self-certification form as required in <ref href="/us/cfr/t12/s226.48/e">§ 226.48(e)</ref>, if applicable. Or, for example, if the creditor receives an application on <date date="2010-01-25">January 25, 2010</date> and approves the consumer's application before <date date="2010-02-14">February 14, 2010</date>, the creditor may, at its option, provide the final disclosure under <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref> and comply with the applicable timing and other requirements of <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref> and 226.48, including providing the consumer with the right to cancel under <ref href="/us/cfr/t12/s226.48/d">§ 226.48(d)</ref>. The creditor must also obtain the self-certification form as required in <ref href="/us/cfr/t12/s226.48/e">§ 226.48(e)</ref>, if applicable.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 1(d)(7).</inline>
</p>
<p style="-uslm-sgm:P" role="reserved">1. [Reserved]</p>
<heading style="-uslm-sgm:HD2">Section 226.2—Definitions and Rules of Construction</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(2) Advertisement.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> Only commercial messages that promote consumer credit transactions requiring disclosures are advertisements. Messages inviting, offering, or otherwise announcing generally to prospective customers the availability of credit transactions, whether in visual, oral, or print media, are covered by Regulation Z (<ref href="/us/cfr/t12/p226">12 CFR part 226</ref>).</p>
<p style="-uslm-sgm:P">i. Examples include:</p>
<p style="-uslm-sgm:P">A. Messages in a newspaper, magazine, leaflet, promotional flyer, or catalog.</p>
<p style="-uslm-sgm:P">B. Announcements on radio, television, or public address system.</p>
<p style="-uslm-sgm:P">C. Electronic advertisements, such as on the Internet.</p>
<p style="-uslm-sgm:P">D. Direct mail literature or other printed material on any exterior or interior sign.</p>
<p style="-uslm-sgm:P">E. Point of sale displays.</p>
<p style="-uslm-sgm:P">F. Telephone solicitations.</p>
<p style="-uslm-sgm:P">G. Price tags that contain credit information.</p>
<p style="-uslm-sgm:P">H. Letters sent to customers or potential customers as part of an organized solicitation of business.</p>
<p style="-uslm-sgm:P">I. Messages on checking account statements offering auto loans at a stated annual percentage rate.</p>
<p style="-uslm-sgm:P">J. Communications promoting a new open-end plan or closed-end transaction.</p>
<p style="-uslm-sgm:P">ii. The term does not include:</p>
<p style="-uslm-sgm:P">A. Direct personal contacts, such as follow-up letters, cost estimates for individual consumers, or oral or written communication relating to the negotiation of a specific transaction.</p>
<p style="-uslm-sgm:P">B. Informational material, for example, interest-rate and loan-term memos, distributed only to business entities.
<?page num="534"?></p>
<p style="-uslm-sgm:P">C. Notices required by federal or state law, if the law mandates that specific information be displayed and only the information so mandated is included in the notice.</p>
<p style="-uslm-sgm:P">D. News articles the use of which is controlled by the news medium.</p>
<p style="-uslm-sgm:P">E. Market-research or educational materials that do not solicit business.</p>
<p style="-uslm-sgm:P">F. Communications about an existing credit account (for example, a promotion encouraging additional or different uses of an existing credit card account).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Persons covered.</inline> All <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">persons</inline> must comply with the advertising provisions in <ref href="/us/cfr/t12/s226.16">§§ 226.16</ref> and 226.24, not just those that meet the definition of creditor in <ref href="/us/cfr/t12/s226.2/a/17">§ 226.2(a)(17)</ref>. Thus, home builders, merchants, and others who are not themselves creditors must comply with the advertising provisions of the regulation if they advertise consumer credit transactions. However, under section 145 of the act, the owner and the personnel of the medium in which an advertisement appears, or through which it is disseminated, are not subject to civil liability for violations.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(3) Reserved.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(4) Billing cycle or cycle.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intervals.</inline> In open-end credit plans, the billing cycle determines the intervals for which periodic disclosure statements are required; these intervals are also used as measuring points for other duties of the creditor. Typically, billing cycles are monthly, but they may be more frequent or less frequent (but not less frequent than quarterly).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditors that do not bill.</inline> The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">cycle</inline> is interchangeable with <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">billing cycle</inline> for definitional purposes, since some creditors' cycles do not involve the sending of bills in the traditional sense but only statements of account activity. This is commonly the case with financial institutions when periodic payments are made through payroll deduction or through automatic debit of the consumer's asset account.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Equal cycles.</inline> Although cycles must be equal, there is a permissible variance to account for weekends, holidays, and differences in the number of days in months. If the actual date of each statement does not vary by more than four days from a fixed “day” (for example, the third Thursday of each month) or “date” (for example, the 15th of each month) that the creditor regularly uses, the intervals between statements are considered equal. The requirement that cycles be equal applies even if the creditor applies a daily periodic rate to determine the finance charge. The requirement that intervals be equal does not apply to the first billing cycle on an open-end account (i.e., the time period between account opening and the generation of the first periodic statement) or to a transitional billing cycle that can occur if the creditor occasionally changes its billing cycles so as to establish a new statement day or date. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 9(c)(1)–3 and 9(c)(2)–3.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment reminder.</inline> The sending of a regular payment reminder (rather than a late payment notice) establishes a cycle for which the creditor must send periodic statements.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(6) Business day.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business function test.</inline> Activities that indicate that the creditor is open for substantially all of its business functions include the availability of personnel to make loan disbursements, to open new accounts, and to handle credit transaction inquiries. Activities that indicate that the creditor is not open for substantially all of its business functions include a retailer's merely accepting credit cards for purchases or a bank's having its customer-service windows open only for limited purposes such as deposits and withdrawals, bill paying, and related services.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rule for rescission, disclosures for certain mortgage transactions, and private education loans.</inline> A more precise rule for what is a business day (all calendar days except Sundays and the Federal legal holidays specified in <ref href="/us/usc/t5/s6103/a">5 U.S.C. 6103(a)</ref>) applies when the right of rescission, the receipt of disclosures for certain dwelling-secured mortgage transactions under <ref href="/us/cfr/t12/s226.19/a/1/ii">§§ 226.19(a)(1)(ii)</ref>, 226.19(a)(2), 226.31(c), or the receipt of disclosures for private education loans under <ref href="/us/cfr/t12/s226.46/d/4">§ 226.46(d)(4)</ref> is involved. Four Federal legal holidays are identified in <ref href="/us/usc/t5/s6103/a">5 U.S.C. 6103(a)</ref> by a specific date: New Year's Day, January 1; Independence Day, July 4; Veterans Day, November 11; and Christmas Day, December 25. When one of these holidays (July 4, for example) falls on a Saturday, Federal offices and other entities might observe the holiday on the preceding Friday (July 3). In cases where the more precise rule applies, the observed holiday (in the example, July 3) is a business day.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(7) Card issuer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agent.</inline> An agent of a card issuer is considered a card issuer. Because agency relationships are traditionally defined by contract and by state or other applicable law, the regulation does not define agent. Merely providing services relating to the production of credit cards or data processing for others, however, does not make one the agent of the card issuer. In contrast, a financial institution may become the agent of the card issuer if an agreement between the institution and the card issuer provides that the cardholder may use a line of credit with the financial institution to pay obligations incurred by use of the credit card.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(8) Cardholder.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> A cardholder is a natural person at whose request a card is issued for consumer credit purposes or who is a co-obligor or guarantor for such a card issued to another. The second category does not include an employee who is a co-obligor or guarantor <?page num="535"?>on a card issued to the employer for business purposes, nor does it include a person who is merely the authorized user of a card issued to another.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limited application of regulation.</inline> For the limited purposes of the rules on issuance of credit cards and liability for unauthorized use, a cardholder includes <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any</inline> person, including an organization, to whom a card is issued for <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any</inline> purpose—including a business, agricultural, or commercial purpose.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Issuance.</inline> See the commentary to <ref href="/us/cfr/t12/s226.12/a">§ 226.12(a)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Dual-purpose cards and dual-card systems.</inline> Some card issuers offer dual-purpose cards that are for business as well as consumer purposes. If a card is issued to an individual for consumer purposes, the fact that an organization has guaranteed to pay the debt does not make it business credit. On the other hand, if a card is issued for business purposes, the fact that an individual sometimes uses it for consumer purchases does not subject the card issuer to the provisions on periodic statements, billing-error resolution, and other protections afforded to consumer credit. Some card issuers offer dual-card systems—that is, they issue two cards to the same individual, one intended for business use, the other for consumer or personal use. With such a system, the same person may be a cardholder for general purposes when using the card issued for consumer use, and a cardholder only for the limited purposes of the restrictions on issuance and liability when using the card issued for business purposes.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(9) Cash price.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Components.</inline> This amount is a starting point in computing the amount financed and the total sale price under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> for credit sales. Any charges imposed equally in cash and credit transactions may be included in the cash price, or they may be treated as other amounts financed under <ref href="/us/cfr/t12/s226.18/b/2">§ 226.18(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Service contracts.</inline> Service contracts include contracts for the repair or the servicing of goods, such as mechanical breakdown coverage, even if such a contract is characterized as insurance under state law.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rebates.</inline> The creditor has complete flexibility in the way it treats rebates for purposes of disclosure and calculation. (See the commentary to <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref>.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(10) Closed-end credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The coverage of this term is defined by exclusion. That is, it includes any credit arrangement that does not fall within the definition of open-end credit. Subpart C contains the disclosure rules for closed-end credit when the obligation is subject to a finance charge or is payable by written agreement in more than four installments.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(11) Consumer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope.</inline> Guarantors, endorsers, and sureties are not generally consumers for purposes of the regulation, but they may be entitled to rescind under certain circumstances and they may have certain rights if they are obligated on credit card plans.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rescission rules.</inline> For purposes of rescission under <ref href="/us/cfr/t12/s226.15">§§ 226.15</ref> and 226.23, a consumer includes any natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss. Thus, if a security interest is taken in A's ownership interest in a house and that house is A's principal dwelling, A is a consumer for purposes of rescission, even if A is not liable, either primarily or secondarily, on the underlying consumer credit transaction. An ownership interest does not include, for example, leaseholds or inchoate rights, such as dower.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Land trusts.</inline> Credit extended to land trusts, as described in the commentary to <ref href="/us/cfr/t12/s226.3/a">§ 226.3(a)</ref>, is considered to be extended to a natural person for purposes of the definition of consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(12) Consumer credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Primary purpose.</inline> There is no precise test for what constitutes credit offered or extended for personal, family, or household purposes, nor for what constitutes the primary purpose. (See, however, the discussion of business purposes in the commentary to <ref href="/us/cfr/t12/s226.3/a">§ 226.3(a)</ref>.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(13) Consummation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State law governs.</inline> When a contractual obligation on the consumer's part is created is a matter to be determined under applicable law; Regulation Z does not make this determination. A contractual commitment agreement, for example, that under applicable law binds the consumer to the credit terms would be consummation. Consummation, however, does not occur merely because the consumer has made some financial investment in the transaction (for example, by paying a nonrefundable fee) unless, of course, applicable law holds otherwise.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit v. sale.</inline> Consummation does not occur when the consumer becomes contractually committed to a sale transaction, unless the consumer also becomes legally obligated to accept a particular credit arrangement. For example, when a consumer pays a nonrefundable deposit to purchase an automobile, a purchase contract may be created, but consummation for purposes of the regulation does not occur unless the consumer also contracts for financing at that time.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(14) Credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusions.</inline> The following situations are not considered credit for purposes of the regulation:</p>
<p style="-uslm-sgm:P">i. Layaway plans, unless the consumer is contractually obligated to continue making payments. Whether the consumer is so obligated is a matter to be determined under applicable law. The fact that the consumer is not entitled to a refund of any amounts paid towards the cash price of the merchandise does not bring layaways within the definition of credit.
<?page num="536"?></p>
<p style="-uslm-sgm:P">ii. Tax liens, tax assessments, court judgments, and court approvals of reaffirmation of debts in bankruptcy. However, third-party financing of such obligations (for example, a bank loan obtained to pay off a tax lien) is credit for purposes of the regulation.</p>
<p style="-uslm-sgm:P">iii. Insurance premium plans that involve payment in installments with each installment representing the payment for insurance coverage for a certain future period of time, unless the consumer is contractually obligated to continue making payments.</p>
<p style="-uslm-sgm:P">iv. Home improvement transactions that involve progress payments, if the consumer pays, as the work progresses, only for work completed and has no contractual obligation to continue making payments.</p>
<p style="-uslm-sgm:P">v. Borrowing against the accrued cash value of an insurance policy or a pension account, if there is no independent obligation to repay.</p>
<p style="-uslm-sgm:P">vi. Letters of credit.</p>
<p style="-uslm-sgm:P">vii. The execution of option contracts. However, there may be an extension of credit when the option is exercised, if there is an agreement at that time to defer payment of a debt.</p>
<p style="-uslm-sgm:P">viii. Investment plans in which the party extending capital to the consumer risks the loss of the capital advanced. This includes, for example, an arrangement with a home purchaser in which the investor pays a portion of the downpayment and of the periodic mortgage payments in return for an ownership interest in the property, and shares in any gain or loss of property value.</p>
<p style="-uslm-sgm:P">ix. Mortgage assistance plans administered by a government agency in which a portion of the consumer's monthly payment amount is paid by the agency. No finance charge is imposed on the subsidy amount, and that amount is due in a lump-sum payment on a set date or upon the occurrence of certain events. (If payment is not made when due, a new note imposing a finance charge may be written, which may then be subject to the regulation.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payday loans; deferred presentment.</inline> Credit includes a transaction in which a cash advance is made to a consumer in exchange for the consumer's personal check, or in exchange for the consumer's authorization to debit the consumer's deposit account, and where the parties agree either that the check will not be cashed or deposited, or that the consumer's deposit account will not be debited, until a designated future date. This type of transaction is often referred to as a “payday loan” or “payday advance” or “deferred-presentment loan.” A fee charged in connection with such a transaction may be a finance charge for purposes of <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>, regardless of how the fee is characterized under state law. Where the fee charged constitutes a finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref> and the person advancing funds regularly extends consumer credit, that person is a creditor and is required to provide disclosures consistent with the requirements of Regulation Z. (See <ref href="/us/cfr/t12/s226.2/a/17">§ 226.2(a)(17)</ref>.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(15) Credit card.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Usable from time to time.</inline> A credit card must be usable from time to time. Since this involves the possibility of repeated use of a single device, checks and similar instruments that can be used only once to obtain a single credit extension are not credit cards.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> i. Examples of credit cards include</p>
<p style="-uslm-sgm:P">A. A card that guarantees checks or similar instruments, if the asset account is also tied to an overdraft line or if the instrument directly accesses a line of credit.</p>
<p style="-uslm-sgm:P">B. A card that accesses both a credit and an asset account (that is, a debit-credit card).</p>
<p style="-uslm-sgm:P">C. An identification card that permits the consumer to defer payment on a purchase.</p>
<p style="-uslm-sgm:P">D. An identification card indicating loan approval that is presented to a merchant or to a lender, whether or not the consumer signs a separate promissory note for each credit extension.</p>
<p style="-uslm-sgm:P">E. A card or device that can be activated upon receipt to access credit, even if the card has a substantive use other than credit, such as a purchase-price discount card. Such a card or device is a credit card notwithstanding the fact that the recipient must first contact the card issuer to access or activate the credit feature.</p>
<p style="-uslm-sgm:P">ii. In contrast, credit card does not include, for example</p>
<p style="-uslm-sgm:P">A. A check-guarantee or debit card with no credit feature or agreement, even if the creditor occasionally honors an inadvertent overdraft.</p>
<p style="-uslm-sgm:P">B. Any card, key, plate, or other device that is used in order to obtain petroleum products for business purposes from a wholesale distribution facility or to gain access to that facility, and that is required to be used without regard to payment terms.</p>
<p style="-uslm-sgm:P">C. An account number that accesses a credit account, unless the account number can access an open-end line of credit to purchase goods or services. For example, if a creditor provides a consumer with an open-end line of credit that can be accessed by an account number in order to transfer funds into another account (such as an asset account with the same creditor), the account number is not a credit card for purposes of <ref href="/us/cfr/t12/s226.2/a/15/i">§ 226.2(a)(15)(i)</ref>. However, if the account number can also access the line of credit to purchase goods or services (such as an account number that can be used to purchase goods or services on the Internet), the account number is a credit card for purposes of <ref href="/us/cfr/t12/s226.2/a/15/i">§ 226.2(a)(15)(i)</ref>, regardless of whether the creditor treats such transactions as purchases, cash advances, or some other type of transaction. Furthermore, if the line of credit can also be accessed by a card (such as a <?page num="537"?>debit card), that card is a credit card for purposes of <ref href="/us/cfr/t12/s226.2/a/15/i">§ 226.2(a)(15)(i)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charge card.</inline> Generally, charge cards are cards used in connection with an account on which outstanding balances cannot be carried from one billing cycle to another and are payable when a periodic statement is received. Under the regulation, a reference to credit cards generally includes charge cards. In particular, references to credit card accounts under an open-end (not home-secured) consumer credit plan in Subparts B and G generally include charge cards. The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">charge card</inline> is, however, distinguished from <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">credit card</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">credit card account under an open-end (not home-secured) consumer credit plan</inline> in <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref>, 226.6(b)(2)(xiv), 226.7(b)(11), 226.7(b)(12), 226.9(e), 226.9(f), 226.28(d), 226.52(b)(1)(ii)(C), and appendices G–10 through G–13.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card account under an open-end (not home-secured) consumer credit plan.</inline> An open-end consumer credit account is a credit card account under an open-end (not home-secured) consumer credit plan for purposes of <ref href="/us/cfr/t12/s226.2/a/15/ii">§ 226.2(a)(15)(ii)</ref> if</p>
<p style="-uslm-sgm:P">i. The account is accessed by a credit card, as defined in <ref href="/us/cfr/t12/s226.2/a/15/i">§ 226.2(a)(15)(i)</ref>; and</p>
<p style="-uslm-sgm:P">ii. The account is not excluded under <ref href="/us/cfr/t12/s226.2/a/15/ii/A">§ 226.2(a)(15)(ii)(A)</ref> or (a)(15)(ii)(B).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(16) Credit sale.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special disclosure.</inline> If the seller is a creditor in the transaction, the transaction is a credit sale and the special credit sale disclosures (that is, the disclosures under <ref href="/us/cfr/t12/s226.18/j">§ 226.18(j)</ref>) must be given. This applies even if there is more than one creditor in the transaction and the creditor making the disclosures is not the seller. (See the commentary to <ref href="/us/cfr/t12/s226.17/d">§ 226.17(d)</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sellers who arrange credit.</inline> If the seller of the property or services involved arranged for financing but is not a creditor as to that sale, the transaction is not a credit sale. Thus, if a seller assists the consumer in obtaining a direct loan from a financial institution and the consumer's note is payable to the financial institution, the transaction is a loan and only the financial institution is a creditor.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Refinancings.</inline> Generally, when a credit sale is refinanced within the meaning of <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref>, loan disclosures should be made. However, if a new sale of goods or services is also involved, the transaction is a credit sale.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Incidental sales.</inline> Some lenders <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">sell</inline> a product or service—such as credit, property, or health insurance—as part of a loan transaction. Section 226.4 contains the rules on whether the cost of credit life, disability or property insurance is part of the finance charge. If the insurance is financed, it may be disclosed as a separate credit-sale transaction or disclosed as part of the primary transaction; if the latter approach is taken, either loan or credit-sale disclosures may be made. (See the commentary to <ref href="/us/cfr/t12/s226.17/c/1">§ 226.17(c)(1)</ref> for further discussion of this point.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit extensions for educational purposes.</inline> A credit extension for educational purposes in which an educational institution is the creditor may be treated as either a credit sale or a loan, regardless of whether the funds are given directly to the student, credited to the student's account, or disbursed to other persons on the student's behalf. The disclosure of the total sale price need not be given if the transaction is treated as a loan.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(17) Creditor.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The definition contains four independent tests. If any one of the tests is met, the person is a creditor for purposes of that particular test.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 2(a)(17)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prerequisites.</inline> This test is composed of two requirements, both of which must be met in order for a particular credit extension to be subject to the regulation and for the credit extension to count towards satisfaction of the numerical tests mentioned in <ref href="/us/cfr/t12/s226.2/a/17/v">§ 226.2(a)(17)(v)</ref>.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">First,</inline> there must be either or both of the following:</p>
<p style="-uslm-sgm:P">A. A written (rather than oral) agreement to pay in more than four installments. A letter that merely confirms an oral agreement does not constitute a written agreement for purposes of the definition.</p>
<p style="-uslm-sgm:P">B. A finance charge imposed for the credit. The obligation to pay the finance charge need not be in writing.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Second,</inline> the obligation must be payable to the person in order for that person to be considered a creditor. If an obligation is made payable to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bearer,</inline> the creditor is the one who initially accepts the obligation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assignees.</inline> If an obligation is initially payable to one person, that person is the creditor even if the obligation by its terms is simultaneously assigned to another person. For example:</p>
<p style="-uslm-sgm:P">i. An auto dealer and a bank have a business relationship in which the bank supplies the dealer with credit sale contracts that are initially made payable to the dealer and provide for the immediate assignment of the obligation to the bank. The dealer and purchaser execute the contract only after the bank approves the creditworthiness of the purchaser. Because the obligation is initially payable on its face to the dealer, the dealer is the only creditor in the transaction.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Numerical tests.</inline> The examples below illustrate how the numerical tests of <ref href="/us/cfr/t12/s226.2/a/17/v">§ 226.2(a)(17)(v)</ref> are applied. The examples assume that consumer credit with a finance charge or written agreement for more than 4 installments was extended in the years in question and that the person did not extend such credit in 2006.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Counting transactions.</inline> For purposes of closed-end credit, the creditor counts each credit transaction. For open-end credit, <?page num="538"?><inline style="-uslm-sgm:E" class="-gpo-grid-0-3">transactions</inline> means accounts, so that outstanding accounts are counted instead of individual credit extensions. Normally the number of transactions is measured by the preceding calendar year; if the requisite number is met, then the person is a creditor for all transactions in the current year. However, if the person did not meet the test in the preceding year, the number of transactions is measured by the current calendar year. For example, if the person extends consumer credit 26 times in 2007, it is a creditor for purposes of the regulation for the last extension of credit in 2007 and for all extensions of consumer credit in 2008. On the other hand, if a business begins in 2007 and extends consumer credit 20 times, it is not a creditor for purposes of the regulation in 2007. If it extends consumer credit 75 times in 2008, however, it becomes a creditor for purposes of the regulation (and must begin making disclosures) after the 25th extension of credit in that year and is a creditor for all extensions of consumer credit in 2009.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship between consumer credit in general and credit secured by a dwelling.</inline> Extensions of credit secured by a dwelling are counted towards the 25-extensions test. For example, if in 2007 a person extends unsecured consumer credit 23 times and consumer credit secured by a dwelling twice, it becomes a creditor for the succeeding extensions of credit, whether or not they are secured by a dwelling. On the other hand, extensions of consumer credit not secured by a dwelling are <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> counted towards the number of credit extensions secured by a dwelling. For example, if in 2007 a person extends credit not secured by a dwelling 8 times and credit secured by a dwelling 3 times, it is not a creditor.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of satisfying one test.</inline> Once one of the numerical tests is satisfied, the person is also a creditor for the other type of credit. For example, in 2007 a person extends consumer credit secured by a dwelling 5 times. That person is a creditor for all succeeding credit extensions, whether they involve credit secured by a dwelling or not.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Trusts.</inline> In the case of credit extended by trusts, each individual trust is considered a separate entity for purposes of applying the criteria. For example:</p>
<p style="-uslm-sgm:P">i. A bank is the trustee for three trusts. Trust A makes 15 extensions of consumer credit annually; Trust B makes 10 extensions of consumer credit annually; and Trust C makes 30 extensions of consumer credit annually. Only Trust C is a creditor for purposes of the regulation.</p>
<p style="-uslm-sgm:P" role="reserved">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 2(a)(17)(ii).</inline> [Reserved]</p>
<p style="-uslm-sgm:P">Paragraph 2(a)(17)(iii).</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuers subject to Subpart B.</inline> Section 226.2(a)(17)(iii) makes certain card issuers creditors for purposes of the open-end credit provisions of the regulation. This includes, for example, the issuers of so-called travel and entertainment cards that expect repayment at the first billing and do not impose a finance charge. Since all disclosures are to be made only as applicable, such card issuers would omit finance charge disclosures. Other provisions of the regulation regarding such areas as scope, definitions, determination of which charges are finance charges, Spanish language disclosures, record retention, and use of model forms, also apply to such card issuers.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 2(a)(17)(iv).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuers subject to Subparts B and C.</inline> Section 226.2(a)(17)(iv) includes as creditors card issuers extending closed-end credit in which there is a finance charge or an agreement to pay in more than four installments. These card issuers are subject to the appropriate provisions of Subparts B and C, as well as to the general provisions.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(18) Downpayment.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Allocation.</inline> If a consumer makes a lump-sum payment, partially to reduce the cash price and partially to pay prepaid finance charges, only the portion attributable to reducing the cash price is part of the downpayment. (See the commentary to <ref href="/us/cfr/t12/s226.2/a/23">§ 226.2(a)(23)</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pick-up payments.</inline> i. Creditors may treat the deferred portion of the downpayment, often referred to as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pick-up payments,</inline> in a number of ways. If the pick-up payment is treated as part of the downpayment:</p>
<p style="-uslm-sgm:P">A. It is subtracted in arriving at the amount financed under <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref>.</p>
<p style="-uslm-sgm:P">B. It may, but need not, be reflected in the payment schedule under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>.</p>
<p style="-uslm-sgm:P">ii. If the pick-up payment does not meet the definition (for example, if it is payable after the second regularly scheduled payment) or if the creditor chooses not to treat it as part of the downpayment:</p>
<p style="-uslm-sgm:P">A. It must be included in the amount financed.</p>
<p style="-uslm-sgm:P">B. It must be shown in the payment schedule.</p>
<p style="-uslm-sgm:P">iii. Whichever way the pick-up payment is treated, the total of payments under <ref href="/us/cfr/t12/s226.18/h">§ 226.18(h)</ref> must equal the sum of the payments disclosed under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of existing liens.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No cash payment.</inline> In a credit sale, the “downpayment” may only be used to reduce the cash price. For example, when a trade-in is used as the downpayment and the existing lien on an automobile to be traded in exceeds the value of the automobile, creditors must disclose a zero on the downpayment line rather than a negative number. To illustrate, assume a consumer owes $10,000 on an existing automobile loan and that the trade-in value of the automobile is only $8,000, leaving a $2,000 deficit. The creditor should disclose a downpayment of $0, not −$2,000.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cash payment.</inline> If the consumer makes a cash payment, creditors may, at their option, disclose the entire cash payment as the downpayment, or apply the cash payment <?page num="539"?>first to any excess lien amount and disclose any remaining cash as the downpayment. In the above example:</p>
<p style="-uslm-sgm:P">A. If the downpayment disclosed is equal to the cash payment, the $2,000 deficit must be reflected as an additional amount financed under <ref href="/us/cfr/t12/s226.18/b/2">§ 226.18(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">B. If the consumer provides $1,500 in cash (which does not extinguish the $2,000 deficit), the creditor may disclose a downpayment of $1,500 or of $0.</p>
<p style="-uslm-sgm:P">C. If the consumer provides $3,000 in cash, the creditor may disclose a downpayment of $3,000 or of $1,000.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(19) Dwelling.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope.</inline> A dwelling need not be the consumer's <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">principal</inline> residence to fit the definition, and thus a vacation or second home could be a dwelling. However, for purposes of the definition of residential mortgage transaction and the right to rescind, a dwelling must be the principal residence of the consumer. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.2/a/24">§§ 226.2(a)(24)</ref>, 226.15, and 226.23.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use as a residence.</inline> Mobile homes, boats, and trailers are dwellings if they are in fact used as residences, just as are condominium and cooperative units. Recreational vehicles, campers, and the like not used as residences are not dwellings.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to exemptions.</inline> Any transaction involving a security interest in a consumer's principal dwelling (as well as in any real property) remains subject to the regulation despite the general exemption in <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(20) Open-end credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> This definition describes the characteristics of open-end credit (for which the applicable disclosure and other rules are contained in Subpart B), as distinct from closed-end credit. Open-end credit is consumer credit that is extended under a plan and meets <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">all 3</inline> criteria set forth in the definition.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Existence of a plan.</inline> The definition requires that there be a plan, which connotes a contractual arrangement between the creditor and the consumer. Some creditors offer programs containing a number of different credit features. The consumer has a single account with the institution that can be accessed repeatedly via a number of sub-accounts established for the different program features and rate structures. Some features of the program might be used repeatedly (for example, an overdraft line) while others might be used infrequently (such as the part of the credit line available for secured credit). If the program as a whole is subject to prescribed terms and otherwise meets the definition of open-end credit, such a program would be considered a single, multifeatured plan.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Repeated transactions.</inline> Under this criterion, the creditor must reasonably contemplate repeated transactions. This means that the credit plan must be usable from time to time and the creditor must legitimately expect that there will be repeat business rather than a one-time credit extension. The creditor must expect repeated dealings with consumers under the credit plan as a whole and need not believe a consumer will reuse a particular feature of the plan. The determination of whether a creditor can reasonably contemplate repeated transactions requires an objective analysis. Information that much of the creditor's customer base with accounts under the plan make repeated transactions over some period of time is relevant to the determination, particularly when the plan is opened primarily for the financing of infrequently purchased products or services. A standard based on reasonable belief by a creditor necessarily includes some margin for judgmental error. The fact that particular consumers do not return for further credit extensions does not prevent a plan from having been properly characterized as open-end. For example, if much of the customer base of a clothing store makes repeat purchases, the fact that some consumers use the plan only once would not affect the characterization of the store's plan as open-end credit. The criterion regarding repeated transactions is a question of fact to be decided in the context of the creditor's type of business and the creditor's relationship with its customers. For example, it would be more reasonable for a bank or depository institution to contemplate repeated transactions with a customer than for a seller of aluminum siding to make the same assumption about its customers.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance charge on an outstanding balance.</inline> The requirement that a finance charge may be computed and imposed from time to time on the outstanding balance means that there is no specific amount financed for the plan for which the finance charge, total of payments, and payment schedule can be calculated. A plan may meet the definition of open-end credit even though a finance charge is not normally imposed, provided the creditor has the right, under the plan, to impose a finance charge from time to time on the outstanding balance. For example, in some plans, a finance charge is not imposed if the consumer pays all or a specified portion of the outstanding balance within a given time period. Such a plan could meet the finance charge criterion, if the creditor has the right to impose a finance charge, even though the consumer actually pays no finance charges during the existence of the plan because the consumer takes advantage of the option to pay the balance (either in full or in installments) within the time necessary to avoid finance charges.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reusable line.</inline> The total amount of credit that may be extended during the existence of an open-end plan is unlimited because available credit is generally replenished as earlier advances are repaid. A line of credit is self-<?page num="540"?>replenishing even though the plan itself has a fixed expiration date, as long as during the plan's existence the consumer may use the line, repay, and reuse the credit. The creditor may occasionally or routinely verify credit information such as the consumer's continued income and employment status or information for security purposes but, to meet the definition of open-end credit, such verification of credit information may not be done as a condition of granting a consumer's request for a particular advance under the plan. In general, a credit line is self-replenishing if the consumer can take further advances as outstanding balances are repaid without being required to separately apply for those additional advances. A credit card account where the plan as a whole replenishes meets the self-replenishing criterion, notwithstanding the fact that a credit card issuer may verify credit information from time to time in connection with specific transactions. This criterion of unlimited credit distinguishes open-end credit from a series of advances made pursuant to a closed-end credit loan commitment. For example:</p>
<p style="-uslm-sgm:P">i. Under a closed-end commitment, the creditor might agree to lend a total of $10,000 in a series of advances as needed by the consumer. When a consumer has borrowed the full $10,000, no more is advanced under that particular agreement, even if there has been repayment of a portion of the debt. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.2/a/17/iv">§ 226.2(a)(17)(iv)</ref> for disclosure requirements when a credit card is used to obtain the advances.)</p>
<p style="-uslm-sgm:P">ii. This criterion does not mean that the creditor must establish a specific credit limit for the line of credit or that the line of credit must always be replenished to its original amount. The creditor may reduce a credit limit or refuse to extend new credit in a particular case due to changes in the creditor's financial condition or the consumer's creditworthiness. (The rules in <ref href="/us/cfr/t12/s226.5b/f">§ 226.5b(f)</ref>, however, limit the ability of a creditor to suspend credit advances for home equity plans.) While consumers should have a reasonable expectation of obtaining credit as long as they remain current and within any preset credit limits, further extensions of credit need not be an absolute right in order for the plan to meet the self-replenishing criterion.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Verifications of collateral value.</inline> Creditors that otherwise meet the requirements of <ref href="/us/cfr/t12/s226.2/a/20">§ 226.2(a)(20)</ref> extend open-end credit notwithstanding the fact that the creditor must verify collateral values to comply with federal, state, or other applicable law or verifies the value of collateral in connection with a particular advance under the plan.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end real estate mortgages.</inline> Some credit plans call for negotiated advances under so-called open-end real estate mortgages. Each such plan must be independently measured against the definition of open-end credit, regardless of the terminology used in the industry to describe the plan. The fact that a particular plan is called an open-end real estate mortgage, for example, does not, by itself, mean that it is open-end credit under the regulation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(21) Periodic rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis.</inline> The periodic rate may be stated as a percentage (for example, 1<inline role="fraction" style="-uslm-sgm:FR">1/2</inline>% per month) or as a decimal equivalent (for example, .015 monthly). It may be based on any portion of a year the creditor chooses. Some creditors use <inline role="fraction" style="-uslm-sgm:FR">1/360</inline> of an annual rate as their periodic rate. These creditors:</p>
<p style="-uslm-sgm:P">i. May disclose a <inline role="fraction" style="-uslm-sgm:FR">1/360</inline> rate as a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">daily</inline> periodic rate, without further explanation, if it is in fact only applied 360 days per year. But if the creditor applies that rate for 365 days, the creditor must note that fact and, of course, disclose the true annual percentage rate.</p>
<p style="-uslm-sgm:P">ii. Would have to apply the rate to the balance to disclose the annual percentage rate with the degree of accuracy required in the regulation (that is, within <inline role="fraction" style="-uslm-sgm:FR">1/8</inline>th of 1 percentage point of the rate based on the actual 365 days in the year).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transaction charges.</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic rate</inline> does not include initial one-time transaction charges, even if the charge is computed as a percentage of the transaction amount.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(22) Person.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Joint ventures.</inline> A joint venture is an organization and is therefore a person.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Attorneys.</inline> An attorney and his or her client are considered to be the same person for purposes of this regulation when the attorney is acting within the scope of the attorney-client relationship with regard to a particular transaction.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Trusts.</inline> A trust and its trustee are considered to be the same person for purposes of this regulation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(23) Prepaid finance charge.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Prepaid finance charges must be taken into account under <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref> in computing the disclosed amount financed, and must be disclosed if the creditor provides an itemization of the amount financed under <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> i. Common examples of prepaid finance charges include:</p>
<p style="-uslm-sgm:P">A. Buyer's points.</p>
<p style="-uslm-sgm:P">B. Service fees.</p>
<p style="-uslm-sgm:P">C. Loan fees.</p>
<p style="-uslm-sgm:P">D. Finder's fees.</p>
<p style="-uslm-sgm:P">E. Loan-guarantee insurance.</p>
<p style="-uslm-sgm:P">F. Credit-investigation fees.</p>
<p style="-uslm-sgm:P">ii. However, in order for these or any other finance charges to be considered prepaid, they must be either paid separately in cash or check or withheld from the proceeds. Prepaid finance charges include any portion of the finance charge paid prior to or at closing or settlement.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusions. Add-on</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">discount</inline> finance charges are not prepaid finance charges for <?page num="541"?>purposes of this regulation. Finance charges are not <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">prepaid</inline> merely because they are precomputed, whether or not a portion of the charge will be rebated to the consumer upon prepayment. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref>.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Allocation of lump-sum payments.</inline> In a credit sale transaction involving a lump-sum payment by the consumer and a discount or other item that is a finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>, the discount or other item is a prepaid finance charge to the extent the lump-sum payment is not applied to the cash price. For example, a seller sells property to a consumer for $10,000, requires the consumer to pay $3,000 at the time of the purchase, and finances the remainder as a closed-end credit transaction. The cash price of the property is $9,000. The seller is the creditor in the transaction and therefore the $1,000 difference between the credit and cash prices (the discount) is a finance charge. (See the commentary to <ref href="/us/cfr/t12/s226.4/b/9">§ 226.4(b)(9)</ref> and (c)(5).) If the creditor applies the entire $3,000 to the cash price and adds the $1,000 finance charge to the interest on the $6,000 to arrive at the total finance charge, all of the $3,000 lump-sum payment is a downpayment and the discount is not a prepaid finance charge. However, if the creditor only applies $2,000 of the lump-sum payment to the cash price, then $2,000 of the $3,000 is a downpayment and the $1,000 discount is a prepaid finance charge.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(24) Residential mortgage transaction.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to other sections.</inline> This term is important in five provisions in the regulation:</p>
<p style="-uslm-sgm:P">i. Section 226.4(c)(7)—exclusions from the finance charge.</p>
<p style="-uslm-sgm:P">ii. Section 226.15(f)—exemption from the right of rescission.</p>
<p style="-uslm-sgm:P">iii. Section 226.18(q)—whether or not the obligation is assumable.</p>
<p style="-uslm-sgm:P">iv. Section 226.20(b)—disclosure requirements for assumptions.</p>
<p style="-uslm-sgm:P">v. Section 226.23(f)—exemption from the right of rescission.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lien status.</inline> The definition is not limited to first lien transactions. For example, a consumer might assume a paid-down first mortgage (or borrow part of the purchase price) and borrow the balance of the purchase price from a creditor who takes a second mortgage. The second mortgage transaction is a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">residential mortgage transaction</inline> if the dwelling purchased is the consumer's principal residence.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal dwelling.</inline> A consumer can have only <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">one</inline> principal dwelling at a time. Thus, a vacation or other second home would not be a principal dwelling. However, if a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within a year or upon the completion of construction, the new dwelling is considered the principal dwelling for purposes of applying this definition to a particular transaction. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.15/a">§§ 226.15(a)</ref> and 226.23(a).)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Construction financing.</inline> If a transaction meets the definition of a residential mortgage transaction and the creditor chooses to disclose it as several transactions under <ref href="/us/cfr/t12/s226.17/c/6">§ 226.17(c)(6)</ref>, each one is considered to be a residential mortgage transaction, even if different creditors are involved. For example:</p>
<p style="-uslm-sgm:P">i. The creditor makes a construction loan to finance the initial construction of the consumer's principal dwelling, and the loan will be disbursed in five advances. The creditor gives six sets of disclosures (five for the construction phase and one for the permanent phase). Each one is a residential mortgage transaction.</p>
<p style="-uslm-sgm:P">ii. One creditor finances the initial construction of the consumer's principal dwelling and another creditor makes a loan to satisfy the construction loan and provide permanent financing. Both transactions are residential mortgage transactions.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acquisition.</inline> i. A residential mortgage transaction finances the acquisition of a consumer's principal dwelling. The term does not include a transaction involving a consumer's principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title.</p>
<p style="-uslm-sgm:P">ii. Examples of new transactions involving a previously acquired dwelling include the financing of a balloon payment due under a land sale contract and an extension of credit made to a joint owner of property to buy out the other joint owner's interest. In these instances, disclosures are not required under <ref href="/us/cfr/t12/s226.18/q">§ 226.18(q)</ref> (assumability policies). However, the rescission rules of <ref href="/us/cfr/t12/s226.15">§§ 226.15</ref> and 226.23 do apply to these new transactions.</p>
<p style="-uslm-sgm:P">iii. In other cases, the disclosure and rescission rules do not apply. For example, where a buyer enters into a written agreement with the creditor holding the seller's mortgage, allowing the buyer to assume the mortgage, if the buyer had previously purchased the property and agreed with the seller to make the mortgage payments, <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref> does not apply (assumptions involving residential mortgages).</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple purpose transactions.</inline> A transaction meets the definition of this section if any part of the loan proceeds will be used to finance the acquisition or initial construction of the consumer's principal dwelling. For example, a transaction to finance the initial construction of the consumer's principal dwelling is a residential mortgage transaction even if a portion of the funds will be disbursed directly to the consumer or used to satisfy a loan for the purchase of the land on which the dwelling will be built.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Construction on previously acquired vacant land.</inline> A residential mortgage transaction includes a loan to finance the construction of <?page num="542"?>a consumer's principal dwelling on a vacant lot previously acquired by the consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(a)(25) Security interest.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Threshold test.</inline> The threshold test is whether a particular interest in property is recognized as a security interest under applicable law. The regulation does not determine whether a particular interest is a security interest under applicable law. If the creditor is unsure whether a particular interest is a security interest under applicable law (for example, if statutes and case law are either silent or inconclusive on the issue), the creditor may at its option consider such interests as security interests for Truth in Lending purposes. However, the regulation and the commentary do exclude specific interests, such as after-acquired property and accessories, from the scope of the definition regardless of their categorization under applicable law, and these named exclusions may not be disclosed as security interests under the regulation. (But see the discussion of exclusions elsewhere in the commentary to <ref href="/us/cfr/t12/s226.2/a/25">§ 226.2(a)(25)</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusions.</inline> The general definition of security interest excludes three groups of interests: incidental interests, interests in after-acquired property, and interests that arise solely by operation of law. These interests may not be disclosed with the disclosures required under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>, but the creditor is not precluded from preserving these rights elsewhere in the contract documents, or invoking and enforcing such rights, if it is otherwise lawful to do so. If the creditor is unsure whether a particular interest is one of the excluded interests, the creditor may, at its option, consider such interests as security interests for Truth in Lending purposes.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Incidental interests.</inline> i. Incidental interests in property that are not security interests include, among other things:</p>
<p style="-uslm-sgm:P">A. Assignment of rents.</p>
<p style="-uslm-sgm:P">B. Right to condemnation proceeds.</p>
<p style="-uslm-sgm:P">C. Interests in accessories and replacements.</p>
<p style="-uslm-sgm:P">D. Interests in escrow accounts, such as for taxes and insurance.</p>
<p style="-uslm-sgm:P">E. Waiver of homestead or personal property rights.</p>
<p style="-uslm-sgm:P">ii. The notion of an <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">incidental interest</inline> does not encompass an explicit security interest in an insurance policy if that policy is the primary collateral for the transaction—for example, in an insurance premium financing transaction.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Operation of law.</inline> Interests that arise solely by operation of law are excluded from the general definition. Also excluded are interests arising by operation of law that are merely repeated or referred to in the contract. However, if the creditor has an interest that arises by operation of law, such as a vendor's lien, and takes an independent security interest in the same property, such as a UCC security interest, the latter interest is a disclosable security interest unless otherwise provided.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rescission rules.</inline> Security interests that arise solely by operation of law are security interests for purposes of rescission. Examples of such interests are mechanics' and materialmen's liens.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Specificity of disclosure.</inline> A creditor need not separately disclose multiple security interests that it may hold in the same collateral. The creditor need only disclose that the transaction is secured by the collateral, even when security interests from prior transactions remain of record and a new security interest is taken in connection with the transaction. In disclosing the fact that the transaction is secured by the collateral, the creditor also need not disclose how the security interest arose. For example, in a closed-end credit transaction, a rescission notice need not specifically state that a new security interest is “acquired” or an existing security interest is “retained” in the transaction. The acquisition or retention of a security interest in the consumer's principal dwelling instead may be disclosed in a rescission notice with a general statement such as the following: “Your home is the security for the new transaction.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2(b) Rules of construction.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Footnotes.</inline> Footnotes are used extensively in the regulation to provide special exceptions and more detailed explanations and examples. Material that appears in a footnote has the same legal weight as material in the body of the regulation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount.</inline> The numerical amount must be a dollar amount unless otherwise indicated. For example, in a closed-end transaction (Subpart C), the amount financed and the amount of any payment must be expressed as a dollar amount. In some cases, an amount should be expressed as a percentage. For example, in disclosures provided before the first transaction under an open-end plan (Subpart B), creditors are permitted to explain how the amount of any finance charge will be determined; where a cash-advance fee (which is a finance charge) is a percentage of each cash advance, the amount of the finance charge for that fee is expressed as a percentage.</p>
<heading style="-uslm-sgm:HD2">Section 226.3—Exempt Transactions</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.12">§ 226.12</ref>.</inline> The provisions in <ref href="/us/cfr/t12/s226.12/a">§ 226.12(a)</ref> and (b) governing the issuance of credit cards and the limitations on liability for their unauthorized use apply to all credit cards, even if the credit cards are issued for use in connection with extensions of credit that otherwise are exempt under this section.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3(a) Business, commercial, agricultural, or organizational credit.</inline>
<?page num="543"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Primary purposes.</inline> A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt. (See comment 3(a)–2, however, with respect to credit cards.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business purpose purchases.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business-purpose credit cards—extensions of credit for consumer purposes.</inline> If a business-purpose credit card is issued to a person, the provisions of the regulation do not apply, other than as provided in <ref href="/us/cfr/t12/s226.12/a">§§ 226.12(a)</ref> and 226.12(b), even if extensions of credit for consumer purposes are occasionally made using that business-purpose credit card. For example, the billing error provisions set forth in <ref href="/us/cfr/t12/s226.13">§ 226.13</ref> do not apply to consumer-purpose extensions of credit using a business-purpose credit card.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer-purpose credit cards—extensions of credit for business purposes.</inline> If a consumer-purpose credit card is issued to a person, the provisions of the regulation apply, even to occasional extensions of credit for business purposes made using that consumer-purpose credit card. For example, a consumer may assert a billing error with respect to any extension of credit using a consumer-purpose credit card, even if the specific extension of credit on such credit card or open-end credit plan that is the subject of the dispute was made for business purposes.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Factors.</inline> In determining whether credit to finance an acquisition—such as securities, antiques, or art—is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline>
</p>
<p style="-uslm-sgm:P">A. The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.</p>
<p style="-uslm-sgm:P">B. The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.</p>
<p style="-uslm-sgm:P">C. The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.</p>
<p style="-uslm-sgm:P">D. The size of the transaction. The larger the transaction, the more likely it is to be business purpose.</p>
<p style="-uslm-sgm:P">E. The borrower's statement of purpose for the loan.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business-purpose examples.</inline> Examples of business-purpose credit include:</p>
<p style="-uslm-sgm:P">A. A loan to expand a business, even if it is secured by the borrower's residence or personal property.</p>
<p style="-uslm-sgm:P">B. A loan to improve a principal residence by putting in a business office.</p>
<p style="-uslm-sgm:P">C. A business account used occasionally for consumer purposes.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer-purpose examples.</inline> Examples of consumer-purpose credit include:</p>
<p style="-uslm-sgm:P">A. Credit extensions by a company to its employees or agents if the loans are used for personal purposes.</p>
<p style="-uslm-sgm:P">B. A loan secured by a mechanic's tools to pay a child's tuition.</p>
<p style="-uslm-sgm:P">C. A personal account used occasionally for business purposes.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Non-owner-occupied rental property.</inline> Credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes. This includes, for example, the acquisition of a warehouse that will be leased or a single-family house that will be rented to another person to live in. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply. For example, a beach house that the owner will occupy for a month in the coming summer and rent out the rest of the year is owner occupied and is not governed by this special rule. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 3(a)–5, however, for rules relating to owner-occupied rental property.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Owner-occupied rental property.</inline> If credit is extended to acquire, improve, or maintain rental property that is or will be owner-occupied within the coming year, different rules apply:</p>
<p style="-uslm-sgm:P">i. Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than 2 housing units.</p>
<p style="-uslm-sgm:P">ii. Credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than 4 housing units. Since the amended statute defines dwelling to include 1 to 4 housing units, this rule preserves the right of rescission for credit extended for purposes other than acquisition. Neither of these rules means that an extension of credit for property containing fewer than the requisite number of units is necessarily consumer credit. In such cases, the determination of whether it is business or consumer credit should be made by considering the factors listed in comment 3(a)–3.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business credit later refinanced.</inline> Business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card renewal.</inline> A consumer-purpose credit card that is subject to the regulation may be converted into a business-purpose <?page num="544"?>credit card at the time of its renewal, and the resulting business-purpose credit card would be exempt from the regulation. Conversely, a business-purpose credit card that is exempt from the regulation may be converted into a consumer-purpose credit card at the time of its renewal, and the resulting consumer-purpose credit card would be subject to the regulation.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agricultural purpose.</inline> An agricultural purpose includes the planting, propagating, nurturing, harvesting, catching, storing, exhibiting, marketing, transporting, processing, or manufacturing of food, beverages (including alcoholic beverages), flowers, trees, livestock, poultry, bees, wildlife, fish, or shellfish by a natural person engaged in farming, fishing, or growing crops, flowers, trees, livestock, poultry, bees, or wildlife. The exemption also applies to a transaction involving real property that includes a dwelling (for example, the purchase of a farm with a homestead) if the transaction is primarily for agricultural purposes.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Organizational credit.</inline> The exemption for transactions in which the borrower is not a natural person applies, for example, to loans to corporations, partnerships, associations, churches, unions, and fraternal organizations. The exemption applies regardless of the purpose of the credit extension and regardless of the fact that a natural person may guarantee or provide security for the credit.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Land trusts.</inline> Credit extended for consumer purposes to a land trust is considered to be credit extended to a natural person rather than credit extended to an organization. In some jurisdictions, a financial institution financing a residential real estate transaction for an individual uses a land trust mechanism. Title to the property is conveyed to the land trust for which the financial institution itself is trustee. The underlying installment note is executed by the financial institution in its capacity as trustee and payment is secured by a trust deed, reflecting title in the financial institution as trustee. In some instances, the consumer executes a personal guaranty of the indebtedness. The note provides that it is payable only out of the property specifically described in the trust deed and that the trustee has no personal liability on the note. Assuming the transactions are for personal, family, or household purposes, these transactions are subject to the regulation since in substance (if not form) consumer credit is being extended.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3(b) Credit over applicable threshold amount.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Threshold amount.</inline> For purposes of <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>, the threshold amount in effect during a particular period is the amount stated in comment 3(b)–3 for that period. The threshold amount is adjusted effective January 1 of each year by any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W) that was in effect on the preceding June 1. Comment 3(b)–3 will be amended to provide the threshold amount for the upcoming year after the annual percentage change in the CPI–W that was in effect on June 1 becomes available. Any increase in the threshold amount will be rounded to the nearest $100 increment. For example, if the annual percentage increase in the CPI–W would result in a $950 increase in the threshold amount, the threshold amount will be increased by $1,000. However, if the annual percentage increase in the CPI–W would result in a $949 increase in the threshold amount, the threshold amount will be increased by $900.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No increase in the CPI–W.</inline> If the CPI–W in effect on June 1 does not increase from the CPI–W in effect on June 1 of the previous year, the threshold amount effective the following January 1 through December 31 will not change from the previous year. When this occurs, for the years that follow, the threshold is calculated based on the annual percentage change in the CPI–W applied to the dollar amount that would have resulted, after rounding, if decreases and any subsequent increases in the CPI–W had been taken into account.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Net increases.</inline> If the resulting amount calculated, after rounding, is greater than the current threshold, then the threshold effective January 1 the following year will increase accordingly.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Net decreases.</inline> If the resulting amount calculated, after rounding, is equal to or less than the current threshold, then the threshold effective January 1 the following year will not change, but future increases will be calculated based on the amount that would have resulted.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Threshold.</inline> For purposes of <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>, the threshold amount in effect during a particular period is the amount stated below for that period.</p>
<p style="-uslm-sgm:P">i. Prior to <date date="2011-07-21">July 21, 2011</date>, the threshold amount is $25,000.</p>
<p style="-uslm-sgm:P">ii. From <date date="2011-07-21">July 21, 2011</date> through <date date="2011-12-31">December 31, 2011</date>, the threshold amount is $50,000.</p>
<p style="-uslm-sgm:P">iii. From <date date="2012-01-01">January 1, 2012</date> through <date date="2012-12-31">December 31, 2012</date>, the threshold amount is $51,800.</p>
<p style="-uslm-sgm:P">iv. From <date date="2013-01-01">January 1, 2013</date> through <date date="2013-12-31">December 31, 2013</date>, the threshold amount is $53,000.</p>
<p style="-uslm-sgm:P">v. From <date date="2014-01-01">January 1, 2014</date> through <date date="2014-12-31">December 31, 2014</date>, the threshold amount is $53,500.</p>
<p style="-uslm-sgm:P">vi. From <date date="2015-01-01">January 1, 2015</date> through <date date="2015-12-31">December 31, 2015</date>, the threshold amount is $54,600.</p>
<p style="-uslm-sgm:P">vii. From <date date="2016-01-01">January 1, 2016</date> through <date date="2016-12-31">December 31, 2016</date>, the threshold amount is $54,600.</p>
<p style="-uslm-sgm:P">viii. From <date date="2017-01-01">January 1, 2017</date> through <date date="2017-12-31">December 31, 2017</date>, the threshold amount is $54,600.
</p>
<p style="-uslm-sgm:P">ix. From <date date="2018-01-01">January 1, 2018</date> through <date date="2018-12-31">December 31, 2018</date>, the threshold amount is $55,800.
</p>
<p style="-uslm-sgm:P">x. From <date date="2019-01-01">January 1, 2019</date> through <date date="2019-12-31">December 31, 2019</date>, the threshold amount is $57,200.
</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end credit.</inline>
<?page num="545"?> </p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying for exemption.</inline> An open-end account is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> (unless secured by any real property, or by personal property used or expected to be used as the consumer's principal dwelling) if either of the following conditions is met:</p>
<p style="-uslm-sgm:P">A. The creditor makes an initial extension of credit at or after account opening that exceeds the threshold amount in effect at the time the initial extension is made. If a creditor makes an initial extension of credit after account opening that does not exceed the threshold amount in effect at the time the extension is made, the creditor must have satisfied all of the applicable requirements of this part from the date the account was opened (or earlier, if applicable), including but not limited to the requirements of <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> (account-opening disclosures), <ref href="/us/cfr/t12/s226.7">§ 226.7</ref> (periodic statements), <ref href="/us/cfr/t12/s226.52">§ 226.52</ref> (limitations on fees), and <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> (limitations on increasing annual percentages rates, fees, and charges). For example:</p>
<p style="-uslm-sgm:P">(1) Assume that the threshold amount in effect on January 1 is $50,000. On February 1, an account is opened but the creditor does not make an initial extension of credit at that time. On July 1, the creditor makes an initial extension of credit of $60,000. In this circumstance, no requirements of this part apply to the account.</p>
<p style="-uslm-sgm:P">(2) Assume that the threshold amount in effect on January 1 is $50,000. On February 1, an account is opened but the creditor does not make an initial extension of credit at that time. On July 1, the creditor makes an initial extension of credit of $50,000 or less. In this circumstance, the account is not exempt and the creditor must have satisfied all of the applicable requirements of this part from the date the account was opened (or earlier, if applicable).</p>
<p style="-uslm-sgm:P">B. The creditor makes a firm written commitment at account opening to extend a total amount of credit in excess of the threshold amount in effect at the time the account is opened with no requirement of additional credit information for any advances on the account (except as permitted from time to time with respect to open-end accounts pursuant to <ref href="/us/cfr/t12/s226.2/a/20">§ 226.2(a)(20)</ref>).</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent changes generally.</inline> Subsequent changes to an open-end account or the threshold amount may result in the account no longer qualifying for the exemption in <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>. In these circumstances, the creditor must begin to comply with all of the applicable requirements of this part within a reasonable period of time after the account ceases to be exempt. Once an account ceases to be exempt, the requirements of this part apply to any balances on the account. The creditor, however, is not required to comply with the requirements of this part with respect to the period of time during which the account was exempt. For example, if an open-end credit account ceases to be exempt, the creditor must within a reasonable period of time provide the disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> reflecting the current terms of the account and begin to provide periodic statements consistent with <ref href="/us/cfr/t12/s226.7">§ 226.7</ref>. However, the creditor is not required to disclose fees or charges imposed while the account was exempt. Furthermore, if the creditor provided disclosures consistent with the requirements of this part while the account was exempt, it is not required to provide disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> reflecting the current terms of the account. See also comment 3(b)–6.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent changes when exemption is based on initial extension of credit.</inline> If a creditor makes an initial extension of credit that exceeds the threshold amount in effect at that time, the open-end account remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> regardless of a subsequent increase in the threshold amount, including an increase pursuant to <ref href="/us/cfr/t12/s226.3/b/1/ii">§ 226.3(b)(1)(ii)</ref> as a result of an increase in the CPI–W. Furthermore, in these circumstances, the account remains exempt even if there are no further extensions of credit, subsequent extensions of credit do not exceed the threshold amount, the account balance is subsequently reduced below the threshold amount (such as through repayment of the extension), or the credit limit for the account is subsequently reduced below the threshold amount. However, if the initial extension of credit on an account does not exceed the threshold amount in effect at the time of the extension, the account is not exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> even if a subsequent extension exceeds the threshold amount or if the account balance later exceeds the threshold amount (for example, due to the subsequent accrual of interest).</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent changes when exemption is based on firm commitment.</inline>
</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> If a creditor makes a firm written commitment at account opening to extend a total amount of credit that exceeds the threshold amount in effect at that time, the open-end account remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> regardless of a subsequent increase in the threshold amount pursuant to <ref href="/us/cfr/t12/s226.3/b/1/ii">§ 226.3(b)(1)(ii)</ref> as a result of an increase in the CPI–W. However, see comment 3(b)–8 with respect to the increase in the threshold amount from $25,000 to $50,000. If an open-end account is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on a firm commitment to extend credit, the account remains exempt even if the amount of credit actually extended does not exceed the threshold amount. In contrast, if the firm commitment does not exceed the threshold amount at account opening, the account is not exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> even if the account balance later exceeds the threshold amount. In addition, if a creditor reduces a firm commitment, the account ceases to be exempt unless the reduced firm commitment exceeds the threshold amount in effect at the time of the reduction. For example:
<?page num="546"?></p>
<p style="-uslm-sgm:P">(1) Assume that, at account opening in year one, the threshold amount in effect is $50,000 and the account is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on the creditor's firm commitment to extend $55,000 in credit. If during year one the creditor reduces its firm commitment to $53,000, the account remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>. However, if during year one the creditor reduces its firm commitment to $40,000, the account is no longer exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>.</p>
<p style="-uslm-sgm:P">(2) Assume that, at account opening in year one, the threshold amount in effect is $50,000 and the account is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on the creditor's firm commitment to extend $55,000 in credit. If the threshold amount is $56,000 on January 1 of year six as a result of increases in the CPI–W, the account remains exempt. However, if the creditor reduces its firm commitment to $54,000 on July 1 of year six, the account ceases to be exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Initial extension of credit.</inline> If an open-end account qualifies for a <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> exemption at account opening based on a firm commitment, that account may also subsequently qualify for a <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> exemption based on an initial extension of credit. However, that initial extension must be a single advance in excess of the threshold amount in effect at the time the extension is made. In addition, the account must continue to qualify for an exemption based on the firm commitment until the initial extension of credit is made. For example:</p>
<p style="-uslm-sgm:P">(1) Assume that, at account opening in year one, the threshold amount in effect is $50,000 and the account is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on the creditor's firm commitment to extend $55,000 in credit. The account is not used for an extension of credit during year one. On January 1 of year two, the threshold amount is increased to $51,000 pursuant to <ref href="/us/cfr/t12/s226.3/b/1/ii">§ 226.3(b)(1)(ii)</ref> as a result of an increase in the CPI–W. On July 1 of year two, the consumer uses the account for an initial extension of $52,000. As a result of this extension of credit, the account remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> even if, after July 1 of year two, the creditor reduces the firm commitment to $51,000 or less.</p>
<p style="-uslm-sgm:P">(2) Same facts as in paragraph iv.B(1) above except that the consumer uses the account for an initial extension of $30,000 on July 1 of year two and for an extension of $22,000 on July 15 of year two. In these circumstances, the account is not exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on the $30,000 initial extension of credit because that extension did not exceed the applicable threshold amount ($51,000), although the account remains exempt based on the firm commitment to extend $55,000 in credit.</p>
<p style="-uslm-sgm:P">(3) Same facts as in paragraph iv.B(1) above except that, on April 1 of year two, the creditor reduces the firm commitment to $50,000, which is below the $51,000 threshold then in effect. Because the account ceases to qualify for a <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> exemption on April 1 of year two, the account does not qualify for a <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> exemption based on a $52,000 initial extension of credit on July 1 of year two.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Closed-end credit.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying for exemption.</inline> A closed-end loan is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> (unless the extension of credit is secured by any real property, or by personal property used or expected to be used as the consumer's principal dwelling; or is a private education loan as defined in <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref>), if either of the following conditions is met.</p>
<p style="-uslm-sgm:P">A. The creditor makes an extension of credit at consummation that exceeds the threshold amount in effect at the time of consummation. In these circumstances, the loan remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> even if the amount owed is subsequently reduced below the threshold amount (such as through repayment of the loan).</p>
<p style="-uslm-sgm:P">B. The creditor makes a commitment at consummation to extend a total amount of credit in excess of the threshold amount in effect at the time of consummation. In these circumstances, the loan remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> even if the total amount of credit extended does not exceed the threshold amount.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent changes.</inline> If a creditor makes a closed-end extension of credit or commitment to extend closed-end credit that exceeds the threshold amount in effect at the time of consummation, the closed-end loan remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> regardless of a subsequent increase in the threshold amount. However, a closed-end loan is not exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> merely because it is used to satisfy and replace an existing exempt loan, unless the new extension of credit is itself exempt under the applicable threshold amount. For example, assume a closed-end loan that qualified for a <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> exemption at consummation in year one is refinanced in year ten and that the new loan amount is less than the threshold amount in effect in year ten. In these circumstances, the creditor must comply with all of the applicable requirements of this part with respect to the year ten transaction if the original loan is satisfied and replaced by the new loan, which is not exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>. See also comment 3(b)–6.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Addition of a security interest in real property or a dwelling after account opening or consummation.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end credit.</inline> For open-end accounts, if, after account opening, a security interest is taken in real property, or in personal property used or expected to be used as the consumer's principal dwelling, a previously exempt account ceases to be exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> and the creditor must begin to comply with all of the applicable requirements of this part within a reasonable period of time. See comment 3(b)–4.ii. If a security interest <?page num="547"?>is taken in the consumer's principal dwelling, the creditor must also give the consumer the right to rescind the security interest consistent with <ref href="/us/cfr/t12/s226.15">§ 226.15</ref>.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Closed-end credit.</inline> For closed-end loans, if, after consummation, a security interest is taken in any real property, or in personal property used or expected to be used as the consumer's principal dwelling, an exempt loan remains exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>. However, the addition of a security interest in the consumer's principal dwelling is a transaction for purposes of <ref href="/us/cfr/t12/s226.23">§ 226.23</ref>, and the creditor must give the consumer the right to rescind the security interest consistent with that section. See <ref href="/us/cfr/t12/s226.23/a/1">§ 226.23(a)(1)</ref> and the accompanying commentary. In contrast, if a closed-end loan that is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> is satisfied and replaced by a loan that is secured by any real property, or by personal property used or expected to be used as the consumer's principal dwelling, the new loan is not exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> and the creditor must comply with all of the applicable requirements of this part. See comment 3(b)–5.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application to extensions secured by mobile homes.</inline> Because a mobile home can be a dwelling under <ref href="/us/cfr/t12/s226.2/a/19">§ 226.2(a)(19)</ref>, the exemption in <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> does not apply to a credit extension secured by a mobile home that is used or expected to be used as the principal dwelling of the consumer. See comment 3(b)–6.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transition rule for open-end accounts exempt prior to <date date="2011-07-21">July 21, 2011</date>.</inline> Section 226.3(b)(2) applies only to open-end accounts opened prior to <date date="2011-07-21">July 21, 2011</date>. Section 226.3(b)(2) does not apply if a security interest is taken by the creditor in any real property, or in personal property used or expected to be used as the consumer's principal dwelling. If, on <date date="2011-07-20">July 20, 2011</date>, an open-end account is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on a firm commitment to extend credit in excess of $25,000, the account remains exempt under <ref href="/us/cfr/t12/s226.3/b/2">§ 226.3(b)(2)</ref> until <date date="2011-12-31">December 31, 2011</date> (unless the firm commitment is reduced to $25,000 or less). If the firm commitment is increased on or before <date date="2011-12-31">December 31, 2011</date> to an amount in excess of $50,000, the account remains exempt under <ref href="/us/cfr/t12/s226.3/b/1">§ 226.3(b)(1)</ref> regardless of subsequent increases in the threshold amount as a result of increases in the CPI–W. If the firm commitment is not increased on or before <date date="2011-12-31">December 31, 2011</date> to an amount in excess of $50,000, the account ceases to be exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on a firm commitment to extend credit. For example:</p>
<p style="-uslm-sgm:P">i. Assume that, on <date date="2011-07-20">July 20, 2011</date>, the account is exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref> based on the creditor's firm commitment to extend $30,000 in credit. On <date date="2011-11-01">November 1, 2011</date>, the creditor increases the firm commitment on the account to $55,000. In these circumstances, the account remains exempt under <ref href="/us/cfr/t12/s226.3/b/1">§ 226.3(b)(1)</ref> regardless of subsequent increases in the threshold amount as a result of increases in the CPI–W.</p>
<p style="-uslm-sgm:P">ii. Same facts as paragraph i. above except, on <date date="2011-11-01">November 1, 2011</date>, the creditor increases the firm commitment on the account to $40,000. In these circumstances, the account ceases to be exempt under <ref href="/us/cfr/t12/s226.3/b/2">§ 226.3(b)(2)</ref> after <date date="2011-12-31">December 31, 2011</date>, and the creditor must begin to comply with the applicable requirements of this part.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3(c) Public utility credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> Examples of public utility services include:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline>
</p>
<p style="-uslm-sgm:P">A. Gas, water, or electrical services.</p>
<p style="-uslm-sgm:P">B. Cable television services.</p>
<p style="-uslm-sgm:P">C. Installation of new sewer lines, water lines, conduits, telephone poles, or metering equipment in an area not already serviced by the utility.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Extensions of credit not covered.</inline> The exemption does not apply to extensions of credit, for example:</p>
<p style="-uslm-sgm:P">A. To purchase appliances such as gas or electric ranges, grills, or telephones.</p>
<p style="-uslm-sgm:P">B. To finance home improvements such as new heating or air conditioning systems.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3(d) Securities or commodities accounts.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This exemption does not apply to a transaction with a broker registered solely with the state, or to a separate credit extension in which the proceeds are used to purchase securities.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3(e) Home fuel budget plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> Under a typical home fuel budget plan, the fuel dealer estimates the total cost of fuel for the season, bills the customer for an average monthly payment, and makes an adjustment in the final payment for any difference between the estimated and the actual cost of the fuel. Fuel is delivered as needed, no finance charge is assessed, and the customer may withdraw from the plan at any time. Under these circumstances, the arrangement is exempt from the regulation, even if a charge to cover the billing costs is imposed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3(f) Student loan programs.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This exemption applies to loans made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1070">20 U.S.C. 1070</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). This exemption does not apply to private education loans as defined by <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref>.</p>
<heading style="-uslm-sgm:HD2">Section 226.4—Finance Charge</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(a) Definition.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges in comparable cash transactions.</inline> Charges imposed uniformly in cash and credit transactions are not finance charges. In determining whether an item is a finance charge, the creditor should compare the credit transaction in question with a similar cash transaction. A creditor financing the sale of property or services may compare charges with those payable in a similar cash <?page num="548"?>transaction by the seller of the property or service.</p>
<p style="-uslm-sgm:P">i. For example, the following items are not finance charges:</p>
<p style="-uslm-sgm:P">A. Taxes, license fees, or registration fees paid by both cash and credit customers.</p>
<p style="-uslm-sgm:P">B. Discounts that are available to cash and credit customers, such as quantity discounts.</p>
<p style="-uslm-sgm:P">C. Discounts available to a particular group of consumers because they meet certain criteria, such as being members of an organization or having accounts at a particular financial institution. This is the case even if an individual must pay cash to obtain the discount, provided that credit customers who are members of the group and do not qualify for the discount pay no more than the nonmember cash customers.</p>
<p style="-uslm-sgm:P">D. Charges for a service policy, auto club membership, or policy of insurance against latent defects offered to or required of both cash and credit customers for the same price.</p>
<p style="-uslm-sgm:P">ii. In contrast, the following items are finance charges:</p>
<p style="-uslm-sgm:P">A. Inspection and handling fees for the staged disbursement of construction-loan proceeds.</p>
<p style="-uslm-sgm:P">B. Fees for preparing a Truth in Lending disclosure statement, if permitted by law (for example, the Real Estate Settlement Procedures Act prohibits such charges in certain transactions secured by real property).</p>
<p style="-uslm-sgm:P">C. Charges for a required maintenance or service contract imposed only in a credit transaction.</p>
<p style="-uslm-sgm:P">iii. If the charge in a credit transaction exceeds the charge imposed in a comparable cash transaction, only the difference is a finance charge. For example:</p>
<p style="-uslm-sgm:P">A. If an escrow agent is used in both cash and credit sales of real estate and the agent's charge is $100 in a cash transaction and $150 in a credit transaction, only $50 is a finance charge.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs of doing business.</inline> Charges absorbed by the creditor as a cost of doing business are not finance charges, even though the creditor may take such costs into consideration in determining the interest rate to be charged or the cash price of the property or service sold. However, if the creditor separately imposes a charge on the consumer to cover certain costs, the charge is a finance charge if it otherwise meets the definition. For example:</p>
<p style="-uslm-sgm:P">i. A discount imposed on a credit obligation when it is assigned by a seller-creditor to another party is not a finance charge as long as the discount is not separately imposed on the consumer. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.4/b/6">§ 226.4(b)(6)</ref>.)</p>
<p style="-uslm-sgm:P">ii. A tax imposed by a state or other governmental body on a creditor is not a finance charge if the creditor absorbs the tax as a cost of doing business and does not separately impose the tax on the consumer. (For additional discussion of the treatment of taxes, see other commentary to <ref href="/us/cfr/t12/s226.4/a">§ 226.4(a)</ref>.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Forfeitures of interest.</inline> If the creditor reduces the interest rate it pays or stops paying interest on the consumer's deposit account or any portion of it for the term of a credit transaction (including, for example, an overdraft on a checking account or a loan secured by a certificate of deposit), the interest lost is a finance charge. (See the commentary to <ref href="/us/cfr/t12/s226.4/c/6">§ 226.4(c)(6)</ref>.) For example:</p>
<p style="-uslm-sgm:P">A. A consumer borrows $5,000 for 90 days and secures it with a $10,000 certificate of deposit paying 15% interest. The creditor charges the consumer an interest rate of 6% on the loan and stops paying interest on $5,000 of the $10,000 certificate for the term of the loan. The interest lost is a finance charge and must be reflected in the annual percentage rate on the loan.</p>
<p style="-uslm-sgm:P">B. However, the consumer must be entitled to the interest that is not paid in order for the lost interest to be a finance charge. For example:</p>
<p style="-uslm-sgm:P">iii. A consumer wishes to buy from a financial institution a $10,000 certificate of deposit paying 15% interest but has only $4,000. The financial institution offers to lend the consumer $6,000 at an interest rate of 6% but will pay the 15% interest only on the amount of the consumer's deposit, $4,000. The creditor's failure to pay interest on the $6,000 does not result in an additional finance charge on the extension of credit, provided the consumer is entitled by the deposit agreement with the financial institution to interest only on the amount of the consumer's deposit.</p>
<p style="-uslm-sgm:P">iv. A consumer enters into a combined time deposit/credit agreement with a financial institution that establishes a time deposit account and an open-end line of credit. The line of credit may be used to borrow against the funds in the time deposit. The agreement provides for an interest rate on any credit extension of, for example, 1%. In addition, the agreement states that the creditor will pay 0% interest on the amount of the time deposit that corresponds to the amount of the credit extension(s). The interest that is not paid on the time deposit by the financial institution is not a finance charge (and therefore does not affect the annual percentage rate computation).</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Treatment of transaction fees on credit card plans.</inline> Any transaction charge imposed on a cardholder by a card issuer is a finance charge, regardless of whether the issuer imposes the same, greater, or lesser charge on withdrawals of funds from an asset account such as a checking or savings account. For example:</p>
<p style="-uslm-sgm:P">i. Any charge imposed on a credit cardholder by a card issuer for the use of an automated teller machine (ATM) to obtain a cash advance (whether in a proprietary, shared, interchange, or other system) is a finance <?page num="549"?>charge regardless of whether the card issuer imposes a charge on its debit cardholders for using the ATM to withdraw cash from a consumer asset account, such as a checking or savings account.</p>
<p style="-uslm-sgm:P">ii. Any charge imposed on a credit cardholder for making a purchase or obtaining a cash advance outside the United States, with a foreign merchant, or in a foreign currency is a finance charge, regardless of whether a charge is imposed on debit cardholders for such transactions. The following principles apply in determining what is a foreign transaction fee and the amount of the fee:</p>
<p style="-uslm-sgm:P">A. Included are (1) fees imposed when transactions are made in a foreign currency and converted to U.S. dollars; (2) fees imposed when transactions are made in U.S. dollars outside the U.S.; and (3) fees imposed when transactions are made (whether in a foreign currency or in U.S. dollars) with a foreign merchant, such as via a merchant's Web site. For example, a consumer may use a credit card to make a purchase in Bermuda, in U.S. dollars, and the card issuer may impose a fee because the transaction took place outside the United States.</p>
<p style="-uslm-sgm:P">B. Included are fees imposed by the card issuer and fees imposed by a third party that performs the conversion, such as a credit card network or the card issuer's corporate parent. (For example, in a transaction processed through a credit card network, the network may impose a 1 percent charge and the card-issuing bank may impose an additional 2 percent charge, for a total of a 3 percentage point foreign transaction fee being imposed on the consumer.)</p>
<p style="-uslm-sgm:P">C. Fees imposed by a third party are included only if they are directly passed on to the consumer. For example, if a credit card network imposes a 1 percent fee on the card issuer, but the card issuer absorbs the fee as a cost of doing business (and only passes it on to consumers in the general sense that the interest and fees are imposed on all its customers to recover its costs), then the fee is not a foreign transaction fee and need not be disclosed. In another example, if the credit card network imposes a 1 percent fee for a foreign transaction on the card issuer, and the card issuer imposes this same fee on the consumer who engaged in the foreign transaction, then the fee is a foreign transaction fee and a finance charge.</p>
<p style="-uslm-sgm:P">D. A card issuer is not required to disclose a fee imposed by a merchant. For example, if the merchant itself performs the currency conversion and adds a fee, this fee need not be disclosed by the card issuer. Under <ref href="/us/cfr/t12/s226.9/d">§ 226.9(d)</ref>, a card issuer is not obligated to disclose finance charges imposed by a party honoring a credit card, such as a merchant, although the merchant is required to disclose such a finance charge if the merchant is subject to the Truth in Lending Act and Regulation Z.</p>
<p style="-uslm-sgm:P">E. The foreign transaction fee is determined by first calculating the dollar amount of the transaction by using a currency conversion rate outside the card issuer's and third party's control. Any amount in excess of that dollar amount is a foreign transaction fee. Conversion rates outside the card issuer's and third party's control include, for example, a rate selected from the range of rates available in the wholesale currency exchange markets, an average of the highest and lowest rates available in such markets, or a government-mandated or government-managed exchange rate (or a rate selected from a range of such rates).</p>
<p style="-uslm-sgm:P">F. The rate used for a particular transaction need not be the same rate that the card issuer (or third party) itself obtains in its currency conversion operations. In addition, the rate used for a particular transaction need not be the rate in effect on the date of the transaction (purchase or cash advance).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Taxes.</inline>
</p>
<p style="-uslm-sgm:P">i. Generally, a tax imposed by a state or other governmental body solely on a creditor is a finance charge if the creditor separately imposes the charge on the consumer.</p>
<p style="-uslm-sgm:P">ii. In contrast, a tax is not a finance charge (even if it is collected by the creditor) if applicable law imposes the tax:</p>
<p style="-uslm-sgm:P">A. Solely on the consumer;</p>
<p style="-uslm-sgm:P">B. On the creditor and the consumer jointly;</p>
<p style="-uslm-sgm:P">C. On the credit transaction, without indicating which party is liable for the tax; or</p>
<p style="-uslm-sgm:P">D. On the creditor, if applicable law directs or authorizes the creditor to pass the tax on to the consumer. (For purposes of this section, if applicable law is silent as to passing on the tax, the law is deemed not to authorize passing it on.)</p>
<p style="-uslm-sgm:P">iii. For example, a stamp tax, property tax, intangible tax, or any other state or local tax imposed on the consumer, or on the credit transaction, is not a finance charge even if the tax is collected by the creditor.</p>
<p style="-uslm-sgm:P">iv. In addition, a tax is not a finance charge if it is excluded from the finance charge by another provision of the regulation or commentary (for example, if the tax is imposed uniformly in cash and credit transactions).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(a)(1) Charges by third parties.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Choosing the provider of a required service.</inline> An example of a third-party charge included in the finance charge is the cost of required mortgage insurance, even if the consumer is allowed to choose the insurer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annuities associated with reverse mortgages.</inline> Some creditors offer annuities in connection with a reverse-mortgage transaction. The amount of the premium is a finance charge if the creditor requires the purchase of the annuity incident to the credit. Examples include the following:
<?page num="550"?></p>
<p style="-uslm-sgm:P">i. The credit documents reflect the purchase of an annuity from a specific provider or providers.</p>
<p style="-uslm-sgm:P">ii. The creditor assesses an additional charge on consumers who do not purchase an annuity from a specific provider.</p>
<p style="-uslm-sgm:P">iii. The annuity is intended to replace in whole or in part the creditor's payments to the consumer either immediately or at some future date.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(a)(2) Special rule; closing agent charges.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> This rule applies to charges by a third party serving as the closing agent for the particular loan. An example of a closing agent charge included in the finance charge is a courier fee where the creditor requires the use of a courier.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Required closing agent.</inline> If the creditor requires the use of a closing agent, fees charged by the closing agent are included in the finance charge only if the creditor requires the particular service, requires the imposition of the charge, or retains a portion of the charge. Fees charged by a third-party closing agent may be otherwise excluded from the finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>. For example, a fee that would be paid in a comparable cash transaction may be excluded under <ref href="/us/cfr/t12/s226.4/a">§ 226.4(a)</ref>. A charge for conducting or attending a closing is a finance charge and may be excluded only if the charge is included in and is incidental to a lump-sum fee excluded under <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(a)(3) Special rule; mortgage broker fees.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A fee charged by a mortgage broker is excluded from the finance charge if it is the type of fee that is also excluded when charged by the creditor. For example, to exclude an application fee from the finance charge under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref>, a mortgage broker must charge the fee to all applicants for credit, whether or not credit is extended.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This rule applies to charges paid by consumers to a mortgage broker in connection with a consumer credit transaction secured by real property or a dwelling.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Compensation by lender.</inline> The rule requires all mortgage broker fees to be included in the finance charge. Creditors sometimes compensate mortgage brokers under a separate arrangement with those parties. Creditors may draw on amounts paid by the consumer, such as points or closing costs, to fund their payment to the broker. Compensation paid by a creditor to a mortgage broker under an agreement is not included as a separate component of a consumer's total finance charge (although this compensation may be reflected in the finance charge if it comes from amounts paid by the consumer to the creditor that are finance charges, such as points and interest).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(b) Examples of finance charges.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to other provisions.</inline> Charges or fees shown as examples of finance charges in <ref href="/us/cfr/t12/s226.4/b">§ 226.4(b)</ref> may be excludable under <ref href="/us/cfr/t12/s226.4/c">§ 226.4(c)</ref>, (d), or (e). For example:</p>
<p style="-uslm-sgm:P">i. Premiums for credit life insurance, shown as an example of a finance charge under <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref>, may be excluded if the requirements of <ref href="/us/cfr/t12/s226.4/d/1">§ 226.4(d)(1)</ref> are met.</p>
<p style="-uslm-sgm:P">ii. Appraisal fees mentioned in <ref href="/us/cfr/t12/s226.4/b/4">§ 226.4(b)(4)</ref> are excluded for real property or residential mortgage transactions under <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Checking account charges.</inline> A checking or transaction account charge imposed in connection with a credit feature is a finance charge under <ref href="/us/cfr/t12/s226.4/b/2">§ 226.4(b)(2)</ref> to the extent the charge exceeds the charge for a similar account without a credit feature. If a charge for an account with a credit feature does not exceed the charge for an account without a credit feature, the charge is not a finance charge under <ref href="/us/cfr/t12/s226.4/b/2">§ 226.4(b)(2)</ref>. To illustrate:</p>
<p style="-uslm-sgm:P">i. A $5 service charge is imposed on an account with an overdraft line of credit (where the institution has agreed in writing to pay an overdraft), while a $3 service charge is imposed on an account without a credit feature; the $2 difference is a finance charge. (If the difference is not related to account activity, however, it may be excludable as a participation fee. See the commentary to <ref href="/us/cfr/t12/s226.4/c/4">§ 226.4(c)(4)</ref>.)</p>
<p style="-uslm-sgm:P">ii. A $5 service charge is imposed for each item that results in an overdraft on an account with an overdraft line of credit, while a $25 service charge is imposed for paying or returning each item on a similar account without a credit feature; the $5 charge is not a finance charge.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(b)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumption fees.</inline> The assumption fees mentioned in <ref href="/us/cfr/t12/s226.4/b/3">§ 226.4(b)(3)</ref> are finance charges only when the assumption occurs and the fee is imposed on the new buyer. The assumption fee is a finance charge in the new buyer's transaction.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(b)(5).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit loss insurance.</inline> Common examples of the insurance against credit loss mentioned in <ref href="/us/cfr/t12/s226.4/b/5">§ 226.4(b)(5)</ref> are mortgage guaranty insurance, holder in due course insurance, and repossession insurance. Such premiums must be included in the finance charge only for the period that the creditor requires the insurance to be maintained.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Residual value insurance.</inline> Where a creditor requires a consumer to maintain residual value insurance or where the creditor is a beneficiary of a residual value insurance policy written in connection with an extension of credit (as is the case in some forms of automobile balloon-payment financing, for example), the premiums for the insurance must be included in the finance charge for the period that the insurance is to be maintained. If a creditor pays for residual-value insurance and absorbs the payment as a cost of doing business, such costs are not considered finance charges. (See comment 4(a)–2.)
<?page num="551"?></p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraphs 4(b)(7) and (b)(8).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pre-existing insurance policy.</inline> The insurance discussed in <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> and (b)(8) does not include an insurance policy (such as a life or an automobile collision insurance policy) that is already owned by the consumer, even if the policy is assigned to or otherwise made payable to the creditor to satisfy an insurance requirement. Such a policy is not “written in connection with” the transaction, as long as the insurance was not purchased for use in that credit extension, since it was previously owned by the consumer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insurance written in connection with a transaction.</inline> Credit insurance sold before or after an open-end (not home-secured) plan is opened is considered “written in connection with a credit transaction.” Insurance sold after consummation in closed-end credit transactions or after the opening of a home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> is not considered “written in connection with” the credit transaction if the insurance is written because of the consumer's default (for example, by failing to obtain or maintain required property insurance) or because the consumer requests insurance after consummation or the opening of a home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> (although credit-sale disclosures may be required for the insurance sold after consummation if it is financed).</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution of life insurance.</inline> The premium for a life insurance policy purchased and assigned to satisfy a credit life insurance requirement must be included in the finance charge, but only to the extent of the cost of the credit life insurance if purchased from the creditor or the actual cost of the policy (if that is less than the cost of the insurance available from the creditor). If the creditor does not offer the required insurance, the premium to be included in the finance charge is the cost of a policy of insurance of the type, amount, and term required by the creditor.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other insurance.</inline> Fees for required insurance not of the types described in <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> and (b)(8) are finance charges and are not excludable. For example:</p>
<p style="-uslm-sgm:P">i. The premium for a hospitalization insurance policy, if it is required to be purchased only in a credit transaction, is a finance charge.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(b)(9).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounts for payment by other than credit.</inline> The discounts to induce payment by other than credit mentioned in <ref href="/us/cfr/t12/s226.4/b/9">§ 226.4(b)(9)</ref> include, for example, the following situation:</p>
<p style="-uslm-sgm:P">i. The seller of land offers individual tracts for $10,000 each. If the purchaser pays cash, the price is $9,000, but if the purchaser finances the tract with the seller the price is $10,000. The $1,000 difference is a finance charge for those who buy the tracts on credit.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exception for cash discounts.</inline>
</p>
<p style="-uslm-sgm:P">i. Creditors may exclude from the finance charge discounts offered to consumers for using cash or another means of payment instead of using a credit card or an open-end plan. The discount may be in whatever amount the seller desires, either as a percentage of the regular price (as defined in section 103(z) of the act, as amended) or a dollar amount. Pursuant to section 167(b) of the act, this provision applies only to transactions involving an open-end credit plan or a credit card (whether open-end or closed-end credit is extended on the card). The merchant must offer the discount to prospective buyers whether or not they are cardholders or members of the open-end credit plan. The merchant may, however, make other distinctions. For example:</p>
<p style="-uslm-sgm:P">A. The merchant may limit the discount to payment by cash and not offer it for payment by check or by use of a debit card.</p>
<p style="-uslm-sgm:P">B. The merchant may establish a discount plan that allows a 15% discount for payment by cash, a 10% discount for payment by check, and a 5% discount for payment by a particular credit card. None of these discounts is a finance charge.</p>
<p style="-uslm-sgm:P">ii. Pursuant to section 171(c) of the act, discounts excluded from the finance charge under this paragraph are also excluded from treatment as a finance charge or other charge for credit under any state usury or disclosure laws.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determination of the regular price.</inline>
</p>
<p style="-uslm-sgm:P">i. The <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">regular price</inline> is critical in determining whether the difference between the price charged to cash customers and credit customers is a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">discount</inline> or a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">surcharge,</inline> as these terms are defined in amended section 103 of the act. The <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">regular price</inline> is defined in section 103 of the act as—</p>
<p style="-uslm-sgm:P">* * * the tag or posted price charged for the property or service if a single price is tagged or posted, or the price charged for the property or service when payment is made by use of an open-end credit account or a credit card if either (1) no price is tagged or posted, or (2) two prices are tagged or posted. * * *</p>
<p style="-uslm-sgm:P">ii. For example, in the sale of motor vehicle fuel, the tagged or posted price is the price displayed at the pump. As a result, the higher price (the open-end credit or credit card price) must be displayed at the pump, either alone or along with the cash price. Service station operators may designate separate pumps or separate islands as being for either cash or credit purchases and display only the appropriate prices at the various pumps. If a pump is capable of displaying on its meter either a cash or a credit price depending upon the consumer's means of payment, both the cash price and the credit price must be displayed at the pump. A service station operator may display the cash price of fuel by itself on a curb sign, as long <?page num="552"?>as the sign clearly indicates that the price is limited to cash purchases.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(b)(10) Debt cancellation and debt suspension fees.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> Debt cancellation coverage provides for payment or satisfaction of all or part of a debt when a specified event occurs. The term “debt cancellation coverage” includes guaranteed automobile protection, or “GAP,” agreements, which pay or satisfy the remaining debt after property insurance benefits are exhausted. Debt suspension coverage provides for suspension of the obligation to make one or more payments on the date(s) otherwise required by the credit agreement, when a specified event occurs. The term “debt suspension” does not include loan payment deferral arrangements in which the triggering event is the bank's unilateral decision to allow a deferral of payment and the borrower's unilateral election to do so, such as by skipping or reducing one or more payments (“skip payments”).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage written in connection with a transaction.</inline> Coverage sold after consummation in closed-end credit transactions or after the opening of a home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> is not “written in connection with” the credit transaction if the coverage is written because the consumer requests coverage after consummation or the opening of a home-equity plan subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> (although credit-sale disclosures may be required for the coverage sold after consummation if it is financed). Coverage sold before or after an open-end (not home-secured) plan is opened is considered “written in connection with a credit transaction.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(c) Charges excluded from the finance charge.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(c)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application fees.</inline> An application fee that is excluded from the finance charge is a charge to recover the costs associated with processing applications for credit. The fee may cover the costs of services such as credit reports, credit investigations, and appraisals. The creditor is free to impose the fee in only certain of its loan programs, such as mortgage loans. However, if the fee is to be excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref>, it must be charged to all applicants, not just to applicants who are approved or who actually receive credit.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(c)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Late payment charges.</inline>
</p>
<p style="-uslm-sgm:P">i. Late payment charges can be excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/c/2">§ 226.4(c)(2)</ref> whether or not the person imposing the charge continues to extend credit on the account or continues to provide property or services to the consumer. In determining whether a charge is for actual unanticipated late payment on a 30-day account, for example, factors to be considered include:</p>
<p style="-uslm-sgm:P">A. The terms of the account. For example, is the consumer required by the account terms to pay the account balance in full each month? If not, the charge may be a finance charge.</p>
<p style="-uslm-sgm:P">B. The practices of the creditor in handling the accounts. For example, regardless of the terms of the account, does the creditor allow consumers to pay the accounts over a period of time without demanding payment in full or taking other action to collect? If no effort is made to collect the full amount due, the charge may be a finance charge.</p>
<p style="-uslm-sgm:P">ii. Section 226.4(c)(2) applies to late payment charges imposed for failure to make payments as agreed, as well as failure to pay an account in full when due.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other excluded charges.</inline> Charges for “delinquency, default, or a similar occurrence” include, for example, charges for reinstatement of credit privileges or for submitting as payment a check that is later returned unpaid.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(c)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assessing interest on an overdraft balance.</inline> A charge on an overdraft balance computed by applying a rate of interest to the amount of the overdraft is not a finance charge, even though the consumer agrees to the charge in the account agreement, unless the financial institution agrees in writing that it will pay such items.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(c)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Participation fees—periodic basis.</inline> The participation fees described in <ref href="/us/cfr/t12/s226.4/c/4">§ 226.4(c)(4)</ref> do not necessarily have to be formal membership fees, nor are they limited to credit card plans. The provision applies to any credit plan in which payment of a fee is a condition of access to the plan itself, but it does not apply to fees imposed separately on individual closed-end transactions. The fee may be charged on a monthly, annual, or other periodic basis; a one-time, non-recurring fee imposed at the time an account is opened is not a fee that is charged on a periodic basis, and may not be treated as a participation fee.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Participation fees—exclusions.</inline> Minimum monthly charges, charges for non-use of a credit card, and other charges based on either account activity or the amount of credit available under the plan are not excluded from the finance charge by <ref href="/us/cfr/t12/s226.4/c/4">§ 226.4(c)(4)</ref>. Thus, for example, a fee that is charged and then refunded to the consumer based on the extent to which the consumer uses the credit available would be a finance charge. (See the commentary to <ref href="/us/cfr/t12/s226.4/b/2">§ 226.4(b)(2)</ref>. Also, see comment 14(c)–2 for treatment of certain types of fees excluded in determining the annual percentage rate for the periodic statement.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(c)(5).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Seller's points.</inline> The seller's points mentioned in <ref href="/us/cfr/t12/s226.4/c/5">§ 226.4(c)(5)</ref> include any charges imposed by the creditor upon the noncreditor seller of property for providing credit to the <?page num="553"?>buyer or for providing credit on certain terms. These charges are excluded from the finance charge even if they are passed on to the buyer, for example, in the form of a higher sales price. Seller's points are frequently involved in real estate transactions guaranteed or insured by governmental agencies. A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">commitment fee</inline> paid by a noncreditor seller (such as a real estate developer) to the creditor should be treated as seller's points. Buyer's points (that is, points charged to the buyer by the creditor), however, are finance charges.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other seller-paid amounts.</inline> Mortgage insurance premiums and other finance charges are sometimes paid at or before consummation or settlement on the borrower's behalf by a noncreditor seller. The creditor should treat the payment made by the seller as seller's points and exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge. A creditor who gives disclosures before the payment has been made should base them on the best information reasonably available.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(c)(6).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lost interest.</inline> Certain federal and state laws mandate a percentage differential between the interest rate paid on a deposit and the rate charged on a loan secured by that deposit. In some situations, because of usury limits the creditor must reduce the interest rate paid on the deposit and, as a result, the consumer loses some of the interest that would otherwise have been earned. Under <ref href="/us/cfr/t12/s226.4/c/6">§ 226.4(c)(6)</ref>, such “lost interest” need not be included in the finance charge. This rule applies only to an interest reduction imposed because a rate differential is required by law and a usury limit precludes compliance by any other means. If the creditor imposes a differential that exceeds that required, only the lost interest attributable to the excess amount is a finance charge. (See the commentary to <ref href="/us/cfr/t12/s226.4/a">§ 226.4(a)</ref>.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 4(c)(7).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Real estate or residential mortgage transaction charges.</inline> The list of charges in <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref> applies both to residential mortgage transactions (which may include, for example, the purchase of a mobile home) and to other transactions secured by real estate. The fees are excluded from the finance charge even if the services for which the fees are imposed are performed by the creditor's employees rather than by a third party. In addition, the cost of verifying or confirming information connected to the item is also excluded. For example, credit-report fees cover not only the cost of the report but also the cost of verifying information in the report. In all cases, charges excluded under <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref> must be bona fide and reasonable.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lump-sum charges.</inline> If a lump sum charged for several services includes a charge that is not excludable, a portion of the total should be allocated to that service and included in the finance charge. However, a lump sum charged for conducting or attending a closing (for example, by a lawyer or a title company) is excluded from the finance charge if the charge is primarily for services related to items listed in <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref> (for example, reviewing or completing documents), even if other incidental services such as explaining various documents or disbursing funds for the parties are performed. The entire charge is excluded even if a fee for the incidental services would be a finance charge if it were imposed separately.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges assessed during the loan term.</inline> Real estate or residential mortgage transaction charges excluded under <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref> are those charges imposed solely in connection with the initial decision to grant credit. This would include, for example, a fee to search for tax liens on the property or to determine if flood insurance is required. The exclusion does not apply to fees for services to be performed periodically during the loan term, regardless of when the fee is collected. For example, a fee for one or more determinations during the loan term of the current tax-lien status or flood-insurance requirements is a finance charge, regardless of whether the fee is imposed at closing, or when the service is performed. If a creditor is uncertain about what portion of a fee to be paid at consummation or loan closing is related to the initial decision to grant credit, the entire fee may be treated as a finance charge.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(d) Insurance and debt cancellation and debt suspension coverage.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.4(d) permits insurance premiums and charges and debt cancellation and debt suspension charges to be excluded from the finance charge. The required disclosures must be made in writing, except as provided in <ref href="/us/cfr/t12/s226.4/d/4">§ 226.4(d)(4)</ref>. The rules on location of insurance and debt cancellation and debt suspension disclosures for closed-end transactions are in <ref href="/us/cfr/t12/s226.17/a">§ 226.17(a)</ref>. For purposes of <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref>, all references to insurance also include debt cancellation and debt suspension coverage unless the context indicates otherwise.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of disclosures.</inline> If disclosures are given early, for example under <ref href="/us/cfr/t12/s226.17/f">§ 226.17(f)</ref> or <ref href="/us/cfr/t12/s226.19/a">§ 226.19(a)</ref>, the creditor need not redisclose if the actual premium is different at the time of consummation. If insurance disclosures are not given at the time of early disclosure and insurance is in fact written in connection with the transaction, the disclosures under <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref> must be made in order to exclude the premiums from the finance charge.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Premium rate increases.</inline> The creditor should disclose the premium amount based on the rates currently in effect and need not designate it as an estimate even if the premium rates may increase. An increase in insurance rates after consummation of a closed-end credit transaction or during the <?page num="554"?>life of an open-end credit plan does not require redisclosure in order to exclude the additional premium from treatment as a finance charge.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unit-cost disclosures.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end credit.</inline> The premium or fee for insurance or debt cancellation or debt suspension for the initial term of coverage may be disclosed on a unit-cost basis in open-end credit transactions. The cost per unit should be based on the initial term of coverage, unless one of the options under comment 4(d)–12 is available.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Closed-end credit.</inline> One of the transactions for which unit-cost disclosures (such as 50 cents per year for each $100 of the amount financed) may be used in place of the total insurance premium involves a particular kind of insurance plan. For example, a consumer with a current indebtedness of $8,000 is covered by a plan of credit life insurance coverage with a maximum of $10,000. The consumer requests an additional $4,000 loan to be covered by the same insurance plan. Since the $4,000 loan exceeds, in part, the maximum amount of indebtedness that can be covered by the plan, the creditor may properly give the insurance-cost disclosures on the $4,000 loan on a unit-cost basis.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Required credit life insurance; debt cancellation or suspension coverage.</inline> Credit life, accident, health, or loss-of-income insurance, and debt cancellation and suspension coverage described in <ref href="/us/cfr/t12/s226.4/b/10">§ 226.4(b)(10)</ref>, must be voluntary in order for the premium or charges to be excluded from the finance charge. Whether the insurance or coverage is in fact required or optional is a factual question. If the insurance or coverage is required, the premiums must be included in the finance charge, whether the insurance or coverage is purchased from the creditor or from a third party. If the consumer is required to elect one of several options—such as to purchase credit life insurance, or to assign an existing life insurance policy, or to pledge security such as a certificate of deposit—and the consumer purchases the credit life insurance policy, the premium must be included in the finance charge. (If the consumer assigns a preexisting policy or pledges security instead, no premium is included in the finance charge. The security interest would be disclosed under <ref href="/us/cfr/t12/s226.6/a/4">§ 226.6(a)(4)</ref>, <ref href="/us/cfr/t12/s226.6/b/5/ii">§ 226.6(b)(5)(ii)</ref>, or <ref href="/us/cfr/t12/s226.18/m">§ 226.18(m)</ref>. See the commentary to <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> and (b)(8).)</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other types of voluntary insurance.</inline> Insurance is not credit life, accident, health, or loss-of-income insurance if the creditor or the credit account of the consumer is not the beneficiary of the insurance coverage. If the premium for such insurance is not imposed by the creditor as an incident to or a condition of credit, it is not covered by <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Signatures.</inline> If the creditor offers a number of insurance options under <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref>, the creditor may provide a means for the consumer to sign or initial for each option, or it may provide for a single authorizing signature or initial with the options selected designated by some other means, such as a check mark. The insurance authorization may be signed or initialed by any consumer, as defined in <ref href="/us/cfr/t12/s226.2/a/11">§ 226.2(a)(11)</ref>, or by an authorized user on a credit card account.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Property insurance.</inline> To exclude property insurance premiums or charges from the finance charge, the creditor must allow the consumer to choose the insurer and disclose that fact. This disclosure must be made whether or not the property insurance is available from or through the creditor. The requirement that an option be given does not require that the insurance be readily available from other sources. The premium or charge must be disclosed only if the consumer elects to purchase the insurance from the creditor; in such a case, the creditor must also disclose the term of the property insurance coverage if it is less than the term of the obligation.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Single-interest insurance.</inline> Blanket and specific single-interest coverage are treated the same for purposes of the regulation. A charge for either type of single-interest insurance may be excluded from the finance charge if:</p>
<p style="-uslm-sgm:P">i. The insurer waives any right of subrogation.</p>
<p style="-uslm-sgm:P">ii. The other requirements of <ref href="/us/cfr/t12/s226.4/d/2">§ 226.4(d)(2)</ref> are met. This includes, of course, giving the consumer the option of obtaining the insurance from a person of the consumer's choice. The creditor need not ascertain whether the consumer is able to purchase the insurance from someone else.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Single-interest insurance defined.</inline> The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">single-interest insurance</inline> as used in the regulation refers only to the types of coverage traditionally included in the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">vendor's single-interest insurance</inline> (or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">VSI</inline>), that is, protection of tangible property against normal property damage, concealment, confiscation, conversion, embezzlement, and skip. Some comprehensive insurance policies may include a variety of additional coverages, such as repossession insurance and holder-in-due-course insurance. These types of coverage do not constitute single-interest insurance for purposes of the regulation, and premiums for them do not qualify for exclusion from the finance charge under <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref>. If a policy that is primarily VSI also provides coverages that are not VSI or other property insurance, a portion of the premiums must be allocated to the nonexcludable coverages and included in the finance charge. However, such allocation is not required if the total premium in fact attributable to all of the non-VSI coverages included in the policy is $1.00 or less (or $5.00 or less in the case of a multiyear policy).</p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Initial term.</inline>
<?page num="555"?> </p>
<p style="-uslm-sgm:P">i. The initial term of insurance or debt cancellation or debt suspension coverage determines the period for which a premium amount must be disclosed, unless one of the options discussed under comment 4(d)–12 is available. For purposes of <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref>, the initial term is the period for which the insurer or creditor is obligated to provide coverage, even though the consumer may be allowed to cancel the coverage or coverage may end due to nonpayment before that term expires.</p>
<p style="-uslm-sgm:P">ii. For example:</p>
<p style="-uslm-sgm:P">A. The initial term of a property insurance policy on an automobile that is written for one year is one year even though premiums are paid monthly and the term of the credit transaction is four years.</p>
<p style="-uslm-sgm:P">B. The initial term of an insurance policy is the full term of the credit transaction if the consumer pays or finances a single premium in advance.</p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Initial term; alternative.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A creditor has the option of providing cost disclosures on the basis of one year of insurance or debt cancellation or debt suspension coverage instead of a longer initial term (provided the premium or fee is clearly labeled as being for one year) if:</p>
<p style="-uslm-sgm:P">A. The initial term is indefinite or not clear, or</p>
<p style="-uslm-sgm:P">B. The consumer has agreed to pay a premium or fee that is assessed periodically but the consumer is under no obligation to continue the coverage, whether or not the consumer has made an initial payment.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end plans.</inline> For open-end plans, a creditor also has the option of providing unit-cost disclosure on the basis of a period that is less than one year if the consumer has agreed to pay a premium or fee that is assessed periodically, for example monthly, but the consumer is under no obligation to continue the coverage.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> To illustrate:</p>
<p style="-uslm-sgm:P">A. A credit life insurance policy providing coverage for a 30-year mortgage loan has an initial term of 30 years, even though premiums are paid monthly and the consumer is not required to continue the coverage. Disclosures may be based on the initial term, but the creditor also has the option of making disclosures on the basis of coverage for an assumed initial term of one year.</p>
<p style="-uslm-sgm:P">13. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loss-of-income insurance.</inline> The loss-of-income insurance mentioned in <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref> includes involuntary unemployment insurance, which provides that some or all of the consumer's payments will be made if the consumer becomes unemployed involuntarily.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(d)(3) Voluntary debt cancellation or debt suspension fees.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Fees charged for the specialized form of debt cancellation agreement known as guaranteed automobile protection (“GAP”) agreements must be disclosed according to <ref href="/us/cfr/t12/s226.4/d/3">§ 226.4(d)(3)</ref> rather than according to <ref href="/us/cfr/t12/s226.4/d/2">§ 226.4(d)(2)</ref> for property insurance.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures.</inline> Creditors can comply with <ref href="/us/cfr/t12/s226.4/d/3">§ 226.4(d)(3)</ref> by providing a disclosure that refers to debt cancellation or debt suspension coverage whether or not the coverage is considered insurance. Creditors may use the model credit insurance disclosures only if the debt cancellation or debt suspension coverage constitutes insurance under state law. (See Model Clauses and Samples at G–16 and H–17 in appendix G and appendix H to part 226 for guidance on how to provide the disclosure required by <ref href="/us/cfr/t12/s226.4/d/3/iii">§ 226.4(d)(3)(iii)</ref> for debt suspension products.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple events.</inline> If debt cancellation or debt suspension coverage for two or more events is provided at a single charge, the entire charge may be excluded from the finance charge if at least one of the events is accident or loss of life, health, or income and the conditions specified in <ref href="/us/cfr/t12/s226.4/d/3">§ 226.4(d)(3)</ref> or, as applicable, <ref href="/us/cfr/t12/s226.4/d/4">§ 226.4(d)(4)</ref>, are satisfied.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures in programs combining debt cancellation and debt suspension features.</inline> If the consumer's debt can be cancelled under certain circumstances, the disclosure may be modified to reflect that fact. The disclosure could, for example, state (in addition to the language required by <ref href="/us/cfr/t12/s226.4/d/3/iii">§ 226.4(d)(3)(iii)</ref>) that “In some circumstances, my debt may be cancelled.” However, the disclosure would not be permitted to list the specific events that would result in debt cancellation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(d)(4) Telephone purchases.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affirmative request.</inline> A creditor would not satisfy the requirement to obtain a consumer's affirmative request if the “request” was a response to a script that uses leading questions or negative consent. A question asking whether the consumer wishes to enroll in the credit insurance or debt cancellation or suspension plan and seeking a yes-or-no response (such as “Do you want to enroll in this optional debt cancellation plan?”) would not be considered leading.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(e) Certain security interest charges.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Excludable charges.</inline> Sums must be actually paid to public officials to be excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/e/1">§ 226.4(e)(1)</ref> and (e)(3). Examples are charges or other fees required for filing or recording security agreements, mortgages, continuation statements, termination statements, and similar documents, as well as intangible property or other taxes even when the charges or fees are imposed by the state solely on the creditor and charged to the consumer (if the tax must be paid to record a security agreement). (See comment 4(a)–5 regarding the treatment of taxes, generally.)</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges not excludable.</inline> If the obligation is between the creditor and a third party (an assignee, for example), charges or other fees for filing or recording security agreements, mortgages, continuation statements, termination statements, and similar documents <?page num="556"?>relating to that obligation are not excludable from the finance charge under this section.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Itemization.</inline> The various charges described in <ref href="/us/cfr/t12/s226.4/e/1">§ 226.4(e)(1)</ref> and (e)(3) may be totaled and disclosed as an aggregate sum, or they may be itemized by the specific fees and taxes imposed. If an aggregate sum is disclosed, a general term such as security interest fees or filing fees may be used.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notary fees.</inline> In order for a notary fee to be excluded under <ref href="/us/cfr/t12/s226.4/e/1">§ 226.4(e)(1)</ref>, all of the following conditions must be met:</p>
<p style="-uslm-sgm:P">i. The document to be notarized is one used to perfect, release, or continue a security interest.</p>
<p style="-uslm-sgm:P">ii. The document is required by law to be notarized.</p>
<p style="-uslm-sgm:P">iii. A notary is considered a public official under applicable law.</p>
<p style="-uslm-sgm:P">iv. The amount of the fee is set or authorized by law.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonfiling insurance.</inline> The exclusion in <ref href="/us/cfr/t12/s226.4/e/2">§ 226.4(e)(2)</ref> is available only if nonfiling insurance is purchased. If the creditor collects and simply retains a fee as a sort of “self-insurance” against nonfiling, it may not be excluded from the finance charge. If the nonfiling insurance premium exceeds the amount of the fees excludable from the finance charge under <ref href="/us/cfr/t12/s226.4/e/1">§ 226.4(e)(1)</ref>, only the excess is a finance charge. For example:</p>
<p style="-uslm-sgm:P">i. The fee for perfecting a security interest is $5.00 and the fee for releasing the security interest is $3.00. The creditor charges $10.00 for nonfiling insurance. Only $8.00 of the $10.00 is excludable from the finance charge.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">4(f) Prohibited offsets.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Earnings on deposits or investments.</inline> The rule that the creditor shall not deduct any earnings by the consumer on deposits or investments applies whether or not the creditor has a security interest in the property.</p>
<heading style="-uslm-sgm:HD1">Subpart B—Open-End Credit</heading>
<heading style="-uslm-sgm:HD2">Section 226.5—General Disclosure Requirements</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(a) Form of disclosures.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(a)(1) General.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard.</inline> The “clear and conspicuous” standard generally requires that disclosures be in a reasonably understandable form. Disclosures for credit card applications and solicitations under <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, highlighted account-opening disclosures under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref>, highlighted disclosure on checks that access a credit card under <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref>, highlighted change-in-terms disclosures under <ref href="/us/cfr/t12/s226.9/c/2/iv/D">§ 226.9(c)(2)(iv)(D)</ref>, and highlighted disclosures when a rate is increased due to delinquency, default or for a penalty under <ref href="/us/cfr/t12/s226.9/g/3/ii">§ 226.9(g)(3)(ii)</ref> must also be readily noticeable to the consumer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous—reasonably understandable form.</inline> Except where otherwise provided, the reasonably understandable form standard does not require that disclosures be segregated from other material or located in any particular place on the disclosure statement, or that numerical amounts or percentages be in any particular type size. For disclosures that are given orally, the standard requires that they be given at a speed and volume sufficient for a consumer to hear and comprehend them. (See comment 5(b)(1)(ii)–1.) Except where otherwise provided, the standard does not prohibit:</p>
<p style="-uslm-sgm:P">i. Pluralizing required terminology (“finance charge” and “annual percentage rate”).</p>
<p style="-uslm-sgm:P">ii. Adding to the required disclosures such items as contractual provisions, explanations of contract terms, state disclosures, and translations.</p>
<p style="-uslm-sgm:P">iii. Sending promotional material with the required disclosures.</p>
<p style="-uslm-sgm:P">iv. Using commonly accepted or readily understandable abbreviations (such as “mo.” for “month” or “Tx.” for “Texas”) in making any required disclosures.</p>
<p style="-uslm-sgm:P">v. Using codes or symbols such as “APR” (for annual percentage rate), “FC” (for finance charge), or “Cr” (for credit balance), so long as a legend or description of the code or symbol is provided on the disclosure statement.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous—readily noticeable standard.</inline> To meet the readily noticeable standard, disclosures for credit card applications and solicitations under <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, highlighted account-opening disclosures under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref>, highlighted disclosures on checks that access a credit card account under <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref>, highlighted change-in-terms disclosures under <ref href="/us/cfr/t12/s226.9/c/2/iv/D">§ 226.9(c)(2)(iv)(D)</ref>, and highlighted disclosures when a rate is increased due to delinquency, default or penalty pricing under <ref href="/us/cfr/t12/s226.9/g/3/ii">§ 226.9(g)(3)(ii)</ref> must be given in a minimum of 10-point font. (See special rule for font size requirements for the annual percentage rate for purchases under <ref href="/us/cfr/t12/s226.5a/b/1">§§ 226.5a(b)(1)</ref> and 226.6(b)(2)(i).)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Integrated document.</inline> The creditor may make both the account-opening disclosures (<ref href="/us/cfr/t12/s226.6">§ 226.6</ref>) and the periodic-statement disclosures (<ref href="/us/cfr/t12/s226.7">§ 226.7</ref>) on more than one page, and use both the front and the reverse sides, except where otherwise indicated, so long as the pages constitute an integrated document. An integrated document would not include disclosure pages provided to the consumer at different times or disclosures interspersed on the same page with promotional material. An integrated document would include, for example:</p>
<p style="-uslm-sgm:P">i. Multiple pages provided in the same envelope that cover related material and are folded together, numbered consecutively, or clearly labeled to show that they relate to one another; or</p>
<p style="-uslm-sgm:P">ii. A brochure that contains disclosures and explanatory material about a range of services the creditor offers, such as credit, <?page num="557"?>checking account, and electronic fund transfer features.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures covered.</inline> Disclosures that must meet the “clear and conspicuous” standard include all required communications under this subpart. Therefore, disclosures made by a person other than the card issuer, such as disclosures of finance charges imposed at the time of honoring a consumer's credit card under <ref href="/us/cfr/t12/s226.9/d">§ 226.9(d)</ref>, and notices, such as the correction notice required to be sent to the consumer under <ref href="/us/cfr/t12/s226.13/e">§ 226.13(e)</ref>, must also be clear and conspicuous.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 5(a)(1)(ii)(A).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic disclosures.</inline> Disclosures that need not be provided in writing under <ref href="/us/cfr/t12/s226.5/a/1/ii/A">§ 226.5(a)(1)(ii)(A)</ref> may be provided in writing, orally, or in electronic form. If the consumer requests the service in electronic form, such as on the creditor's Web site, the specified disclosures may be provided in electronic form without regard to the consumer consent or other provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 5(a)(1)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures not subject to E-Sign Act.</inline> See the commentary to <ref href="/us/cfr/t12/s226.5/a/1/ii/A">§ 226.5(a)(1)(ii)(A)</ref> regarding disclosures (in addition to those specified under <ref href="/us/cfr/t12/s226.5/a/1/iii">§ 226.5(a)(1)(iii)</ref>) that may be provided in electronic form without regard to the consumer consent or other provisions of the E-Sign Act.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(a)(2) Terminology.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When disclosures must be more conspicuous.</inline> For home-equity plans subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate,</inline> when required to be used with a number, must be disclosed more conspicuously than other required disclosures, except in the cases provided in <ref href="/us/cfr/t12/s226.5/a/2/ii">§ 226.5(a)(2)(ii)</ref>. At the creditor's option, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> may also be disclosed more conspicuously than the other required disclosures even when the regulation does not so require. The following examples illustrate these rules:</p>
<p style="-uslm-sgm:P">i. In disclosing the annual percentage rate as required by <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref>, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> is subject to the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">more conspicuous</inline> rule.</p>
<p style="-uslm-sgm:P">ii. In disclosing the amount of the finance charge, required by <ref href="/us/cfr/t12/s226.7/a/6/i">§ 226.7(a)(6)(i)</ref>, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> is subject to the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">more conspicuous</inline> rule.</p>
<p style="-uslm-sgm:P">iii. Although neither <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> nor <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> need be emphasized when used as part of general informational material or in textual descriptions of other terms, emphasis is permissible in such cases. For example, when the terms appear as part of the explanations required under <ref href="/us/cfr/t12/s226.6/a/1/iii">§ 226.6(a)(1)(iii)</ref> and (a)(1)(iv), they may be equally conspicuous as the disclosures required under <ref href="/us/cfr/t12/s226.6/a/1/ii">§§ 226.6(a)(1)(ii)</ref> and 226.7(a)(7).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Making disclosures more conspicuous.</inline> In disclosing the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> more conspicuously for home-equity plans subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, only the words <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> should be accentuated. For example, if the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total finance charge</inline> is used, only <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> should be emphasized. The disclosures may be made more conspicuous by, for example:</p>
<p style="-uslm-sgm:P">i. Capitalizing the words when other disclosures are printed in lower case.</p>
<p style="-uslm-sgm:P">ii. Putting them in bold print or a contrasting color.</p>
<p style="-uslm-sgm:P">iii. Underlining them.</p>
<p style="-uslm-sgm:P">iv. Setting them off with asterisks.</p>
<p style="-uslm-sgm:P">v. Printing them in larger type.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of figures—exception to more conspicuous rule.</inline> For home-equity plans subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> need not be more conspicuous than figures (including, for example, numbers, percentages, and dollar signs).</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consistent terminology.</inline> Language used in disclosures required in this subpart must be close enough in meaning to enable the consumer to relate the different disclosures; however, the language need not be identical.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(b) Time of disclosures.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(b)(1) Account-opening disclosures.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(b)(1)(i) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure before the first transaction.</inline> When disclosures must be furnished “before the first transaction,” account-opening disclosures must be delivered before the consumer becomes obligated on the plan. Examples include:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Purchases.</inline> The consumer makes the first purchase, such as when a consumer opens a credit plan and makes purchases contemporaneously at a retail store, except when the consumer places a telephone call to make the purchase and opens the plan contemporaneously. (See commentary to <ref href="/us/cfr/t12/s226.5/b/1/iii">§ 226.5(b)(1)(iii)</ref> below.)</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Advances.</inline> The consumer receives the first advance. If the consumer receives a cash advance check at the same time the account-opening disclosures are provided, disclosures are still timely if the consumer can, after receiving the disclosures, return the cash advance check to the creditor without obligation (for example, without paying finance charges).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reactivation of suspended account.</inline> If an account is temporarily suspended (for example, because the consumer has exceeded a credit limit, or because a credit card is reported lost or stolen) and then is reactivated, no new account-opening disclosures are required.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reopening closed account.</inline> If an account has been closed (for example, due to inactivity, cancellation, or expiration) and then is reopened, new account-opening disclosures <?page num="558"?>are required. No new account-opening disclosures are required, however, when the account is closed merely to assign it a new number (for example, when a credit card is reported lost or stolen) and the “new” account then continues on the same terms.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Converting closed-end to open-end credit.</inline> If a closed-end credit transaction is converted to an open-end credit account under a written agreement with the consumer, account-opening disclosures under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> must be given before the consumer becomes obligated on the open-end credit plan. (See the commentary to <ref href="/us/cfr/t12/s226.17">§ 226.17</ref> on converting open-end credit to closed-end credit.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balance transfers.</inline> A creditor that solicits the transfer by a consumer of outstanding balances from an existing account to a new open-end plan must furnish the disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> so that the consumer has an opportunity, after receiving the disclosures, to contact the creditor before the balance is transferred and decline the transfer. For example, assume a consumer responds to a card issuer's solicitation for a credit card account subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> that offers a range of balance transfer annual percentage rates, based on the consumer's creditworthiness. If the creditor opens an account for the consumer, the creditor would comply with the timing rules of this section by providing the consumer with the annual percentage rate (along with the fees and other required disclosures) that would apply to the balance transfer in time for the consumer to contact the creditor and withdraw the request. A creditor that permits consumers to withdraw the request by telephone has met this timing standard if the creditor does not effect the balance transfer until 10 days after the creditor has sent account-opening disclosures to the consumer, assuming the consumer has not contacted the creditor to withdraw the request. Card issuers that are subject to the requirements of <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> may establish procedures that comply with both <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> and 226.6 in a single disclosure statement.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution or replacement of credit card accounts.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Generally.</inline> When a card issuer substitutes or replaces an existing credit card account with another credit card account, the card issuer must either provide notice of the terms of the new account consistent with <ref href="/us/cfr/t12/s226.6/b">§ 226.6(b)</ref> or provide notice of the changes in the terms of the existing account consistent with <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref>. Whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in <ref href="/us/cfr/t12/s226.6/b">§§ 226.6(b)</ref> and 226.9(c)(2) is determined in light of all the relevant facts and circumstances. For additional requirements and limitations related to the substitution or replacement of credit card accounts, see <ref href="/us/cfr/t12/s226.12/a">§§ 226.12(a)</ref> and 226.55(d) and comments 12(a)(1)–1 through –8, 12(a)(2)–1 through –9, 55(b)(3)–3, and 55(d)–1 through –3.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relevant facts and circumstances.</inline> Listed below are facts and circumstances that are relevant to whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in <ref href="/us/cfr/t12/s226.6/b">§§ 226.6(b)</ref> and 226.9(c)(2). When most of the facts and circumstances listed below are present, the substitution or replacement likely constitutes the opening of a new account for which <ref href="/us/cfr/t12/s226.6/b">§ 226.6(b)</ref> disclosures are appropriate. When few of the facts and circumstances listed below are present, the substitution or replacement likely constitutes a change in the terms of an existing account for which <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> disclosures are appropriate.</p>
<p style="-uslm-sgm:P">A. Whether the card issuer provides the consumer with a new credit card;</p>
<p style="-uslm-sgm:P">B. Whether the card issuer provides the consumer with a new account number;</p>
<p style="-uslm-sgm:P">C. Whether the account provides new features or benefits after the substitution or replacement (such as rewards on purchases);</p>
<p style="-uslm-sgm:P">D. Whether the account can be used to conduct transactions at a greater or lesser number of merchants after the substitution or replacement (such as when a retail card is replaced with a cobranded general purpose credit card that can be used at a wider number of merchants);</p>
<p style="-uslm-sgm:P">E. Whether the card issuer implemented the substitution or replacement on an individualized basis (such as in response to a consumer's request); and</p>
<p style="-uslm-sgm:P">F. Whether the account becomes a different type of open-end plan after the substitution or replacement (such as when a charge card is replaced by a credit card).</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Replacement as a result of theft or unauthorized use.</inline> Notwithstanding paragraphs i. and ii. above, a card issuer that replaces a credit card or provides a new account number because the consumer has reported the card stolen or because the account appears to have been used for unauthorized transactions is not required to provide a notice under <ref href="/us/cfr/t12/s226.6/b">§§ 226.6(b)</ref> or 226.9(c)(2) unless the card issuer has changed a term of the account that is subject to <ref href="/us/cfr/t12/s226.6/b">§§ 226.6(b)</ref> or 226.9(c)(2).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(b)(1)(ii) Charges imposed as part of an open-end (not home-secured) plan.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosing charges before the fee is imposed.</inline> Creditors may disclose charges imposed as part of an open-end (not home-secured) plan orally or in writing at any time before a consumer agrees to pay the fee or becomes obligated for the charge, unless the charge is specified under <ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref>. (Charges imposed as part of an open-end (not home-secured plan) that are not specified under <ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref> may alternatively be disclosed in electronic form; see the commentary to <ref href="/us/cfr/t12/s226.5/a/1/ii/A">§ 226.5(a)(1)(ii)(A)</ref>.) Creditors must provide such disclosures at a time and in a manner <?page num="559"?>that a consumer would be likely to notice them. For example, if a consumer telephones a card issuer to discuss a particular service, a creditor would meet the standard if the creditor clearly and conspicuously discloses the fee associated with the service that is the topic of the telephone call orally to the consumer. Similarly, a creditor providing marketing materials in writing to a consumer about a particular service would meet the standard if the creditor provided a clear and conspicuous written disclosure of the fee for that service in those same materials. A creditor that provides written materials to a consumer about a particular service but provides a fee disclosure for another service not promoted in such materials would not meet the standard. For example, if a creditor provided marketing materials promoting payment by Internet, but included the fee for a replacement card on such materials with no explanation, the creditor would not be disclosing the fee at a time and in a manner that the consumer would be likely to notice the fee.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(b)(1)(iii) Telephone purchases.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Return policies.</inline> In order for creditors to provide disclosures in accordance with the timing requirements of this paragraph, consumers must be permitted to return merchandise purchased at the time the plan was established without paying mailing or return-shipment costs. Creditors may impose costs to return subsequent purchases of merchandise under the plan, or to return merchandise purchased by other means such as a credit card issued by another creditor. A reasonable return policy would be of sufficient duration that the consumer is likely to have received the disclosures and had sufficient time to make a decision about the financing plan before his or her right to return the goods expires. Return policies need not provide a right to return goods if the consumer consumes or damages the goods, or for installed appliances or fixtures, provided there is a reasonable repair or replacement policy to cover defective goods or installations. If the consumer chooses to reject the financing plan, creditors comply with the requirements of this paragraph by permitting the consumer to pay for the goods with another reasonable form of payment acceptable to the merchant and keep the goods although the creditor cannot require the consumer to do so.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(b)(1)(iv) Membership fees.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Membership fees.</inline> See <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref> and related commentary for guidance on fees for issuance or availability of a credit or charge card.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rejecting the plan.</inline> If a consumer has paid or promised to pay a membership fee including an application fee excludable from the finance charge under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref> before receiving account-opening disclosures, the consumer may, after receiving the disclosures, reject the plan and not be obligated for the membership fee, application fee, or any other fee or charge. A consumer who has received the disclosures and uses the account, or makes a payment on the account after receiving a billing statement, is deemed not to have rejected the plan.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Using the account.</inline> A consumer uses an account by obtaining an extension of credit after receiving the account-opening disclosures, such as by making a purchase or obtaining an advance. A consumer does not “use” the account by activating the account. A consumer also does not “use” the account when the creditor assesses fees on the account (such as start-up fees or fees associated with credit insurance or debt cancellation or suspension programs agreed to as a part of the application and before the consumer receives account-opening disclosures). For example, the consumer does not “use” the account when a creditor sends a billing statement with start-up fees, there is no other activity on the account, the consumer does not pay the fees, and the creditor subsequently assesses a late fee or interest on the unpaid fee balances. A consumer also does not “use” the account by paying an application fee excludable from the finance charge under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref> prior to receiving the account-opening disclosures.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Home-equity plans.</inline> Creditors offering home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> are subject to the requirements of <ref href="/us/cfr/t12/s226.5b/h">§ 226.5b(h)</ref> regarding the collection of fees.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(b)(2) Periodic statements.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 5(b)(2)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic statements not required.</inline> Periodic statements need not be sent in the following cases:</p>
<p style="-uslm-sgm:P">i. If the creditor adjusts an account balance so that at the end of the cycle the balance is less than $1—so long as no finance charge has been imposed on the account for that cycle.</p>
<p style="-uslm-sgm:P">ii. If a statement was returned as undeliverable. If a new address is provided, however, within a reasonable time before the creditor must send a statement, the creditor must resume sending statements. Receiving the address at least 20 days before the end of a cycle would be a reasonable amount of time to prepare the statement for that cycle. For example, if an address is received 22 days before the end of the June cycle, the creditor must send the periodic statement for the June cycle. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.13/a/7">§ 226.13(a)(7)</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Termination of draw privileges.</inline> When a consumer's ability to draw on an open-end account is terminated without being converted to closed-end credit under a written agreement, the creditor must continue to provide periodic statements to those consumers entitled to receive them under <?page num="560"?><ref href="/us/cfr/t12/s226.5/b/2/i">§ 226.5(b)(2)(i)</ref>, for example, when the draw period of an open-end credit plan ends and consumers are paying off outstanding balances according to the account agreement or under the terms of a workout agreement that is not converted to a closed-end transaction. In addition, creditors must continue to follow all of the other open-end credit requirements and procedures in subpart B.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Uncollectible accounts.</inline> An account is deemed uncollectible for purposes of <ref href="/us/cfr/t12/s226.5/b/2/i">§ 226.5(b)(2)(i)</ref> when a creditor has ceased collection efforts, either directly or through a third party.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Instituting collection proceedings.</inline> Creditors institute a delinquency collection proceeding by filing a court action or initiating an adjudicatory process with a third party. Assigning a debt to a debt collector or other third party would not constitute instituting a collection proceeding.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 5(b)(2)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mailing or delivery of periodic statements.</inline> A creditor is not required to determine the specific date on which a periodic statement is mailed or delivered to an individual consumer for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii">§ 226.5(b)(2)(ii)</ref>. A creditor complies with <ref href="/us/cfr/t12/s226.5/b/2/ii">§ 226.5(b)(2)(ii)</ref> if it has adopted reasonable procedures designed to ensure that periodic statements are mailed or delivered to consumers no later than a certain number of days after the closing date of the billing cycle and adds that number of days to the 21-day or 14-day period required by <ref href="/us/cfr/t12/s226.5/b/2/ii">§ 226.5(b)(2)(ii)</ref> when determining, as applicable, the payment due date for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>, the date on which any grace period expires for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>), or the date after which the payment will be treated as late for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>). For example</p>
<p style="-uslm-sgm:P">A. If a creditor has adopted reasonable procedures designed to ensure that periodic statements for a credit card account under an open-end (not home-secured) consumer credit plan or an account under an open-end consumer credit plan that provides a grace period are mailed or delivered to consumers no later than three days after the closing date of the billing cycle, the payment due date for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref> and the date on which any grace period expires for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) must be no less than 24 days after the closing date of the billing cycle. Similarly, in these circumstances, the limitations in <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref> and (b)(2)(ii)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) on treating a payment as late and imposing finance charges apply for 24 days after the closing date of the billing cycle.</p>
<p style="-uslm-sgm:P">B. If a creditor has adopted reasonable procedures designed to ensure that periodic statements for an account under an open-end consumer credit plan that does not provide a grace period are mailed or delivered to consumers no later than five days after the closing date of the billing cycle, the date on which a payment must be received in order to avoid being treated as late for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) must be no less than 19 days after the closing date of the billing cycle. Similarly, in these circumstances, the limitation in <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) on treating a payment as late for any purpose applies for 19 days after the closing date of the billing cycle.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Treating a payment as late for any purpose.</inline> Treating a payment as late for any purpose includes increasing the annual percentage rate as a penalty, reporting the consumer as delinquent to a credit reporting agency, assessing a late fee or any other fee, initiating collection activities, or terminating benefits (such as rewards on purchases) based on the consumer's failure to make a payment within a specified amount of time or by a specified date. The prohibitions in <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) and (b)(2)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ii</inline>) on treating a payment as late for any purpose apply only during the 21-day or 14-day period (as applicable) following mailing or delivery of the periodic statement stating the due date for that payment and only if the required minimum periodic payment is received within that period. For example</p>
<p style="-uslm-sgm:P">i. Assume that, for a credit card account under an open-end (not home-secured) consumer credit plan, a periodic statement mailed on April 4 states that a required minimum periodic payment of $50 is due on April 25. If the card issuer does not receive any payment on or before April 25, <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) does not prohibit the card issuer from treating the required minimum periodic payment as late.</p>
<p style="-uslm-sgm:P">ii. Same facts as in paragraph i. above. On April 20, the card issuer receives a payment of $30 and no additional payment is received on or before April 25. Section 226.5(b)(2)(ii)(A)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) does not prohibit the card issuer from treating the required minimum periodic payment as late.</p>
<p style="-uslm-sgm:P">iii. Same facts as in paragraph i. above. On May 4, the card issuer has not received the $50 required minimum periodic payment that was due on April 25. The periodic statement mailed on May 4 states that a required minimum periodic payment of $150 is due on May 25. Section 226.5(b)(2)(ii)(A)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) does not permit the card issuer to treat the $150 required minimum periodic payment as late until April 26. However, the card issuer may continue to treat the $50 required minimum periodic payment as late during this period.</p>
<p style="-uslm-sgm:P">iv. Assume that, for an account under an open-end consumer credit plan that does not provide a grace period, a periodic statement mailed on September 10 states that a required minimum periodic payment of $100 is due on September 24. If the creditor does not receive any payment on or before September 24, <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ii</inline>) does not prohibit the creditor from treating the required minimum periodic payment as late.
<?page num="561"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace periods.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition of grace period.</inline> For purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>, “grace period” means a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate. A deferred interest or similar promotional program under which the consumer is not obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time is not a grace period for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>. Similarly, a period following the payment due date during which a late payment fee will not be imposed is not a grace period for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 7(b)(11)–1, 7(b)(11)–2, and 54(a)(1)–2.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(1).</inline> Section 226.5(b)(2)(ii)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) applies if an account is eligible for a grace period when the periodic statement is mailed or delivered. Section 226.5(b)(2)(ii)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) does not require the creditor to provide a grace period or prohibit the creditor from placing limitations and conditions on a grace period to the extent consistent with <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref> and <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 54(a)(1)–1. Furthermore, the prohibition in <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ii</inline>) applies only during the 21-day period following mailing or delivery of the periodic statement and applies only when the creditor receives a payment within that 21-day period that satisfies the terms of the grace period.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Assume that the billing cycles for an account begin on the first day of the month and end on the last day of the month and that the payment due date for the account is the twenty-fifth of the month. Assume also that, under the terms of the account, the balance at the end of a billing cycle must be paid in full by the following payment due date in order for the account to remain eligible for the grace period. At the end of the April billing cycle, the balance on the account is $500. The grace period applies to the $500 balance because the balance for the March billing cycle was paid in full on April 25. Accordingly, <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i</inline>) requires the creditor to have reasonable procedures designed to ensure that the periodic statement reflecting the $500 balance is mailed or delivered on or before May 4. Furthermore, <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ii</inline>) requires the creditor to have reasonable procedures designed to ensure that the creditor does not impose finance charges as a result of the loss of the grace period if a $500 payment is received on or before May 25. However, if the creditor receives a payment of $300 on April 25, <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ii</inline>) would not prohibit the creditor from imposing finance charges as a result of the loss of the grace period (to the extent permitted by <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>).</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of <ref href="/us/cfr/t12/s226.5/b/2/ii">§ 226.5(b)(2)(ii)</ref> to charge card and charged-off accounts.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charge card accounts.</inline> For purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>), the payment due date for a credit card account under an open-end (not home-secured) consumer credit plan is the date the card issuer is required to disclose on the periodic statement pursuant to <ref href="/us/cfr/t12/s226.7/b/11/i/A">§ 226.7(b)(11)(i)(A)</ref>. Because <ref href="/us/cfr/t12/s226.7/b/11/ii">§ 226.7(b)(11)(ii)</ref> provides that <ref href="/us/cfr/t12/s226.7/b/11/i">§ 226.7(b)(11)(i)</ref> does not apply to periodic statements provided solely for charge card accounts, <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) also does not apply to the mailing or delivery of periodic statements provided solely for such accounts. However, in these circumstances, <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) requires the card issuer to have reasonable procedures designed to ensure that a payment is not treated as late for any purpose during the 21-day period following mailing or delivery of the statement. A card issuer that complies with <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref> as discussed above with respect to a charge card account has also complied with <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>). Section 226.5(b)(2)(ii)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) does not apply to charge card accounts because, for purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>, a grace period is a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate and, consistent with <ref href="/us/cfr/t12/s226.2/a/15/iii">§ 226.2(a)(15)(iii)</ref>, charge card accounts do not impose a finance charge based on a periodic rate.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charged-off accounts.</inline> For purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>), the payment due date for a credit card account under an open-end (not home-secured) consumer credit plan is the date the card issuer is required to disclose on the periodic statement pursuant to <ref href="/us/cfr/t12/s226.7/b/11/i/A">§ 226.7(b)(11)(i)(A)</ref>. Because <ref href="/us/cfr/t12/s226.7/b/11/ii">§ 226.7(b)(11)(ii)</ref> provides that <ref href="/us/cfr/t12/s226.7/b/11/i">§ 226.7(b)(11)(i)</ref> does not apply to periodic statements provided for charged-off accounts where full payment of the entire account balance is due immediately, <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) also does not apply to the mailing or delivery of periodic statements provided solely for such accounts. Furthermore, although <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) requires the card issuer to have reasonable procedures designed to ensure that a payment is not treated as late for any purpose during the 21-day period following mailing or delivery of the statement, <ref href="/us/cfr/t12/s226.5/b/2/ii/A">§ 226.5(b)(2)(ii)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) does not prohibit a card issuer from continuing to treat prior payments as late during that period. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 5(b)(2)(ii)–2. Similarly, although <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) applies to open-end consumer credit accounts in these circumstances, <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ii</inline>) does not prohibit a creditor from continuing treating prior payments as late during the 14-day period following mailing or delivery of a periodic statement. Section 226.5(b)(2)(ii)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) does not apply to charged-off accounts where full payment of the entire account balance is due immediately because such accounts do not provide a grace period.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer request to pick up periodic statements.</inline> When a consumer initiates a request, <?page num="562"?>the creditor may permit, but may not require, the consumer to pick up periodic statements. If the consumer wishes to pick up a statement, the statement must be made available in accordance with <ref href="/us/cfr/t12/s226.5/b/2/ii">§ 226.5(b)(2)(ii)</ref>.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest and similar promotional programs.</inline> See comment 7(b)–1.iv.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(c) Basis of disclosures and use of estimates.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Legal obligation.</inline> The disclosures should reflect the credit terms to which the parties are legally bound at the time of giving the disclosures.</p>
<p style="-uslm-sgm:P">i. The legal obligation is determined by applicable state or other law.</p>
<p style="-uslm-sgm:P">ii. The fact that a term or contract may later be deemed unenforceable by a court on the basis of equity or other grounds does not, by itself, mean that disclosures based on that term or contract did not reflect the legal obligation.</p>
<p style="-uslm-sgm:P">iii. The legal obligation normally is presumed to be contained in the contract that evidences the agreement. But this may be rebutted if another agreement between the parties legally modifies that contract.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Estimates—obtaining information.</inline> Disclosures may be estimated when the exact information is unknown at the time disclosures are made. Information is unknown if it is not reasonably available to the creditor at the time disclosures are made. The reasonably available standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. In using estimates, the creditor is not required to disclose the basis for the estimated figures, but may include such explanations as additional information. The creditor normally may rely on the representations of other parties in obtaining information. For example, the creditor might look to insurance companies for the cost of insurance.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Estimates—redisclosure.</inline> If the creditor makes estimated disclosures, redisclosure is not required for that consumer, even though more accurate information becomes available before the first transaction. For example, in an open-end plan to be secured by real estate, the creditor may estimate the appraisal fees to be charged; such an estimate might reasonably be based on the prevailing market rates for similar appraisals. If the exact appraisal fee is determinable after the estimate is furnished but before the consumer receives the first advance under the plan, no new disclosure is necessary.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(d) Multiple creditors; multiple consumers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple creditors.</inline> Under <ref href="/us/cfr/t12/s226.5/d">§ 226.5(d)</ref>:</p>
<p style="-uslm-sgm:P">i. Creditors must choose which of them will make the disclosures.</p>
<p style="-uslm-sgm:P">ii. A single, complete set of disclosures must be provided, rather than partial disclosures from several creditors.</p>
<p style="-uslm-sgm:P">iii. All disclosures for the open-end credit plan must be given, even if the disclosing creditor would not otherwise have been obligated to make a particular disclosure.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple consumers.</inline> Disclosures may be made to either obligor on a joint account. Disclosure responsibilities are not satisfied by giving disclosures to only a surety or guarantor for a principal obligor or to an authorized user. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind under <ref href="/us/cfr/t12/s226.15">§ 226.15</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuer and person extending credit not the same person.</inline> Section 127(c)(4)(D) of the Truth in Lending Act (<ref href="/us/usc/t15/s1637/c/4/D">15 U.S.C. 1637(c)(4)(D)</ref>) contains rules pertaining to charge card issuers with plans that allow access to an open-end credit plan that is maintained by a person other than the charge card issuer. These rules are not implemented in Regulation Z (although they were formerly implemented in <ref href="/us/cfr/t12/s226.5a/f">§ 226.5a(f)</ref>). However, the statutory provisions remain in effect and may be used by charge card issuers with plans meeting the specified criteria.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5(e) Effect of subsequent events.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Events causing inaccuracies.</inline> Inaccuracies in disclosures are not violations if attributable to events occurring after disclosures are made. For example, when the consumer fails to fulfill a prior commitment to keep the collateral insured and the creditor then provides the coverage and charges the consumer for it, such a change does not make the original disclosures inaccurate. The creditor may, however, be required to provide a new disclosure(s) under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of inserts.</inline> When changes in a creditor's plan affect required disclosures, the creditor may use inserts with outdated disclosure forms. Any insert:</p>
<p style="-uslm-sgm:P">i. Should clearly refer to the disclosure provision it replaces.</p>
<p style="-uslm-sgm:P">ii. Need not be physically attached or affixed to the basic disclosure statement.</p>
<p style="-uslm-sgm:P">iii. May be used only until the supply of outdated forms is exhausted.</p>
<heading style="-uslm-sgm:HD2">Section 226.5a—Credit and Charge Card Applications and Solicitations</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.5a generally requires that credit disclosures be contained in application forms and solicitations initiated by a card issuer to open a credit or charge card account. (See <ref href="/us/cfr/t12/s226.5a/a/5">§ 226.5a(a)(5)</ref> and (e)(2) for exceptions; see <ref href="/us/cfr/t12/s226.5a/a/1">§ 226.5a(a)(1)</ref> and accompanying commentary for the definition of solicitation; see also <ref href="/us/cfr/t12/s226.2/a/15">§ 226.2(a)(15)</ref> and accompanying commentary for the definition of charge card.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution of account-opening summary table for the disclosures required by <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>.</inline> In complying with <ref href="/us/cfr/t12/s226.5a/c">§ 226.5a(c)</ref>, (e)(1) or (f), a card issuer may provide the account-opening summary table described in <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> in lieu of the disclosures required by <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, if the issuer provides the disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> on or with the application or solicitation.
<?page num="563"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard.</inline> See comment 5(a)(1)–1 for the clear and conspicuous standard applicable to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> disclosures.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(a) General rules.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(a)(1) Definition of solicitation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Invitations to apply.</inline> A card issuer may contact a consumer who has not been preapproved for a card account about opening an account (whether by direct mail, telephone, or other means) and invite the consumer to complete an application. Such a contact does not meet the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">solicitation,</inline> nor is it covered by this section, unless the contact itself includes an application form in a direct mailing, electronic communication or “take-one”; an oral application in a telephone contact initiated by the card issuer; or an application in an in-person contact initiated by the card issuer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(a)(2) Form of disclosures; tabular format.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Location of table.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Except for disclosures given electronically, disclosures in <ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref> that are required to be provided in a table must be prominently located on or with the application or solicitation. Disclosures are deemed to be prominently located, for example, if the disclosures are on the same page as an application or solicitation reply form. If the disclosures appear elsewhere, they are deemed to be prominently located if the application or solicitation reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that they contain rate, fee, and other cost information, as applicable.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic disclosures.</inline> If the table is provided electronically, the table must be provided in close proximity to the application or solicitation. Card issuers have flexibility in satisfying this requirement. Methods card issuers could use to satisfy the requirement include, but are not limited to, the following examples:</p>
<p style="-uslm-sgm:P">A. The disclosures could automatically appear on the screen when the application or reply form appears;</p>
<p style="-uslm-sgm:P">B. The disclosures could be located on the same Web page as the application or reply form (whether or not they appear on the initial screen), if the application or reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable;</p>
<p style="-uslm-sgm:P">C. Card issuers could provide a link to the electronic disclosures on or with the application (or reply form) as long as consumers cannot bypass the disclosures before submitting the application or reply form. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or</p>
<p style="-uslm-sgm:P">D. The disclosures could be located on the same Web page as the application or reply form without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application or reply.</p>
<p style="-uslm-sgm:P">Whatever method is used, a card issuer need not confirm that the consumer has read the disclosures.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple accounts.</inline> If a tabular format is required to be used, card issuers offering several types of accounts may disclose the various terms for the accounts in a single table or may provide a separate table for each account.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information permitted in the table. See</inline> the commentary to <ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>, (d), and (e)(1) for guidance on additional information permitted in the table.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deletion of inapplicable disclosures.</inline> Generally, disclosures need only be given as applicable. Card issuers may, therefore, omit inapplicable headings and their corresponding boxes in the table. For example, if no foreign transaction fee is imposed on the account, the heading <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign transaction</inline> and disclosure may be deleted from the table or the disclosure form may contain the heading <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign transaction</inline> and a disclosure showing <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">none.</inline> There is an exception for the grace period disclosure; even if no grace period exists, that fact must be stated.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Highlighting of annual percentage rates and fee amounts.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> See Samples G–10(B) and G–10(C) for guidance on providing the disclosures described in <ref href="/us/cfr/t12/s226.5a/a/2/iv">§ 226.5a(a)(2)(iv)</ref> in bold text. Other annual percentage rates or fee amounts disclosed in the table may not be in bold text. Samples G–10(B) and G–10(C) also provide guidance to issuers on how to disclose the rates and fees described in <ref href="/us/cfr/t12/s226.5a/a/2/iv">§ 226.5a(a)(2)(iv)</ref> in a clear and conspicuous manner, by including these rates and fees generally as the first text in the applicable rows of the table so that the highlighted rates and fees generally are aligned vertically in the table.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maximum limits on fees.</inline> Section 226.5a(a)(2)(iv) provides that any maximum limits on fee amounts must be disclosed in bold text. For example, assume that, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>, a card issuer's late payment fee will not exceed $35. The maximum limit of $35 for the late payment fee must be highlighted in bold. Similarly, assume an issuer will charge a cash advance fee of $5 or 3 percent of the cash advance transaction amount, whichever is greater, but the fee will not exceed $100. The maximum limit of $100 for the cash advance fee must be highlighted in bold.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic fees.</inline> Section 226.5a(a)(2)(iv) provides that any periodic fee disclosed pursuant to <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref> that is not an annualized amount must not be disclosed in bold. For example, if an issuer imposes a $10 monthly maintenance fee for a card account, the issuer must disclose in the table that there is a $10 monthly maintenance fee, and that the fee is $120 on an annual basis. In this example, the $10 fee disclosure would not be <?page num="564"?>disclosed in bold, but the $120 annualized amount must be disclosed in bold. In addition, if an issuer must disclose any annual fee in the table, the amount of the annual fee must be disclosed in bold.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosures.</inline> Whether disclosures must be in electronic form depends upon the following:</p>
<p style="-uslm-sgm:P">i. If a consumer accesses a credit card application or solicitation electronically (other than as described under ii. below), such as on-line at a home computer, the card issuer must provide the disclosures in electronic form (such as with the application or solicitation on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application or solicitation. If the issuer instead mailed paper disclosures to the consumer, this requirement would not be met.</p>
<p style="-uslm-sgm:P">ii. In contrast, if a consumer is physically present in the card issuer's office, and accesses a credit card application or solicitation electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the card issuer to provide applications or solicitations to consumers), the issuer may provide disclosures in either electronic or paper form, provided the issuer complies with the timing and delivery (“on or with”) requirements of the regulation.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology.</inline> Section 226.5a(a)(2)(i) generally requires that the headings, content and format of the tabular disclosures be substantially similar, but need not be identical, to the applicable tables in appendix G–10 to part 226; but <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> <ref href="/us/cfr/t12/s226.5/a/2">§ 226.5(a)(2)</ref> for terminology requirements applicable to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> disclosures.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(a)(4) Fees that vary by state.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manner of disclosing range.</inline> If the card issuer discloses a range of fees instead of disclosing the amount of the specific fee applicable to the consumer's account, the range may be stated as the lowest authorized fee (zero, if there are one or more states where no fee applies) to the highest authorized fee.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(a)(5) Exceptions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Noncoverage of consumer-initiated requests.</inline> Applications provided to a consumer upon request are not covered by <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, even if the request is made in response to the card issuer's invitation to apply for a card account. To illustrate, if a card issuer invites consumers to call a toll-free number or to return a response card to obtain an application, the application sent in response to the consumer's request need not contain the disclosures required under <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>. Similarly, if the card issuer invites consumers to call and make an oral application on the telephone, <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> does not apply to the application made by the consumer. If, however, the card issuer calls a consumer or initiates a telephone discussion with a consumer about opening a card account and contemporaneously takes an oral application, such applications are subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, specifically <ref href="/us/cfr/t12/s226.5a/d">§ 226.5a(d)</ref>. Likewise, if the card issuer initiates an in-person discussion with a consumer about opening a card account and contemporaneously takes an application, such applications are subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>, specifically <ref href="/us/cfr/t12/s226.5a/f">§ 226.5a(f)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b) Required disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tabular format.</inline> Provisions in <ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref> and its commentary provide that certain information must appear or is permitted to appear in a table. The tabular format is required for <ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref> disclosures given pursuant to <ref href="/us/cfr/t12/s226.5a/c">§ 226.5a(c)</ref>, (d)(2), (e)(1) and (f). The tabular format does not apply to oral disclosures given pursuant to <ref href="/us/cfr/t12/s226.5a/d/1">§ 226.5a(d)(1)</ref>. (See <ref href="/us/cfr/t12/s226.5a/a/2">§ 226.5a(a)(2)</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accuracy.</inline> Rules concerning accuracy of the disclosures required by <ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>, including variable rate disclosures, are stated in <ref href="/us/cfr/t12/s226.5a/c/2">§ 226.5a(c)(2)</ref>, (d)(3), and (e)(4), as applicable.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(1) Annual percentage rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate accounts—definition.</inline> For purposes of <ref href="/us/cfr/t12/s226.5a/b/1">§ 226.5a(b)(1)</ref>, a variable-rate account exists when rate changes are part of the plan and are tied to an index or formula. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.6/b/4/ii">§ 226.6(b)(4)(ii)</ref> for examples of variable-rate plans.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate accounts—fact that rate varies and how the rate will be determined.</inline> In describing how the applicable rate will be determined, the card issuer must identify in the table the type of index or formula used, such as the prime rate. In describing the index, the issuer may not include in the table details about the index. For example, if the issuer uses a prime rate, the issuer must disclose the rate as a “prime rate” and may not disclose in the table other details about the prime rate, such as the fact that it is the highest prime rate published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wall Street Journal</inline> two business days before the closing date of the statement for each billing period. The issuer may not disclose in the table the current value of the index (such as that the prime rate is currently 7.5 percent) or the amount of the margin or spread added to the index or formula in setting the applicable rate. A card issuer may not disclose any applicable limitations on rate increases or decreases in the table, such as describing that the rate will not go below a certain rate or higher than a certain rate. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Samples G–10(B) and G–10(C) for guidance on how to disclose the fact that the applicable rate varies and how it is determined.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounted initial rates.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Immediate proximity.</inline> If the term “introductory” is in the same phrase as the introductory rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/ii">§ 226.16(g)(2)(ii)</ref>, it will be deemed to be in immediate proximity of the listing. For example, an issuer that uses the phrase “introductory balance transfer APR X percent” has used the word “introductory” within the same phrase as the rate. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline>
<?page num="565"?>Sample G–10(C) for guidance on how to disclose clearly and conspicuously the expiration date of the introductory rate and the rate that will apply after the introductory rate expires, if an introductory rate is disclosed in the table.)</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent changes in terms.</inline> The fact that an issuer may reserve the right to change a rate subsequent to account opening, pursuant to the notice requirements of <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and the limitations in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>, does not, by itself, make that rate an introductory rate. For example, assume an issuer discloses an annual percentage rate for purchases of 12.99% but does not specify a time period during which that rate will be in effect. Even if that issuer subsequently increases the annual percentage rate for purchases to 15.99%, pursuant to a change-in-terms notice provided under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, the 12.99% is not an introductory rate.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">More than one introductory rate.</inline> If more than one introductory rate may apply to a particular balance in succeeding periods, the term “introductory” need only be used to describe the first introductory rate. For example, if an issuer offers a rate of 8.99% on purchases for six months, 10.99% on purchases for the following six months, and 14.99% on purchases after the first year, the term “introductory” need only be used to describe the 8.99% rate.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Premium initial rates—subsequent changes in terms.</inline> The fact that an issuer may reserve the right to change a rate subsequent to account opening, pursuant to the notice requirements of <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and the limitations in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> (as applicable), does not, by itself, make that rate a premium initial rate. For example, assume an issuer discloses an annual percentage rate for purchases of 18.99% but does not specify a time period during which that rate will be in effect. Even if that issuer subsequently reduces the annual percentage rate for purchases to 15.99%, the 18.99% is not a premium initial rate. If the rate decrease is the result of a change from a non-variable rate to a variable rate or from a variable rate to a non-variable rate, see comments 9(c)(2)(v)–3 and 9(c)(2)(v)–4 for guidance on the notice requirements under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increased penalty rates.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> For rates that are not introductory rates or employee preferential rates, if a rate may increase as a penalty for one or more events specified in the account agreement, such as a late payment or an extension of credit that exceeds the credit limit, the card issuer must disclose the increased rate that would apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect. The description of the specific event or events that may result in an increased rate should be brief. For example, if an issuer may increase a rate to the penalty rate because the consumer does not make the minimum payment by 5 p.m., Eastern Time, on its payment due date, the issuer should describe this circumstance in the table as “make a late payment.” Similarly, if an issuer may increase a rate that applies to a particular balance because the account is more than 60 days late, the issuer should describe this circumstance in the table as “make a late payment.” An issuer may not distinguish between the events that may result in an increased rate for existing balances and the events that may result in an increased rate for new transactions. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Samples G–10(B) and G–10(C) (in the row labeled “Penalty APR and When it Applies”) for additional guidance on the level of detail in which the specific event or events should be described.) The description of how long the increased rate will remain in effect also should be brief. If a card issuer reserves the right to apply the increased rate to any balances indefinitely, to the extent permitted by <ref href="/us/cfr/t12/s226.55/b/4">§§ 226.55(b)(4)</ref> and 226.59, the issuer should disclose that the penalty rate may apply indefinitely. The card issuer may not disclose in the table any limitations imposed by <ref href="/us/cfr/t12/s226.55/b/4">§§ 226.55(b)(4)</ref> and 226.59 on the duration of increased rates. For example, if the issuer generally provides that the increased rate will apply until the consumer makes twelve timely consecutive required minimum periodic payments, except to the extent that <ref href="/us/cfr/t12/s226.55/b/4">§§ 226.55(b)(4)</ref> and 226.59 apply, the issuer should disclose that the penalty rate will apply until the consumer makes twelve consecutive timely minimum payments. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Samples G–10(B) and G–10(C) (in the row labeled “Penalty APR and When it Applies”) for additional guidance on the level of detail which the issuer should use to describe how long the increased rate will remain in effect.) A card issuer will be deemed to meet the standard to clearly and conspicuously disclose the information required by <ref href="/us/cfr/t12/s226.5a/b/1/iv/A">§ 226.5a(b)(1)(iv)(A)</ref> if the issuer uses the format shown in Samples G–10(B) and G–10(C) (in the row labeled “Penalty APR and When it Applies”) to disclose this information.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Introductory rates—general.</inline> An issuer is required to disclose directly beneath the table the circumstances under which an introductory rate, as that term is defined in <ref href="/us/cfr/t12/s226.16/g/2/ii">§ 226.16(g)(2)(ii)</ref>, may be revoked, and the rate that will apply after the revocation. This information about revocation of an introductory rate and the rate that will apply after revocation must be provided even if the rate that will apply after the introductory rate is revoked is the rate that would have applied at the end of the promotional period. In a variable-rate account, the rate that would have applied at the end of the promotional period is a rate based on the applicable index or formula in accordance with the accuracy requirements set forth in <ref href="/us/cfr/t12/s226.5a/c/2">§ 226.5a(c)(2)</ref> or (e)(4). In describing the rate that will apply <?page num="566"?>after revocation of the introductory rate, if the rate that will apply after revocation of the introductory rate is already disclosed in the table, the issuer is not required to repeat the rate, but may refer to that rate in a clear and conspicuous manner. For example, if the rate that will apply after revocation of an introductory rate is the standard rate that applies to that type of transaction (such as a purchase or balance transfer transaction), and the standard rates are labeled in the table as “standard APRs,” the issuer may refer to the “standard APR” when describing the rate that will apply after revocation of an introductory rate. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Sample G–10(C) in the disclosure labeled “Loss of Introductory APR” directly beneath the table.) The description of the circumstances in which an introductory rate could be revoked should be brief. For example, if an issuer may increase an introductory rate because the account is more than 60 days late, the issuer should describe this circumstance directly beneath the table as “make a late payment.” In addition, if the circumstances in which an introductory rate could be revoked are already listed elsewhere in the table, the issuer is not required to repeat the circumstances again, but may refer to those circumstances in a clear and conspicuous manner. For example, if the circumstances in which an introductory rate could be revoked are the same as the event or events that may trigger a “penalty rate” as described in <ref href="/us/cfr/t12/s226.5a/b/1/iv/A">§ 226.5a(b)(1)(iv)(A)</ref>, the issuer may refer to the actions listed in the Penalty APR row, in describing the circumstances in which the introductory rate could be revoked. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Sample G–10(C) in the disclosure labeled “Loss of Introductory APR” directly beneath the table for additional guidance on the level of detail in which to describe the circumstances in which an introductory rate could be revoked.) A card issuer will be deemed to meet the standard to clearly and conspicuously disclose the information required by <ref href="/us/cfr/t12/s226.5a/b/1/iv/B">§ 226.5a(b)(1)(iv)(B)</ref> if the issuer uses the format shown in Sample G–10(C) to disclose this information.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Introductory rates—limitations on revocation.</inline> Issuers that are disclosing an introductory rate are prohibited by <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> from increasing or revoking the introductory rate before it expires unless the consumer fails to make a required minimum periodic payment within 60 days after the due date for the payment. In making the required disclosure pursuant to <ref href="/us/cfr/t12/s226.5a/b/1/iv/B">§ 226.5a(b)(1)(iv)(B)</ref>, issuers should describe this circumstance directly beneath the table as “make a late payment.”</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Employee preferential rates.</inline> An issuer is required to disclose directly beneath the table the circumstances under which an employee preferential rate may be revoked, and the rate that will apply after the revocation. In describing the rate that will apply after revocation of the employee preferential rate, if the rate that will apply after revocation of the employee preferential rate is already disclosed in the table, the issuer is not required to repeat the rate, but may refer to that rate in a clear and conspicuous manner. For example, if the rate that will apply after revocation of an employee preferential rate is the standard rate that applies to that type of transaction (such as a purchase or balance transfer transaction), and the standard rates are labeled in the table as “standard APRs,” the issuer may refer to the “standard APR” when describing the rate that will apply after revocation of an employee preferential rate. The description of the circumstances in which an employee preferential rate could be revoked should be brief. For example, if an issuer may increase an employee preferential rate based upon termination of the employee's employment relationship with the issuer or a third party, issuers may describe this circumstance as “if your employment with [issuer or third party] ends.”</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rates that depend on consumer's creditworthiness.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> The card issuer, at its option, may disclose the possible rates that may apply as either specific rates, or a range of rates. For example, if there are three possible rates that may apply (9.99, 12.99 or 17.99 percent), an issuer may disclose specific rates (9.99, 12.99 or 17.99 percent) or a range of rates (9.99 to 17.99 percent). The card issuer may not disclose only the lowest, highest or median rate that could apply. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Samples G–10(B) and G–10(C) for guidance on how to disclose a range of rates.)</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Penalty rates.</inline> If the rate is a penalty rate, as described in <ref href="/us/cfr/t12/s226.5a/b/1/iv">§ 226.5a(b)(1)(iv)</ref>, the card issuer at its option may disclose the highest rate that could apply, instead of disclosing the specific rates or the range of rates that could apply. For example, if the penalty rate could be up to 28.99 percent, but the issuer may impose a penalty rate that is less than that rate depending on factors at the time the penalty rate is imposed, the issuer may disclose the penalty rate as “up to” 28.99 percent. The issuer also must include a statement that the penalty rate for which the consumer may qualify will depend on the consumer's creditworthiness, and other factors if applicable.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other factors.</inline> Section 226.5a(b)(1)(v) applies even if other factors are used in combination with a consumer's creditworthiness to determine the rate for which a consumer may qualify at account opening. For example, <ref href="/us/cfr/t12/s226.5a/b/1/v">§ 226.5a(b)(1)(v)</ref> would apply if the issuer considers the type of purchase the consumer is making at the time the consumer opens the account, in combination with the consumer's creditworthiness, to determine the rate for which the consumer may qualify at account opening. If other factors are considered, the issuer should amend the statement about creditworthiness, to indicate that the rate for which the consumer may qualify at <?page num="567"?>account opening will depend on the consumer's creditworthiness and other factors. Nonetheless, <ref href="/us/cfr/t12/s226.5a/b/1/v">§ 226.5a(b)(1)(v)</ref> does not apply if a consumer's creditworthiness is not one of the factors that will determine the rate for which the consumer may qualify at account opening (for example, if the rate is based solely on the type of purchase that the consumer is making at the time the consumer opens the account, or is based solely on whether the consumer has other banking relationships with the card issuer).</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate based on another rate on the account.</inline> In some cases, one rate may be based on another rate on the account. For example, assume that a penalty rate as described in <ref href="/us/cfr/t12/s226.5a/b/1/iv/A">§ 226.5a(b)(1)(iv)(A)</ref> is determined by adding 5 percentage points to the current purchase rate, which is 10 percent. In this example, the card issuer in disclosing the penalty rate must disclose 15 percent as the current penalty rate. If the purchase rate is a variable rate, then the penalty rate also is a variable rate. In that case, the card issuer also must disclose the fact that the penalty rate may vary and how the rate is determined, such as “This APR may vary with the market based on the Prime Rate.” In describing the penalty rate, the issuer shall not disclose in the table the amount of the margin or spread added to the current purchase rate to determine the penalty rate, such as describing that the penalty rate is determined by adding 5 percentage points to the purchase rate. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.5a/b/1/i">§ 226.5a(b)(1)(i)</ref> and comment 5a(b)(1)–2 for further guidance on describing a variable rate.)</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rates.</inline> The only rates that shall be disclosed in the table are annual percentage rates determined under <ref href="/us/cfr/t12/s226.14/b">§ 226.14(b)</ref>. Periodic rates shall not be disclosed in the table.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest or similar transactions.</inline> An issuer offering a deferred interest or similar plan, such as a promotional program that provides that a consumer will not be obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time, may not disclose a 0% rate as the rate applicable to deferred interest or similar transactions if there are any circumstances under which the consumer will be obligated for interest on such transactions for the deferred interest or similar period.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(2) Fees for issuance or availability.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Membership fees.</inline> Membership fees for opening an account must be disclosed under this paragraph. A membership fee to join an organization that provides a credit or charge card as a privilege of membership must be disclosed only if the card is issued automatically upon membership. Such a fee shall not be disclosed in the table if membership results merely in eligibility to apply for an account.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Enhancements.</inline> Fees for optional services in addition to basic membership privileges in a credit or charge card account (for example, travel insurance or card-registration services) shall not be disclosed in the table if the basic account may be opened without paying such fees. Issuing a card to each primary cardholder (not authorized users) is considered a basic membership privilege and fees for additional cards, beyond the first card on the account, must be disclosed as a fee for issuance or availability. Thus, a fee to obtain an additional card on the account beyond the first card (so that each cardholder would have his or her own card) must be disclosed in the table as a fee for issuance or availability under <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref>. This fee must be disclosed even if the fee is optional; that is, if the fee is charged only if the cardholder requests one or more additional cards. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the available credit disclosure in <ref href="/us/cfr/t12/s226.5a/b/14">§ 226.5a(b)(14)</ref>.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">One-time fees.</inline> Disclosure of non-periodic fees is limited to fees related to opening the account, such as one-time membership or participation fees, or an application fee that is excludable from the finance charge under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref>. The following are examples of fees that shall not be disclosed in the table</p>
<p style="-uslm-sgm:P">i. Fees for reissuing a lost or stolen card.</p>
<p style="-uslm-sgm:P">ii. Statement reproduction fees.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Waived or reduced fees.</inline> If fees required to be disclosed are waived or reduced for a limited time, the introductory fees or the fact of fee waivers may be disclosed in the table in addition to the required fees if the card issuer also discloses how long the reduced fees or waivers will remain in effect in accordance with the requirements of <ref href="/us/cfr/t12/s226.9/c/2/v/B">§§ 226.9(c)(2)(v)(B)</ref> and 226.55(b)(1).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic fees and one-time fees.</inline> A card issuer disclosing a periodic fee must disclose the amount of the fee, how frequently it will be imposed, and the annualized amount of the fee. A card issuer disclosing a non-periodic fee must disclose that the fee is a one-time fee. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Sample G–10(C) for guidance on how to meet these requirements.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(3) Fixed finance charge; minimum interest charge.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example of brief statement. See</inline> Samples G–10(B) and G–10(C) for guidance on how to provide a brief description of a minimum interest charge.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjustment of $1.00 threshold amount.</inline> Consistent with <ref href="/us/cfr/t12/s226.5a/b/3">§ 226.5a(b)(3)</ref>, the Board will publish adjustments to the $1.00 threshold amount, as appropriate.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(4) Transaction charges.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges imposed by person other than card issuer.</inline> Charges imposed by a third party, such as a seller of goods, shall not be disclosed in the table under this section; the third party would be responsible for disclosing the charge under <ref href="/us/cfr/t12/s226.9/d/1">§ 226.9(d)(1)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign transaction fees.</inline> A transaction charge imposed by the card issuer for the use of the card for purchases includes any fee imposed by the issuer for purchases in a foreign <?page num="568"?>currency or that take place outside the United States or with a foreign merchant. (See comment 4(a)–4 for guidance on when a foreign transaction fee is considered charged by the card issuer.) If an issuer charges the same foreign transaction fee for purchases and cash advances in a foreign currency, or that take place outside the United States or with a foreign merchant, the issuer may disclose this foreign transaction fee as shown in Samples G–10(B) and G–10(C). Otherwise, the issuer must revise the foreign transaction fee language shown in Samples G–10(B) and G–10(C) to disclose clearly and conspicuously the amount of the foreign transaction fee that applies to purchases and the amount of the foreign transaction fee that applies to cash advances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(5) Grace period.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">How grace period disclosure is made.</inline> The card issuer must state any conditions on the applicability of the grace period. An issuer, however, may not disclose under <ref href="/us/cfr/t12/s226.5a/b/5">§ 226.5a(b)(5)</ref> the limitations on the imposition of finance charges as a result of a loss of a grace period in <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>, or the impact of payment allocation on whether interest is charged on purchases as a result of a loss of a grace period. Some issuers may offer a grace period on all purchases under which interest will not be charged on purchases if the consumer pays the outstanding balance shown on a periodic statement in full by the due date shown on that statement for one or more billing cycles. In these circumstances, <ref href="/us/cfr/t12/s226.5a/b/5">§ 226.5a(b)(5)</ref> requires that the issuer disclose the grace period and the conditions for its applicability using the following language, or substantially similar language, as applicable: “Your due date is [at least] __ days after the close of each billing cycle. We will not charge you any interest on purchases if you pay your entire balance by the due date each month.” However, other issuers may offer a grace period on all purchases under which interest may be charged on purchases even if the consumer pays the outstanding balance shown on a periodic statement in full by the due date shown on that statement each billing cycle. In these circumstances, <ref href="/us/cfr/t12/s226.5a/b/5">§ 226.5a(b)(5)</ref> requires the issuer to amend the above disclosure language to describe accurately the conditions on the applicability of the grace period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No grace period.</inline> The issuer may use the following language to describe that no grace period on any purchases is offered, as applicable: “We will begin charging interest on purchases on the transaction date.”</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace period on some purchases.</inline> If the issuer provides a grace period on some types of purchases but no grace period on others, the issuer may combine and revise the language in comments 5a(b)(5)–1 and –2 as appropriate to describe to which types of purchases a grace period applies and to which types of purchases no grace period is offered.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(6) Balance computation method.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosure.</inline> In cases where the card issuer uses a balance computation method that is identified by name in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref>, the card issuer must disclose below the table only the name of the method. In cases where the card issuer uses a balance computation method that is not identified by name in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref>, the disclosure below the table must clearly explain the method in as much detail as set forth in the descriptions of balance methods in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref>. The explanation need not be as detailed as that required for the disclosures under <ref href="/us/cfr/t12/s226.6/b/4/i/D">§ 226.6(b)(4)(i)(D)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determining the method.</inline> In determining which balance computation method to disclose for purchases, the card issuer must assume that a purchase balance will exist at the end of any grace period. Thus, for example, if the average daily balance method will include new purchases only if purchase balances are not paid within the grace period, the card issuer would disclose the name of the average daily balance method that includes new purchases. The card issuer must not assume the existence of a purchase balance, however, in making other disclosures under <ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(7) Statement on charge card payments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability and content.</inline> The disclosure that charges are payable upon receipt of the periodic statement is applicable only to charge card accounts. In making this disclosure, the card issuer may make such modifications as are necessary to more accurately reflect the circumstances of repayment under the account. For example, the disclosure might read, “Charges are due and payable upon receipt of the periodic statement and must be paid no later than 15 days after receipt of such statement.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(8) Cash advance fee.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content. See</inline> Samples G–10(B) and G–10(C) for guidance on how to disclose clearly and conspicuously the cash advance fee.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Foreign cash advances.</inline> Cash advance fees required to be disclosed under <ref href="/us/cfr/t12/s226.5a/b/8">§ 226.5a(b)(8)</ref> include any charge imposed by the card issuer for cash advances in a foreign currency or that take place outside the United States or with a foreign merchant. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 4(a)–4 for guidance on when a foreign transaction fee is considered charged by the card issuer.) If an issuer charges the same foreign transaction fee for purchases and cash advances in a foreign currency or that take place outside the United States or with a foreign merchant, the issuer may disclose this foreign transaction fee as shown in Samples G–10(B) and (C). Otherwise, the issuer must revise the foreign transaction fee language shown in Samples G–10(B) and (C) to disclose clearly and conspicuously the amount of the foreign transaction fee that applies to purchases and the amount of the <?page num="569"?>foreign transaction fee that applies to cash advances.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ATM fees.</inline> An issuer is not required to disclose pursuant to <ref href="/us/cfr/t12/s226.5a/b/8">§ 226.5a(b)(8)</ref> any charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(9) Late payment fee.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> The disclosure of the fee for a late payment includes only those fees that will be imposed for actual, unanticipated late payments. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.4/c/2">§ 226.4(c)(2)</ref> for additional guidance on late payment fees. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Samples G–10(B) and G–10(C) for guidance on how to disclose clearly and conspicuously the late payment fee.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(10) Over-the-limit fee.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> The disclosure of fees for exceeding a credit limit does not include fees for other types of default or for services related to exceeding the limit. For example, no disclosure is required of fees for reinstating credit privileges or fees for the dishonor of checks on an account that, if paid, would cause the credit limit to be exceeded. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Samples G–10(B) and G–10(C) for guidance on how to disclose clearly and conspicuously the over-the-limit fee.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(13) Required insurance, debt cancellation, or debt suspension coverage.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content. See</inline> Sample G–10(B) for guidance on how to comply with the requirements in <ref href="/us/cfr/t12/s226.5a/b/13">§ 226.5a(b)(13)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(14) Available credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating available credit.</inline> If the 15 percent threshold test is met, the issuer must disclose the available credit excluding optional fees, and the available credit including optional fees. In calculating the available credit to disclose in the table, the issuer must consider all fees for the issuance or availability of credit described in <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref>, and any security deposit, that will be imposed and charged to the account when the account is opened, such as one-time issuance and set-up fees. For example, in calculating the available credit, issuers must consider the first year's annual fee and the first month's maintenance fee (as applicable) if they are charged to the account on the first billing statement. In calculating the amount of the available credit including optional fees, if optional fees could be charged multiple times, the issuer shall assume that the optional fee is only imposed once. For example, if an issuer charges a fee for each additional card issued on the account, the issuer in calculating the amount of the available credit including optional fees may assume that the cardholder requests only one additional card. In disclosing the available credit, the issuer shall round down the available credit amount to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content. See</inline> Sample G–10(C) for guidance on how to provide the disclosure required by <ref href="/us/cfr/t12/s226.5a/b/14">§ 226.5a(b)(14)</ref> clearly and conspicuously.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(b)(15) Web site reference.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content. See</inline> Samples G–10(B) and G–10(C) for guidance on disclosing a reference to the Web site established by the Board and a statement that consumers may obtain on the Web site information about shopping for and using credit card accounts.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(c) Direct mail and electronic applications and solicitations.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mailed publications.</inline> Applications or solicitations contained in generally available publications mailed to consumers (such as subscription magazines) are subject to the requirements applicable to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">take-ones</inline> in <ref href="/us/cfr/t12/s226.5a/e">§ 226.5a(e)</ref>, rather than the direct mail requirements of <ref href="/us/cfr/t12/s226.5a/c">§ 226.5a(c)</ref>. However, if a primary purpose of a card issuer's mailing is to offer credit or charge card accounts—for example, where a card issuer “prescreens” a list of potential cardholders using credit criteria, and then mails to the targeted group its catalog containing an application or a solicitation for a card account—the direct mail rules apply. In addition, a card issuer may use a single application form as a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">take-one</inline> (in racks in public locations, for example) and for direct mailings, if the card issuer complies with the requirements of <ref href="/us/cfr/t12/s226.5a/c">§ 226.5a(c)</ref> even when the form is used as a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">take-one</inline>—that is, by presenting the required <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> disclosures in a tabular format. When used in a direct mailing, the credit term disclosures must be accurate as of the mailing date whether or not the <ref href="/us/cfr/t12/s226.5a/e/1/ii">§ 226.5a(e)(1)(ii)</ref> and (e)(1)(iii) disclosures are included; when used in a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">take-one,</inline> the disclosures must be accurate for as long as the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">take-one</inline> forms remain available to the public if the <ref href="/us/cfr/t12/s226.5a/e/1/ii">§ 226.5a(e)(1)(ii)</ref> and (e)(1)(iii) disclosures are omitted. (If those disclosures are included in the take-one, the credit term disclosures need only be accurate as of the printing date.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(d) Telephone applications and solicitations.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> i. This paragraph applies if:</p>
<p style="-uslm-sgm:P">A. A telephone conversation between a card issuer and consumer may result in the issuance of a card as a consequence of an issuer-initiated offer to open an account for which the issuer does not require any application (that is, a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">prescreened</inline> telephone solicitation).</p>
<p style="-uslm-sgm:P">B. The card issuer initiates the contact and at the same time takes application information over the telephone.</p>
<p style="-uslm-sgm:P">ii. This paragraph does not apply to:</p>
<p style="-uslm-sgm:P">A. Telephone applications initiated by the consumer.</p>
<p style="-uslm-sgm:P">B. Situations where no card will be issued—because, for example, the consumer indicates that he or she does not want the card, or the card issuer decides either during the telephone conversation or later not to issue the card.
<?page num="570"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Right to reject the plan.</inline> The right to reject the plan referenced in this paragraph is the same as the right to reject the plan described in <ref href="/us/cfr/t12/s226.5/b/1/iv">§ 226.5(b)(1)(iv)</ref>. If an issuer substitutes the account-opening summary table described in <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> in lieu of the disclosures specified in <ref href="/us/cfr/t12/s226.5a/d/2/ii">§ 226.5a(d)(2)(ii)</ref>, the disclosure specified in <ref href="/us/cfr/t12/s226.5a/d/2/ii/B">§ 226.5a(d)(2)(ii)(B)</ref> must appear in the table, if the issuer is required to do so pursuant to <ref href="/us/cfr/t12/s226.6/b/2/xiii">§ 226.6(b)(2)(xiii)</ref>. Otherwise, the disclosure specified in <ref href="/us/cfr/t12/s226.5a/d/2/ii/B">§ 226.5a(d)(2)(ii)(B)</ref> may appear either in or outside the table containing the required credit disclosures.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substituting account-opening table for alternative written disclosures.</inline> An issuer may substitute the account-opening summary table described in <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> in lieu of the disclosures specified in <ref href="/us/cfr/t12/s226.5a/d/2/ii">§ 226.5a(d)(2)(ii)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(e) Applications and solicitations made available to general public.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> Applications and solicitations made available to the general public include what are commonly referred to as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">take-one</inline> applications typically found at counters in banks and retail establishments, as well as applications contained in catalogs, magazines and other generally available publications. In the case of credit unions, this paragraph applies to applications and solicitations to open card accounts made available to those in the general field of membership.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In-person applications and solicitations.</inline> In-person applications and solicitations initiated by a card issuer are subject to <ref href="/us/cfr/t12/s226.5a/f">§ 226.5a(f)</ref>, not <ref href="/us/cfr/t12/s226.5a/e">§ 226.5a(e)</ref>. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.5a/f">§ 226.5a(f)</ref> and accompanying commentary for rules relating to in-person applications and solicitations.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Toll-free telephone number.</inline> If a card issuer, in complying with any of the disclosure options of <ref href="/us/cfr/t12/s226.5a/e">§ 226.5a(e)</ref>, provides a telephone number for consumers to call to obtain credit information, the number must be toll-free for nonlocal calls made from an area code other than the one used in the card issuer's dialing area. Alternatively, a card issuer may provide any telephone number that allows a consumer to call for information and reverse the telephone charges.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(e)(1) Disclosure of required credit information.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date of printing.</inline> Disclosure of the month and year fulfills the requirement to disclose the date an application was printed.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosures.</inline> The disclosures specified in <ref href="/us/cfr/t12/s226.5a/e/1/ii">§ 226.5a(e)(1)(ii)</ref> and (e)(1)(iii) may appear either in or outside the table containing the required credit disclosures.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(e)(2) No disclosure of credit information.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When disclosure option available.</inline> A card issuer may use this option only if the issuer does not include on or with the application or solicitation any statement that refers to the credit disclosures required by <ref href="/us/cfr/t12/s226.5a/b">§ 226.5a(b)</ref>. Statements such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">no annual fee, low interest</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">rate,</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">favorable rates,</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">low costs</inline> are deemed to refer to the required credit disclosures and, therefore, may not be included on or with the solicitation or application, if the card issuer chooses to use this option.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(e)(3) Prompt response to requests for information.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prompt disclosure.</inline> Information is promptly disclosed if it is given within 30 days of a consumer's request for information but in no event later than delivery of the credit or charge card.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information disclosed.</inline> When a consumer requests credit information, card issuers need not provide all the required credit disclosures in all instances. For example, if disclosures have been provided in accordance with <ref href="/us/cfr/t12/s226.5a/e/1">§ 226.5a(e)(1)</ref> and a consumer calls or writes a card issuer to obtain information about changes in the disclosures, the issuer need only provide the items of information that have changed from those previously disclosed on or with the application or solicitation. If a consumer requests information about particular items, the card issuer need only provide the requested information. If, however, the card issuer has made disclosures in accordance with the option in <ref href="/us/cfr/t12/s226.5a/e/2">§ 226.5a(e)(2)</ref> and a consumer calls or writes the card issuer requesting information about costs, all the required disclosure information must be given.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manner of response.</inline> A card issuer's response to a consumer's request for credit information may be provided orally or in writing, regardless of the manner in which the consumer's request is received by the issuer. Furthermore, the card issuer must provide the information listed in <ref href="/us/cfr/t12/s226.5a/e/1">§ 226.5a(e)(1)</ref>. Information provided in writing need not be in a tabular format.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">5a(f) In-person applications and solicitations.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> i. This paragraph applies if:</p>
<p style="-uslm-sgm:P">A. An in-person conversation between a card issuer and a consumer may result in the issuance of a card as a consequence of an issuer-initiated offer to open an account for which the issuer does not require any application (that is, a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">preapproved</inline> in-person solicitation).</p>
<p style="-uslm-sgm:P">B. The card issuer initiates the contact and at the same time takes application information in person. For example, the following are covered:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> A consumer applies in person for a car loan at a financial institution and the loan officer invites the consumer to apply for a credit or charge card account; the consumer accepts the invitation and submits an application.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> An employee of a retail establishment, in the course of processing a sales transaction using a bank credit card, asks a customer if he or she would like to apply for the retailer's credit or charge card; the customer responds affirmatively and submits an application.</p>
<p style="-uslm-sgm:P">ii. This paragraph does not apply to:
<?page num="571"?></p>
<p style="-uslm-sgm:P">A. In-person applications initiated by the consumer.</p>
<p style="-uslm-sgm:P">B. Situations where no card will be issued—because, for example, the consumer indicates that he or she does not want the card, or the card issuer decides during the in-person conversation not to issue the card.</p>
<heading style="-uslm-sgm:HD2">Section 226.5b—Requirements for Home-equity Plans</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This section applies to all open-end credit plans secured by the consumer's <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">dwelling,</inline> as defined in <ref href="/us/cfr/t12/s226.2/a/19">§ 226.2(a)(19)</ref>, and is not limited to plans secured by the consumer's principal dwelling. (See the commentary to <ref href="/us/cfr/t12/s226.3/a">§ 226.3(a)</ref>, which discusses whether transactions are consumer or business-purpose credit, for guidance on whether a home equity plan is subject to Regulation Z.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes to home equity plans entered into on or after <date date="1989-11-07">November 7, 1989</date>.</inline> Section 226.9(c) applies if, by written agreement under <ref href="/us/cfr/t12/s226.5b/f/3/iii">§ 226.5b(f)(3)(iii)</ref>, a creditor changes the terms of a home equity plan—entered into on or after <date date="1989-11-07">November 7, 1989</date>—at or before its scheduled expiration, for example, by renewing a plan on different terms. A new plan results, however, if the plan is renewed (with or without changes to the terms) after the scheduled expiration. The new plan is subject to all open-end credit rules, including <ref href="/us/cfr/t12/s226.5b">§§ 226.5b</ref>, 226.6, and 226.15.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transition rules and renewals of preexistinq plans.</inline> The requirements of this section do not apply to home equity plans entered into before <date date="1989-11-07">November 7, 1989</date>. The requirements of this section also do not apply if the original consumer, on or after <date date="1989-11-07">November 7, 1989</date>, renews a plan entered into prior to that date (with or without changes to the terms). If, on or after <date date="1989-11-07">November 7, 1989</date>, a security interest in the consumer's dwelling is added to a line of credit entered into before that date, the substantive restrictions of this section apply for the remainder of the plan, but no new disclosures are required under this section.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of repayment phase—applicability of requirements.</inline> Some plans provide in the initial agreement for a period during which no further draws may be taken and repayment of the amount borrowed is made. All of the applicable disclosures in this section must be given for the repayment phase. Thus, for example, a creditor must provide payment information about the repayment phase as well as about the draw period, as required by <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref>. If the rate that will apply during the repayment phase is fixed at a known amount, the creditor must provide an annual percentage rate under <ref href="/us/cfr/t12/s226.5b/d/6">§ 226.5b(d)(6)</ref> for that phase. If, however, a creditor uses an index to determine the rate that will apply at the time of conversion to the repayment phase—even if the rate will thereafter be fixed—the creditor must provide the information in <ref href="/us/cfr/t12/s226.5b/d/12">§ 226.5b(d)(12)</ref>, as applicable.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment terms—applicability of closed-end provisions and substantive rules.</inline> All payment terms that are provided for in the initial agreement are subject to the requirements of subpart B and not subpart C of the regulation. Payment terms that are subsequently added to the agreement may be subject to subpart B or to subpart C, depending on the circumstances. The following examples apply these general rules to different situations:</p>
<p style="-uslm-sgm:P">• If the initial agreement provides for a repayment phase or for other payment terms such as options permitting conversion of part or all of the balance to a fixed rate during the draw period, these terms must be disclosed pursuant to <ref href="/us/cfr/t12/s226.5b">§§ 226.5b</ref> and 226.6, and not under subpart C. Furthermore, the creditor must continue to provide periodic statements under <ref href="/us/cfr/t12/s226.7">§ 226.7</ref> and comply with other provisions of subpart B (such as the substantive requirements of <ref href="/us/cfr/t12/s226.5b/f">§ 226.5b(f)</ref>) throughout the plan, including the repayment phase.</p>
<p style="-uslm-sgm:P">• If the consumer and the creditor enter into an agreement during the draw period to repay all or part of the principal balance on different terms (for example, with a fixed rate of interest) and the amount of available credit will be replenished as the principal balance is repaid, the creditor must continue to comply with subpart B. For example, the creditor must continue to provide periodic statements and comply with the substantive requirements of <ref href="/us/cfr/t12/s226.5b/f">§ 226.5b(f)</ref> throughout the plan.</p>
<p style="-uslm-sgm:P">• If the consumer and creditor enter into an agreement during the draw period to repay all or part of the principal balance and the amount of available credit will not be replenished as the principal balance is repaid, the creditor must give closed-end credit disclosures pursuant to subpart C for that new agreement. In such cases, subpart B, including the substantive rules, does not apply to the closed-end credit transaction, although it will continue to apply to any remaining open-end credit available under the plan. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Spreader clause.</inline> When a creditor holds a mortgage or deed of trust on the consumer's dwelling and that mortgage or deed of trust contains a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">spreader clause</inline> (also known as a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">dragnet</inline> or cross-collateralization clause), subsequent occurrences such as the opening of an open-end plan are subject to the rules applicable to home equity plans to the same degree as if a security interest were taken directly to secure the plan, unless the creditor effectively waives its security interest under the spreader clause with respect to the subsequent open-end credit extensions.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisals and other valuations.</inline> For consumer credit transactions subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> and secured by the consumer's principal dwelling, creditors and other persons must comply with the requirements for appraisals and other valuations under <ref href="/us/cfr/t12/s226.42">§ 226.42</ref>.
<?page num="572"?></p>
<heading style="-uslm-sgm:HD2">5b(a) Form of Disclosure</heading>
<heading style="-uslm-sgm:HD2">5b(a)(1) General</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written disclosures.</inline> The disclosures required under this section must be clear and conspicuous and in writing, but need not be in a form the consumer can keep. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.6/a/3">§ 226.6(a)(3)</ref> for special rules when disclosures required under <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref> are given in a retainable form.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of annual percentage rate—more conspicuous requirement.</inline> As provided in <ref href="/us/cfr/t12/s226.5/a/2">§ 226.5(a)(2)</ref>, when the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> is required to be disclosed with a number, it must be more conspicuous than other required disclosures.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Segregation of disclosures.</inline> While most of the disclosures must be grouped together and segregated from all unrelated information, the creditor is permitted to include information that explains or expands on the required disclosures, including, for example:</p>
<p style="-uslm-sgm:P">• Any prepayment penalty</p>
<p style="-uslm-sgm:P">• How a substitute index may be chosen</p>
<p style="-uslm-sgm:P">• Actions the creditor may take short of terminating and accelerating an outstanding balance</p>
<p style="-uslm-sgm:P">• Renewal terms</p>
<p style="-uslm-sgm:P">• Rebate of fees</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">An example of information that does not explain or expand on the required disclosures and thus cannot be included is the creditor's underwriting criteria, although the creditor could provide such information separately from the required disclosures.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Method of providing disclosures.</inline> A creditor may provide a single disclosure form for all of its home equity plans, as long as the disclosure describes all aspects of the plans. For example, if the creditor offers several payment options, all such options must be disclosed. (See, however, the commentary to <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref> and (d)(12) (x) and (xi) for disclosure requirements relating to these provisions.) If any aspects of a plan are linked together, the creditor must disclose clearly the relationship of the terms to each other. For example, if the consumer can only obtain a particular payment option in conjunction with a certain variable-rate feature, this fact must be disclosed. A creditor has the option of providing separate disclosure forms for multiple options or variations in features. For example, a creditor that offers different payment options for the draw period may prepare separate disclosure forms for the two payment options. A creditor using this alternative, however, must include a statement on each disclosure form that the consumer should ask about the creditor's other home equity programs. (This disclosure is required only for those programs available generally to the public. Thus, if the only other programs available are employee preferred-rate plans, for example, the creditor would not have to provide this statement.) A creditor that receives a request for information about other available programs must provide the additional disclosures as soon as reasonably possible.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of electronic disclosures provided on or with electronic applications.</inline> Creditors must provide the disclosures required by this section (including the brochure) on or with a blank application that is made available to the consumer in electronic form, such as on a creditor's Internet Web site. Creditors have flexibility in satisfying this requirement. Methods creditors could use to satisfy the requirement include, but are not limited to, the following examples:</p>
<p style="-uslm-sgm:P">i. The disclosures could automatically appear on the screen when the application appears;</p>
<p style="-uslm-sgm:P">ii. The disclosures could be located on the same web page as the application (whether or not they appear on the initial screen), if the application contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable;</p>
<p style="-uslm-sgm:P">iii. Creditors could provide a link to the electronic disclosures on or with the application as long as consumers cannot bypass the disclosures before submitting the application. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or</p>
<p style="-uslm-sgm:P">iv. The disclosures could be located on the same web page as the application without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application.</p>
<p style="-uslm-sgm:P">Whatever method is used, a creditor need not confirm that the consumer has read the disclosures.</p>
<heading style="-uslm-sgm:HD2">5b(a)(2) Precedence of Certain Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Precedence rule.</inline> The list of conditions provided at the creditor's option under <ref href="/us/cfr/t12/s226.5b/d/4/iii">§ 226.5b(d)(4)(iii)</ref> need not precede the other disclosures.</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(a)(3)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosures.</inline> Whether disclosures must be in electronic form depends upon the following:</p>
<p style="-uslm-sgm:P">i. If a consumer accesses a home equity credit line application electronically (other than as described under ii. below), such as online at a home computer, the creditor must provide the disclosures in electronic form (such as with the application form on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application. If the creditor instead mailed paper disclosures to the consumer, this requirement would not be met.
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<p style="-uslm-sgm:P">ii. In contrast, if a consumer is physically present in the creditor's office, and accesses a home equity credit line application electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the creditor to provide applications to consumers), the creditor may provide disclosures in either electronic or paper form, provided the creditor complies with the timing, delivery, and retainability requirements of the regulation.</p>
<heading style="-uslm-sgm:HD2">5b(b) Time of Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mail and telephone applications.</inline> If the creditor sends applications through the mail, the disclosures and a brochure must accompany the application. If an application is taken over the telephone, the disclosures and brochure may be delivered or mailed within three business days of taking the application. If an application is mailed to the consumer following a telephone request, however, the creditor also must send the disclosures and a brochure along with the application.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General purpose applications.</inline> The disclosures and a brochure need not be provided when a general purpose application is given to a consumer unless (1) the application or materials accompanying it indicate that it can be used to apply for a home equity plan or (2) the application is provided in response to a consumer's specific inquiry about a home equity plan. On the other hand, if a general purpose application is provided in response to a consumer's specific inquiry only about credit other than a home equity plan, the disclosures and brochure need not be provided even if the application indicates it can be used for a home equity plan, unless it is accompanied by promotional information about home equity plans.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Publicly-available applications.</inline> Some creditors make applications for home equity plans, such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">take-ones,</inline> available without the need for a consumer to request them. These applications must be accompanied by the disclosures and a brochure, such as by attaching the disclosures and brochure to the application form.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Response cards.</inline> A creditor may solicit consumers for its home equity plan by mailing a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">response card</inline> which the consumer returns to the creditor to indicate interest in the plan. If the only action taken by the creditor upon receipt of the response card is to send the consumer an application form or to telephone the consumer to discuss the plan, the creditor need not send the disclosures and brochure with the response card.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Denial or withdrawal of application.</inline> In situations where footnote 10a permits the creditor a three-day delay in providing disclosures and the brochure, if the creditor determines within that period that an application will not be approved, the creditor need not provide the consumer with the disclosures or brochure. Similarly, if the consumer withdraws the application within this three-day period, the creditor need not provide the disclosures or brochure.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intermediary agent or broker.</inline> In determining whether or not an application involves an <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">intermediary agent or broker</inline> as discussed in footnote 10a, creditors should consult the provisions in comment 19(b)–3.</p>
<heading style="-uslm-sgm:HD2">5b(c) Duties of Third Parties</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure requirements.</inline> Although third parties who give applications to consumers for home equity plans must provide the brochure required under <ref href="/us/cfr/t12/s226.5b/e">§ 226.5b(e)</ref> in all cases, such persons need provide the disclosures required under <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref> only in certain instances. A third party has no duty to obtain disclosures about a creditor's home equity plan or to create a set of disclosures based on what it knows about a creditor's plan. If, however, a creditor provides the third party with disclosures along with its application form, the third party must give the disclosures to the consumer with the application form. The duties under this section are those of the third party; the creditor is not responsible for ensuring that a third party complies with those obligations. If an intermediary agent or broker takes an application over the telephone or receives an application contained in a magazine or other publication, footnote 10a permits that person to mail the disclosures and brochure within three business days of receipt of the application. (See the commentary to <ref href="/us/cfr/t12/s226.5b/h">§ 226.5b(h)</ref> about imposition of nonrefundable fees.)</p>
<heading style="-uslm-sgm:HD2">5b(d) Content of Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures given as applicable.</inline> The disclosures required under this section need be made only as applicable. Thus, for example, if negative amortization cannot occur in a home equity plan, a reference to it need not be made.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Duty to respond to requests for information.</inline> If the consumer, prior to the opening of a plan, requests information as suggested in the disclosures (such as the current index value or margin), the creditor must provide this information as soon as reasonably possible after the request.</p>
<heading style="-uslm-sgm:HD2">5b(d)(1) Retention of Information</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When disclosure not required.</inline> The creditor need not disclose that the consumer should make or otherwise retain a copy of the disclosures if they are retainable—for example, if the disclosures are not part of an application that must be returned to the creditor to apply for the plan.
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<heading style="-uslm-sgm:HD2">5b(d)(2) Conditions for Disclosed Terms </heading>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(2)(i) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Guaranteed terms.</inline> The requirement that the creditor disclose the time by which an application must be submitted to obtain the disclosed terms does not require the creditor to guarantee any terms. If a creditor chooses not to guarantee any terms, it must disclose that all of the terms are subject to change prior to opening the plan. The creditor also is permitted to guarantee some terms and not others, but must indicate which terms are subject to change. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date for obtaining disclosed terms.</inline> The creditor may disclose either a specific date or a time period for obtaining the disclosed terms. If the creditor discloses a time period, the consumer must be able to determine from the disclosure the specific date by which an application must be submitted to obtain any guaranteed terms. For example, the disclosure might read, “To obtain the following terms, you must submit your application within 60 days after the date appearing on this disclosure,” provided the disclosure form also shows the date. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(2)(ii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to other provisions.</inline> Creditors should consult the rules in <ref href="/us/cfr/t12/s226.5b/g">§ 226.5b(g)</ref> regarding refund of fees. </p>
<heading style="-uslm-sgm:HD2">5b(d)(4) Possible Actions by Creditor </heading>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(4)(i) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees imposed upon termination.</inline> This disclosure applies only to fees (such as penalty or prepayment fees) that the creditor imposes if it terminates the plan prior to normal expiration. The disclosure does not apply to fees that are imposed either when the plan expires in accordance with the agreement or if the consumer terminates the plan prior to its scheduled maturity. In addition, the disclosure does not apply to fees associated with collection of the debt, such as attorneys fees and court costs, or to increases in the annual percentage rate linked to the consumer's failure to make payments. The actual amount of the fee need not be disclosed. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes specified in the initial agreement.</inline> If changes may occur pursuant to <ref href="/us/cfr/t12/s226.5b/f/3/i">§ 226.5b(f)(3)(i)</ref>, a creditor must state that certain changes will be implemented as specified in the initial agreement. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(4)(iii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of conditions.</inline> In making this disclosure, the creditor may provide a highlighted copy of the document that contains such information, such as the contract or security agreement. The relevant items must be distinguished from the other information contained in the document. For example, the creditor may provide a cover sheet that specifically points out which contract provisions contain the information, or may mark the relevant items on the document itself. As an alternative to disclosing the conditions in this manner, the creditor may simply describe the conditions using the language in <ref href="/us/cfr/t12/s226.5b/f/2/i">§§ 226.5b(f)(2)(i)</ref>–(iii), 226.5b(f)(3)(i) (regarding freezing the line when the maximum annual percentage rate is reached), and 226.5b(f)(3)(vi) or language that is substantially similar. The condition contained in <ref href="/us/cfr/t12/s226.5b/f/2/iv">§ 226.5b(f)(2)(iv)</ref> need not be stated. In describing specified changes that may be implemented during the plan, the creditor may provide a disclosure such as “Our agreement permits us to make certain changes to the terms of the line at specified times or upon the occurrence of specified events.” </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosure.</inline> The list of conditions under <ref href="/us/cfr/t12/s226.5b/d/4/iii">§ 226.5b(d)(4)(iii)</ref> may appear with the segregated disclosures or apart from them. If the creditor elects to provide the list of conditions with the segregated disclosures, the list need not comply with the precedence rule in <ref href="/us/cfr/t12/s226.5b/a/2">§ 226.5b(a)(2)</ref>. </p>
<heading style="-uslm-sgm:HD2">5b(d)(5) Payment Terms </heading>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(5)(i) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Length of the plan.</inline> The combined length of the draw period and any repayment period need not be stated. If the length of the repayment phase cannot be determined because, for example, it depends on the balance outstanding at the beginning of the repayment period, the creditor must state that the length is determined by the size of the balance. If the length of the plan is indefinite (for example, because there is no time limit on the period during which the consumer can take advances), the creditor must state that fact. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Renewal provisions.</inline> If, under the credit agreement, a creditor retains the right to review a line at the end of the specified draw period and determine whether to renew or extend the draw period of the plan, the possibility of renewal or extension—regardless of its likelihood—should be ignored for purposes of the disclosures. For example, if an agreement provides that the draw period is five years and that the creditor may renew the draw period for an additional five years, the possibility of renewal should be ignored and the draw period should be considered five years. (See the commentary accompanying <ref href="/us/cfr/t12/s226.9/c/1">§ 226.9(c)(1)</ref> dealing with change in terms requirements.) </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(5)(ii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determination of the minimum periodic payment.</inline> This disclosure must reflect how the minimum periodic payment is determined, but need only describe the principal and interest components of the payment. <?page num="575"?>Other charges that may be part of the payment (as well as the balance computation method) may, but need not, be described under this provision. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fixed rate and term payment options during draw period.</inline> If the home equity plan permits the consumer to repay all or part of the balance during the draw period at a fixed rate (rather than a variable rate) and over a specified time period, this feature must be disclosed. To illustrate, a variable-rate plan may permit a consumer to elect during a ten-year draw period to repay all or a portion of the balance over a three-year period at a fixed rate. The creditor must disclose the rules relating to this feature including the period during which the option can be selected, the length of time over which repayment can occur, any fees imposed for such a feature, and the specific rate or a description of the index and margin that will apply upon exercise of this choice. For example, the index and margin disclosure might state: “If you choose to convert any portion of your balance to a fixed rate, the rate will be the highest prime rate published in the ‘Wall Street Journal’ that is in effect at the date of conversion plus a margin.” If the fixed rate is to be determined according to an index, it must be one that is outside the creditor's control and is publicly available in accordance with <ref href="/us/cfr/t12/s226.5b/f/1">§ 226.5b(f)(1)</ref>. The effect of exercising the option should not be reflected elsewhere in the disclosures, such as in the historical example required in <ref href="/us/cfr/t12/s226.5b/d/12/xi">§ 226.5b(d)(12)(xi)</ref>. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balloon payments.</inline> In programs where the occurrence of a balloon payment is possible, the creditor must disclose the possibility of a balloon payment even if such a payment is uncertain or unlikely. In such cases, the disclosure might read, “Your minimum payments may not be sufficient to fully repay the principal that is outstanding on your line. If they are not, you will be required to pay the entire outstanding balance in a single payment.” In programs where a balloon payment will occur, such as programs with interest-only payments during the draw period and no repayment period, the disclosures must state that fact. For example, the disclosure might read, “Your minimum payments will not repay the principal that is outstanding on your line. You will be required to pay the entire outstanding balance in a single payment.” In making this disclosure, the creditor is not required to use the term “balloon payment.” The creditor also is not required to disclose the amount of the balloon payment. (See, however, the requirement under <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref>.) The balloon payment disclosure does not apply in cases where repayment of the entire outstanding balance would occur only as a result of termination and acceleration. The creditor also need not make a disclosure about balloon payments if the final payment could not be more than twice the amount of other minimum payments under the plan. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(5)(iii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minimum periodic payment example.</inline> In disclosing the payment example, the creditor may assume that the credit limit as well as the outstanding balance is $10,000 if such an assumption is relevant to calculating payments. (If the creditor only offers lines of credit for less than $10,000, the creditor may assume an outstanding balance of $5,000 instead of $10,000 in making this disclosure.) The example should reflect the payment comprised only of principal and interest. Creditors may provide an additional example reflecting other charges that may be included in the payment, such as credit insurance premiums. Creditors may assume that all months have an equal number of days, that payments are collected in whole cents, and that payments will fall on a business day even though they may be due on a non-business day. For variable-rate plans, the example must be based on the last rate in the historical example required in <ref href="/us/cfr/t12/s226.5b/d/12/xi">§ 226.5b(d)(12)(xi)</ref>, or a more recent rate. In cases where the last rate shown in the historical example is different from the index value and margin (for example, due to a rate cap), creditors should calculate the rate by using the index value and margin. A discounted rate may not be considered a more recent rate in calculating this payment example for either variable- or fixed-rate plans. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Representative examples.</inline> In plans with multiple payment options within the draw period or within any repayment period, the creditor may provide representative examples as an alternative to providing examples for each payment option. The creditor may elect to provide representative payment examples based on three categories of payment options. The first category consists of plans that permit minimum payment of only accrued finance charges (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">interest only</inline> plans). The second category includes plans in which a fixed percentage or a fixed fraction of the outstanding balance or credit limit (for example, 2% of the balance or <inline role="fraction" style="-uslm-sgm:FR">1/180</inline>th of the balance) is used to determine the minimum payment. The third category includes all other types of minimum payment options, such as a specified dollar amount plus any accrued finance charges. Creditors may classify their minimum payment arrangements within one of these three categories even if other features exist, such as varying lengths of a draw or repayment period, required payment of past due amounts, late charges, and minimum dollar amounts. The creditor may use a single example within each category to represent the payment options in that category. For example, if a creditor permits minimum payments of 1%, 2%, 3% or 4% of the outstanding balance, it may pick one of <?page num="576"?>these four options and provide the example required under <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref> for that option alone. </p>
<p style="-uslm-sgm:P">The example used to represent a category must be an option commonly chosen by consumers, or a typical or representative example. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/12">§ 226.5b(d)(12)</ref> (x) and (xi) for a discussion of the use of representative examples for making those disclosures. Creditors using a representative example within each category must use the same example for purposes of the disclosures under <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> (d)(5)(iii) and (d)(12) (x) and (xi).) Creditors may use representative examples under <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref> only with respect to the payment example required under paragraph (d)(5)(iii). Creditors must provide a full narrative description of all payment options under <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref> (i) and (ii). </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples for draw and repayment periods.</inline> Separate examples must be given for the draw and repayment periods unless the payments are determined the same way during both periods. In setting forth payment examples for any repayment period under this section (and the historical example under <ref href="/us/cfr/t12/s226.5b/d/12/xi">§ 226.5b(d)(12)(xi)</ref>), creditors should assume a $10,000 advance is taken at the beginning of the draw period and is reduced according to the terms of the plan. Creditors should not assume an additional advance is taken at any time, including at the beginning of any repayment period. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reverse mortgages.</inline> Reverse mortgages, also known as reverse annuity or home equity conversion mortgages, in addition to permitting the consumer to obtain advances, may involve the disbursement of monthly advances to the consumer for a fixed period or until the occurrence of an event such as the consumer's death. Repayment of the reverse mortgage (generally a single payment of principal and accrued interest) may be required to be made at the end of the disbursements or, for example, upon the death of the consumer. In disclosing these plans, creditors must apply the following rules, as applicable: </p>
<p style="-uslm-sgm:P">• If the reverse mortgage has a specified period for advances and disbursements but repayment is due only upon occurrence of a future event such as the death of the consumer, the creditor must assume that disbursements will be made until they are scheduled to end. The creditor must assume repayment will occur when disbursements end (or within a period following the final disbursement which is not longer than the regular interval between disbursements). This assumption should be used even though repayment may occur before or after the disbursements are scheduled to end. In such cases, the creditor may include a statement such as “The disclosures assume that you will repay the line at the time the draw period and our payments to you end. As provided in your agreement, your repayment may be rquired at a different time.” The single payment should be considered the “minimum periodic payment” and consequently would not be treated as a balloon payment. The example of the minimum payment under <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref> should assume a single $10,000 draw.</p>
<p style="-uslm-sgm:P">• If the reverse mortgage has neither a specified period for advances or disbursements nor a specified repayment date and these terms will be determined solely by reference to future events, including the consumer's death, the creditor may assume that the draws and disbursements will end upon the consumer's death (estimated by using actuarial tables, for example) and that repayment will be required at the same time (or within a period following the date of the final disbursement which is not longer than the regular interval for disbursements). Alternatively, the creditor may base the disclosures upon another future event it estimates will be most likely to occur first. (If terms will be determined by reference to future events which do not include the consumer's death, the creditor must base the disclosures upon the occurrence of the event estimated to be most likely to occur first.)</p>
<p style="-uslm-sgm:P">• In making the disclosures, the creditor must assume that all draws and disbursements and accrued interest will be paid by the consumer. For example, if the note has a non-recourse provision providing that the consumer is not obligated for an amount greater than the value of the house, the creditor must nonetheless assume that the full amount to be drawn or disbursed will be repaid. In this case, however, the creditor may include a statement such as “The disclosures assume full repayment of the amount advanced plus accrued interest, although the amount you may be required to pay is limited by your agreement.”</p>
<p style="-uslm-sgm:P">• Some reverse mortgages provide that some or all of the appreciation in the value of the property will be shared between the consumer and the creditor. The creditor must disclose the appreciation feature, including describing how the creditor's share will be determined, any limitations, and when the feature may be exercised.</p>
<heading style="-uslm-sgm:HD2">5b(d)(6) Annual Percentage Rate</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preferred-rate plans.</inline> If a creditor offers a preferential fixed-rate plan in which the rate will increase a specified amount upon the occurrence of a specified event, the creditor must disclose the specific amount the rate will increase.</p>
<heading style="-uslm-sgm:HD2">5b(d)(7) Fees Imposed by Creditor</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> The fees referred to in <ref href="/us/cfr/t12/s226.5b/d/7">§ 226.5b(d)(7)</ref> include items such as application fees, points, annual fees, transaction fees, fees to obtain checks to access the plan, <?page num="577"?>and fees imposed for converting to a repayment phase that is provided for in the original agreement. This disclosure includes any fees that are imposed by the creditor to use or maintain the plan, whether the fees are kept by the creditor or a third party. For example, if a creditor requires an annual credit report on the consumer and requires the consumer to pay this fee to the creditor or directly to the third party, the fee must be specifically stated. Third party fees to open the plan that are initially paid by the consumer to the creditor may be included in this disclosure or in the disclosure under <ref href="/us/cfr/t12/s226.5b/d/8">§ 226.5b(d)(8)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manner of describing fees.</inline> Charges may be stated as an estimated dollar amount for each fee, or as a percentage of a typical or representative amount of credit. The creditor may provide a stepped fee schedule in which a fee will increase a specified amount at a specified date. (See the discussion contained in the commentary to <ref href="/us/cfr/t12/s226.5b/f/3/i">§ 226.5b(f)(3)(i)</ref>.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees not required to be disclosed.</inline> Fees that are not imposed to open, use, or maintain a plan, such as fees for researching an account, photocopying, paying late, stopping payment, having a check returned, exceeding the credit limit, or closing out an account do not have to be disclosed under this section. Credit report and appraisal fees imposed to investigate whether a condition permitting a freeze continues to exist—as discussed in the commentary to <ref href="/us/cfr/t12/s226.5b/f/3/vi">§ 226.5b(f)(3)(vi)</ref>—are not required to be disclosed under this section or <ref href="/us/cfr/t12/s226.5b/d/8">§ 226.5b(d)(8)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rebates of closing costs.</inline> If closing costs are imposed they must be disclosed, regardless of whether such costs may be rebated later (for example, rebated to the extent of any interest paid during the first year of the plan).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terms used in disclosure.</inline> Creditors need not use the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other charge</inline> in describing the fees imposed by the creditor under this section or those imposed by third parties under <ref href="/us/cfr/t12/s226.5b/d/8">§ 226.5b(d)(8)</ref>.</p>
<heading style="-uslm-sgm:HD2">5b(d)(8) Fees Imposed by Third Parties to Open a Plan</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> Section 226.5b(d)(8) applies only to fees imposed by third parties to open the plan. Thus, for example, this section does not require disclosure of a fee imposed by a government agency at the end of a plan to release a security interest. Fees to be disclosed include appraisal, credit report, government agency, and attorneys fees. In cases where property insurance is required by the creditor, the creditor either may disclose the amount of the premium or may state that property insurance is required. For example, the disclosure might state, “You must carry insurance on the property that secures this plan.”</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Itemization of third-party fees.</inline> In all cases creditors must state the total of third-party fees as a single dollar amount or a range except that the total need not include costs for property insurance if the creditor discloses that such insurance is required. A creditor has two options with regard to providing the more detailed information about third party fees. Creditors may provide a statement that the consumer may request more specific cost information about third party fees from the creditor. As an alternative to including this statement, creditors may provide an itemization of such fees (by type and amount) with the early disclosures. Any itemization provided upon the consumer's request need not include a disclosure about property insurance.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manner of describing fees.</inline> A good faith estimate of the amount of fees must be provided. Creditors may provide, based on a typical or representative amount of credit, a range for such fees or state the dollar amount of such fees. Fees may be expressed on a unit cost basis, for example, $5 per $1,000 of credit.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rebates of third party fees.</inline> Even if fees imposed by third parties may be rebated, they must be disclosed. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/7">§ 226.5b(d)(7)</ref>.)</p>
<heading style="-uslm-sgm:HD2">5b(d)(9) Negative Amortization</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> In transactions where the minimum payment will not or may not be sufficient to cover the interest that accrues on the outstanding balance, the creditor must disclose that negative amortization will or may occur. This disclosure is required whether or not the unpaid interest is added to the outstanding balance upon which interest is computed. A disclosure is not required merely because a loan calls for non-amortizing or partially amortizing payments.</p>
<heading style="-uslm-sgm:HD2">5b(d)(10) Transaction Requirements </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> A limitation on automated teller machine usage need not be disclosed under this paragraph unless that is the only means by which the consumer can obtain funds.</p>
<heading style="-uslm-sgm:HD2">5b(d)(12) Disclosures for Variable-Rate Plans</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate provisions.</inline> Sample forms in appendix G–14 provide illustrative guidance on the variable-rate rules.</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(12)(iv)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determination of annual percentage rate.</inline> If the creditor adjusts its index through the addition of a margin, the disclosure might read, “Your annual percentage rate is based on the index plus a margin.” The creditor is not required to disclose a specific value for the margin.
<?page num="578"?></p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(12)(viii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preferred-rate provisions.</inline> This paragraph requires disclosure of preferred-rate provisions, where the rate will increase upon the occurrence of some event, such as the borrower-employee leaving the creditor's employ or the consumer closing an existing deposit account with the creditor.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Provisions on conversion to fixed rates.</inline> The commentary to <ref href="/us/cfr/t12/s226.5b/d/5/ii">§ 226.5b(d)(5)(ii)</ref> discusses the disclosure requirements for options permitting the consumer to convert from a variable rate to a fixed rate.</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(12)(ix)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic limitations on increases in rates.</inline> The creditor must disclose any annual limitations on increases in the annual percentage rate. If the creditor bases its rate limitation on 12 monthly billing cycles, such a limitation should be treated as an annual cap. Rate limitations imposed on less than an annual basis must be stated in terms of a specific amount of time. For example, if the creditor imposes rate limitations on only a semiannual basis, this must be expressed as a rate limitation for a six-month time period. If the creditor does not impose periodic limitations (annual or shorter) on rate increases, the fact that there are no annual rate limitations must be stated.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maximum limitations on increases in rates.</inline> The maximum annual percentage rate that may be imposed under each payment option over the term of the plan (including the draw period and any repayment period provided for in the initial agreement) must be provided. The creditor may disclose this rate as a specific number (for example, 18%) or as a specific amount above the initial rate. For example, this disclosure might read, “The maximum annual percentage rate that can apply to your line will be 5 percentage points above your initial rate.” If the creditor states the maximum rate as a specific amount above the initial rate, the creditor must include a statement that the consumer should inquire about the rate limitations that are currently available. If an initial discount is not taken into account in applying maximum rate limitations, that fact must be disclosed. If separate overall limitations apply to rate increases resulting from events such as the exercise of a fixed-rate conversion option or leaving the creditor's employ, those limitations also must be stated. Limitations do not include legal limits in the nature of usury or rate ceilings under state or federal statutes or regulations.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosures.</inline> The creditor need not disclose each periodic or maximum rate limitation that is currently available. Instead, the creditor may disclose the range of the lowest and highest periodic and maximum rate limitations that may be applicable to the creditor's home equity plans. Creditors using this alternative must include a statement that the consumer should inquire about the rate limitations that are currently available.</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(12)(x)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maximum rate payment example.</inline> In calculating the payment creditors should assume the maximum rate is in effect. Any discounted or premium initial rates or periodic rate limitations should be ignored for purposes of this disclosure. If a range is used to disclose the maximum cap under <ref href="/us/cfr/t12/s226.5b/d/12/ix">§ 226.5b(d)(12)(ix)</ref>, the highest rate in the range must be used for the disclosure under this paragraph. As an alternative to making disclosures based on each payment option, the creditor may choose a representative example within the three categories of payment options upon which to base this disclosure. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref>.) However, separate examples must be provided for the draw period and for any repayment period unless the payment is determined the same way in both periods. Creditors should calculate the example for the repayment period based on an assumed $10,000 balance. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref> for a discussion of the circumstances in which a creditor may use a lower outstanding balance.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Time the maximum rate could be reached.</inline> In stating the date or time when the maximum rate could be reached, creditors should assume the rate increases as rapidly as possible under the plan. In calculating the date or time, creditors should factor in any discounted or premium initial rates and periodic rate limitations. This disclosure must be provided for the draw phase and any repayment phase. Creditors should assume the index and margin shown in the last year of the historical example (or a more recent rate) is in effect at the beginning of each phase.</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(d)(12)(xi)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Index movement.</inline> Index values and annual percentage rates must be shown for the entire 15 years of the historical example and must be based on the most recent 15 years. The example must be updated annually to reflect the most recent 15 years of index values as soon as reasonably possible after the new index value becomes available. If the values for an index have not been available for 15 years, a creditor need only go back as far as the values have been available and may start the historical example at the year for which values are first available.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Selection of index values.</inline> The historical example must reflect the method of choosing index values for the plan. For example, if an average of index values is used in the plan, averages must be used in the example, but if an index value as of a particular date is used, <?page num="579"?>a single index value must be shown. The creditor is required to assume one date (or one period, if an average is used) within a year on which to base the history of index values. The creditor may choose to use index values as of any date or period as long as the index value as of this date or period is used for each year in the example. Only one index value per year need be shown, even if the plan provides for adjustments to the annual percentage rate or payment more than once in a year. In such cases, the creditor can assume that the index rate remained constant for the full year for the purpose of calculating the annual percentage rate and payment.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Selection of margin.</inline> A value for the margin must be assumed in order to prepare the example. A creditor may select a representative margin that it has used with the index during the six months preceding preparation of the disclosures and state that the margin is one that it has used recently. The margin selected may be used until the creditor annually updates the disclosure form to reflect the most recent 15 years of index values.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of discount or premium.</inline> In reflecting any discounted or premium initial rate, the creditor may select a discount or premium that it has used during the six months preceding preparation of the disclosures, and should disclose that the discount or premium is one that the creditor has used recently. The discount or premium should be reflected in the example for as long as it is in effect. The creditor may assume that a discount or premium that would have been in effect for any part of a year was in effect for the full year for purposes of reflecting it in the historical example.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate limitations.</inline> Limitations on both periodic and maximum rates must be reflected in the historical example. If ranges of rate limitations are provided under <ref href="/us/cfr/t12/s226.5b/d/12/ix">§ 226.5b(d)(12)(ix)</ref>, the highest rates provided in those ranges must be used in the example. Rate limitations that may apply more often than annually should be treated as if they were annual limitations. For example, if a creditor imposes a 1% cap every six months, this should be reflected in the example as if it were a 2% annual cap. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumed advances.</inline> The creditor should assume that the $10,000 balance is an advance taken at the beginning of the first billing cycle and is reduced according to the terms of the plan, and that the consumer takes no subsequent draws. As discussed in the commentary to <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref>, creditors should not assume an additional advance is taken at the beginning of any repayment period. If applicable, the creditor may assume the $10,000 is both the advance and the credit limit. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref> for a discussion of the circumstances in which a creditor may use a lower outstanding balance.) </p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Representative payment options.</inline> The creditor need not provide an historical example for all of its various payment options, but may select a representative payment option within each of the three categories of payments upon which to base its disclosure. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref>.) </p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment information.</inline> The payment figures in the historical example must reflect all significant program terms. For example, features such as rate and payment caps, a discounted initial rate, negative amortization, and rate carryover must be taken into account in calculating the payment figures if these would have applied to the plan. The historical example should include payments for as much of the length of the plan as would occur during a 15-year period. For example: </p>
<p style="-uslm-sgm:P">• If the draw period is 10 years and the repayment period is 15 years, the example should illustrate the entire 10-year draw period and the first 5 years of the repayment period. </p>
<p style="-uslm-sgm:P">• If the length of the draw period is 15 years and there is a 15-year repayment phase, the historical example must reflect the payments for the 15-year draw period and would not show any of the repayment period. No additional historical example would be required to reflect payments for the repayment period. </p>
<p style="-uslm-sgm:P">• If the length of the plan is less than 15 years, payments in the historical example need only be shown for the number of years in the term. In such cases, however, the creditor must show the index values, margin and annual percentage rates and continue to reflect all significant plan terms such as rate limitations for the entire 15 years.</p>
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<p style="-uslm-sgm:FP">A creditor need show only a single payment per year in the example, even though payments may vary during a year. The calculations should be based on the actual payment computation formula, although the creditor may assume that all months have an equal number of days. The creditor may assume that payments are made on the last day of the billing cycle, the billing date or the payment due date, but must be consistent in the manner in which the period used to illustrate payment information is selected. Information about balloon payments and remaining balance may, but need not, be reflected in the example. </p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures for repayment period.</inline> The historical example must reflect all features of the repayment period, including the appropriate index values, margin, rate limitations, length of the repayment period, and payments. For example, if different indices are used during the draw and repayment periods, the index values for that portion of the 15 years that reflect the repayment period must be the values for the appropriate index. </p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reverse mortgages.</inline> The historical example for reverse mortgages should reflect 15 <?page num="580"?>years of index values and annual percentage rates, but the payment column should be blank until the year that the single payment will be made, assuming that payment is estimated to occur within 15 years. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref> for a discussion of reverse mortgages.) </p>
<heading style="-uslm-sgm:HD2">5b(e) Brochure </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitutes.</inline> A brochure is a suitable substitute for the Board's home equity brochure if it is, at a minimum, comparable to the Board's brochure in substance and comprehensiveness. Creditors are permitted to provide more detailed information than is contained in the Board's brochure. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of third party delivery of brochure.</inline> If a creditor determines that a third party has provided a consumer with the required brochure pursuant to <ref href="/us/cfr/t12/s226.5b/c">§ 226.5b(c)</ref>, the creditor need not give the consumer a second brochure. </p>
<heading style="-uslm-sgm:HD2">5b(f) Limitations on Home Equity Plans </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> Section 226.5b(f) limits both actions that may be taken and language that may be included in contracts, and applies to any assignee or holder as well as to the original creditor. The limitations apply to the draw period and any repayment period, and to any renewal or modification of the original agreement. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(1) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">External index.</inline> A creditor may change the annual percentage rate for a plan only if the change is based on an index outside the creditor's control. Thus, a creditor may not make rate changes based on its own prime rate or cost of funds and may not reserve a contractual right to change rates at its discretion. A creditor is permitted, however, to use a published prime rate, such as that in the Wall Street Journal, even if the bank's own prime rate is one of several rates used to establish the published rate. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Publicly available.</inline> The index must be available to the public. A publicly available index need not be published in a newspaper, but it must be one the consumer can independently obtain (by telephone, for example) and use to verify rates imposed under the plan. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Provisions not prohibited.</inline> This paragraph does not prohibit rate changes that are specifically set forth in the agreement. For example, stepped-rate plans, in which specified rates are imposed for specified periods, are permissible. In addition, preferred-rate provisions, in which the rate increases by a specified amount upon the occurrence of a specified event, also are permissible. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(2) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitations on termination and acceleration.</inline> In general, creditors are prohibited from terminating and accelerating payment of the outstanding balance before the scheduled expiration of a plan. However, creditors may take these actions in the four circumstances specified in <ref href="/us/cfr/t12/s226.5b/f/2">§ 226.5b(f)(2)</ref>. Creditors are not permitted to specify in their contracts any other events that allow termination and acceleration beyond those permitted by the regulation. Thus, for example, an agreement may not provide that the balance is payable on demand nor may it provide that the account will be terminated and the balance accelerated if the rate cap is reached.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other actions permitted.</inline> If an event permitting termination and acceleration occurs, a creditor may instead take actions short of terminating and accelerating. For example, a creditor could temporarily or permanently suspend further advances, reduce the credit limit, change the payment terms, or require the consumer to pay a fee. A creditor also may provide in its agreement that a higher rate or higher fees will apply in circumstances under which it would otherwise be permitted to terminate the plan and accelerate the balance. A creditor that does not immediately terminate an account and accelerate payment or take another permitted action may take such action at a later time, provided one of the conditions permitting termination and acceleration exists at that time. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(2)(i) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fraud or material misrepresentation.</inline> A creditor may terminate a plan and accelerate the balance if there has been fraud or material misrepresentation by the consumer in connection with the plan. This exception includes fraud or misrepresentation at any time, either during the application process or during the draw period and any repayment period. What constitutes fraud or misrepresentation is determined by applicable state law and may include acts of omission as well as overt acts, as long as any necessary intent on the part of the consumer exists. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(2)(ii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Failure to meet repayment terms.</inline> A creditor may terminate a plan and accelerate the balance when the consumer fails to meet the repayment terms provided for in the agreement. However, a creditor may terminate and accelerate under this provision only if the consumer actually fails to make payments. For example, a creditor may not terminate and accelerate if the consumer, in error, sends a payment to the wrong location, such as a branch rather than the main office of the creditor. If a consumer files for or is placed in bankruptcy, the creditor may <?page num="581"?>terminate and accelerate under this provision if the consumer fails to meet the repayment terms of the agreement. This section does not override any state or other law that requires a right-to-cure notice, or otherwise places a duty on the creditor before it can terminate a plan and accelerate the balance. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(2)(iii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Impairment of security.</inline> A creditor may terminate a plan and accelerate the balance if the consumer's action or inaction adversely affects the creditor's security for the plan, or any right of the creditor in that security. Action or inaction by third parties does not, in itself, permit the creditor to terminate and accelerate. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> A creditor may terminate and accelerate, for example, if: </p>
<p style="-uslm-sgm:P">• The consumer transfers title to the property or sells the property without the permission of the creditor </p>
<p style="-uslm-sgm:P">• The consumer fails to maintain required insurance on the dwelling </p>
<p style="-uslm-sgm:P">• The consumer fails to pay taxes on the property </p>
<p style="-uslm-sgm:P">• The consumer permits the filing of a lien senior to that held by the creditor </p>
<p style="-uslm-sgm:P">• The sole consumer obligated on the plan dies </p>
<p style="-uslm-sgm:P">• The property is taken through eminent domain </p>
<p style="-uslm-sgm:P">• A prior lienholder forecloses</p>
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<p style="-uslm-sgm:FP">By contrast, the filing of a judgment against the consumer would permit termination and acceleration only if the amount of the judgment and collateral subject to the judgment is such that the creditor's security is adversely affected. If the consumer commits waste or otherwise destructively uses or fails to maintain the property such that the action adversely affects the security, the plan may be terminated and the balance accelerated. Illegal use of the property by the consumer would permit termination and acceleration if it subjects the property to seizure. If one of two consumers obligated on a plan dies the creditor may terminate the plan and accelerate the balance if the security is adversely affected. If the consumer moves out of the dwelling that secures the plan and that action adversely affects the security, the creditor may terminate a plan and accelerate the balance. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(3) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope of provision.</inline> In general, a creditor may not change the terms of a plan after it is opened. For example, a creditor may not increase any fee or impose a new fee once the plan has been opened, even if the fee is charged by a third party, such as a credit reporting agency, for a service. The change of terms prohibition applies to all features of a plan, not only those required to be disclosed under this section. For example, this provision applies to charges imposed for late payment, although this fee is not required to be disclosed under <ref href="/us/cfr/t12/s226.5b/d/7">§ 226.5b(d)(7)</ref>. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges not covered.</inline> There are three charges not covered by this provision. A creditor may pass on increases in taxes since such charges are imposed by a governmental body and are beyond the control of the creditor. In addition, a creditor may pass on increases in premiums for property insurance that are excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/d/2">§ 226.4(d)(2)</ref>, since such insurance provides a benefit to the consumer independent of the use of the line and is often maintained notwithstanding the line. A creditor also may pass on increases in premiums for credit insurance that are excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/d/1">§ 226.4(d)(1)</ref>, since the insurance is voluntary and provides a benefit to the consumer. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(3)(i) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes provided for in agreement.</inline> A creditor may provide in the initial agreement that further advances will be prohibited or the credit line reduced during any period in which the maximum annual percentage rate is reached. A creditor also may provide for other specific changes to take place upon the occurrence of specific events. Both the triggering event and the resulting modification must be stated with specificity. For example, in home equity plans for employees, the agreement could provide that a specified higher rate or margin will apply if the borrower's employment with the creditor ends. A contract could contain a stepped-rate or stepped-fee schedule providing for specified changes in the rate or the fees on certain dates or after a specified period of time. A creditor also may provide in the initial agreement that it will be entitled to a share of the appreciation in the value of the property as long as the specific appreciation share and the specific circumstances which require the payment of it are set forth. A contract may permit a consumer to switch among minimum payment options during the plan. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibited provisions.</inline> A creditor may not include a general provision in its agreement permitting changes to any or all of the terms of the plan. For example, creditors may not include “boilerplate” language in the agreement stating that they reserve the right to change the fees imposed under the plan. In addition, a creditor may not include any “triggering events” or responses that the regulation expressly addresses in a manner different from that provided in the regulation. For example, an agreement may not provide that the margin in a variable-rate plan will increase if there is a material change in the consumer's financial circumstances, because the regulation specifies <?page num="582"?>that temporarily freezing the line or lowering the credit limit is the permissible response to a material change in the consumer's financial circumstances. Similarly a contract cannot contain a provision allowing the creditor to freeze a line due to an insignificant decline in property value since the regulation allows that response only for a significant decline. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(3)(ii) </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution of index.</inline> A creditor may change the index and margin used under the plan if the original index becomes unavailable, as long as historical fluctuations in the original and replacement indices were substantially similar, and as long as the replacement index and margin will produce a rate similar to the rate that was in effect at the time the original index became unavailable. If the replacement index is newly established and therefore does not have any rate history, it may be used if it produces a rate substantially similar to the rate in effect when the original index became unavailable. </p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(3)(iii)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes by written agreement.</inline> A creditor may change the terms of a plan if the consumer expressly agrees in writing to the change at the time it is made. For example, a consumer and a creditor could agree in writing to change the repayment terms from interest-only payments to payments that reduce the principal balance. The provisions of any such agreement are governed by the limitations in <ref href="/us/cfr/t12/s226.5b/f">§ 226.5b(f)</ref>. For example, a mutual agreement could not provide for future annual percentage rate changes based on the movement of an index controlled by the creditor or for termination and acceleration under circumstances other than those specified in the regulation. By contrast, a consumer could agree to a new credit limit for the plan, although the agreement could not permit the creditor to later change the credit limit except by a subsequent written agreement or in the circumstances described in <ref href="/us/cfr/t12/s226.5b/f/3/vi">§ 226.5b(f)(3)(vi)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written agreement.</inline> The change must be agreed to in writing by the consumer. Creditors are not permitted to assume consent because the consumer uses an account, even if use of an account would otherwise constitute acceptance of a proposed change under state law.</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(3)(iv)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Beneficial changes.</inline> After a plan is opened, a creditor may make changes that unequivocally benefit the consumer. Under this provision, a creditor may offer more options to consumers, as long as existing options remain. For example, a creditor may offer the consumer the option of making lower monthly payments or could increase the credit limit. Similarly, a creditor wishing to extend the length of the plan on the same terms may do so. Creditors are permitted to temporarily reduce the rate or fees charged during the plan (though a change in terms notice may be required under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> when the rate or fees are returned to their original level). Creditors also may offer an additional means of access to the line, even if fees are associated with using the device, provided the consumer retains the ability to use prior access devices on the original terms.</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(3)(v)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insignificant changes.</inline> A creditor is permitted to make insignificant changes after a plan is opened. This rule accommodates operational and similar problems, such as changing the address of the creditor for purposes of sending payments. It does not permit a creditor to change a term such as a fee charged for late payments.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of insignificant changes.</inline> Creditors may make minor changes to features such as the billing cycle date, the payment due date (as long as the consumer does not have a diminished grace period if one is provided), and the day of the month on which index values are measured to determine changes to the rate for variable-rate plans. A creditor also may change its rounding practice in accordance with the tolerance rules set forth in <ref href="/us/cfr/t12/s226.14">§ 226.14</ref> (for example, stating an exact APR of 14.3333 percent as 14.3 percent, even if it had previously been stated as 14.33 percent). A creditor may change the balance computation method it uses only if the change produces an insignificant difference in the finance charge paid by the consumer. For example, a creditor may switch from using the average daily balance method (including new transactions) to the daily balance method (including new transactions).</p>
<heading style="-uslm-sgm:HD2">Paragraph 5b(f)(3)(vi)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Suspension of credit privileges or reduction of credit limit.</inline> A creditor may prohibit additional extensions of credit or reduce the credit limit in the circumstances specified in this section of the regulation. In addition, as discussed under <ref href="/us/cfr/t12/s226.5b/f/3/i">§ 226.5b(f)(3)(i)</ref>, a creditor may contractually reserve the right to take such actions when the maximum annual percentage rate is reached. A creditor may not take these actions under other circumstances, unless the creditor would be permitted to terminate the line and accelerate the balance as described in <ref href="/us/cfr/t12/s226.5b/f/2">§ 226.5b(f)(2)</ref>. The creditor's right to reduce the credit limit does not permit reducing the limit below the amount of the outstanding balance if this would require the consumer to make a higher payment.
<?page num="583"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary nature of suspension or reduction.</inline> Creditors are permitted to prohibit additional extensions of credit or reduce the credit limit only while one of the designated circumstances exists. When the circumstance justifying the creditor's action ceases to exist, credit privileges must be reinstated, assuming that no other circumstance permitting such action exists at that time.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Imposition of fees.</inline> If not prohibited by state law, a creditor may collect only bona fide and reasonable appraisal and credit report fees if such fees are actually incurred in investigating whether the condition permitting the freeze continues to exist. A creditor may not, in any circumstances, impose a fee to reinstate a credit line once the condition has been determined not to exist.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reinstatement of credit privileges.</inline> Creditors are responsible for ensuring that credit privileges are restored as soon as reasonably possible after the condition that permitted the creditor's action ceases to exist. One way a creditor can meet this responsibility is to monitor the line on an ongoing basis to determine when the condition ceases to exist. The creditor must investigate the condition frequently enough to assure itself that the condition permitting the freeze continues to exist. The frequency with which the creditor must investigate to determine whether a condition continues to exist depends upon the specific condition permitting the freeze. As an alternative to such monitoring, the creditor may shift the duty to the consumer to request reinstatement of credit privileges by providing a notice in accordance with <ref href="/us/cfr/t12/s226.9/c/1/iii">§ 226.9(c)(1)(iii)</ref>. A creditor may require a reinstatement request to be in writing if it notifies the consumer of this requirement on the notice provided under <ref href="/us/cfr/t12/s226.9/c/1/iii">§ 226.9(c)(1)(iii)</ref>. Once the consumer requests reinstatement, the creditor must promptly investigate to determine whether the condition allowing the freeze continues to exist. Under this alternative, the creditor has a duty to investigate only upon the consumer's request.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Suspension of credit privileges following request by consumer.</inline> A creditor may honor a specific request by a consumer to suspend credit privileges. If the consumer later requests that the creditor reinstate credit privileges, the creditor must do so provided no other circumstance justifying a suspension exists at that time. If two or more consumers are obligated under a plan and each has the ability to take advances, the agreement may permit any of the consumers to direct the creditor not to make further advances. A creditor may require that all persons obligated under a plan request reinstatement.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Significant decline defined.</inline> What constitutes a significant decline for purposes of <ref href="/us/cfr/t12/s226.5b/f/3/vi/A">§ 226.5b(f)(3)(vi)(A)</ref> will vary according to individual circumstances. In any event, if the value of the dwelling declines such that the initial difference between the credit limit and the available equity (based on the property's appraised value for purposes of the plan) is reduced by fifty percent, this constitutes a significant decline in the value of the dwelling for purposes of <ref href="/us/cfr/t12/s226.5b/f/3/vi/A">§ 226.5b(f)(3)(vi)(A)</ref>. For example, assume that a house with a first mortgage of $50,000 is appraised at $100,000 and the credit limit is $30,000. The difference between the credit limit and the available equity is $20,000, half of which is $10,000. The creditor could prohibit further advances or reduce the credit limit if the value of the property declines from $100,000 to $90,000. This provision does not require a creditor to obtain an appraisal before suspending credit privileges although a significant decline must occur before suspension can occur. </p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Material change in financial circumstances.</inline> Two conditions must be met for <ref href="/us/cfr/t12/s226.5b/f/3/vi/B">§ 226.5b(f)(3)(vi)(B)</ref> to apply. First, there must be a “material change” in the consumer's financial circumstances, such as a significant decrease in the consumer's income. Second, as a result of this change, the creditor must have a reasonable belief that the consumer will be unable to fulfill the payment obligations of the plan. A creditor may, but does not have to, rely on specific evidence (such as the failure to pay other debts) in concluding that the second part of the test has been met. A creditor may prohibit further advances or reduce the credit limit under this section if a consumer files for or is placed in bankruptcy.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Default of a material obligation.</inline> Creditors may specify events that would qualify as a default of a material obligation under <ref href="/us/cfr/t12/s226.5b/f/3/vi/C">§ 226.5b(f)(3)(vi)(C)</ref>. For example, a creditor may provide that default of a material obligation will exist if the consumer moves out of the dwelling or permits an intervening lien to be filed that would take priority over future advances made by the creditor.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Government limits on the annual percentage rate.</inline> Under <ref href="/us/cfr/t12/s226.5b/f/3/vi/D">§ 226.5b(f)(3)(vi)(D)</ref>, a creditor may prohibit further advances or reduce the credit limit if, for example, a state usury law is enacted which prohibits a creditor from imposing the agreed-upon annual percentage rate.</p>
<heading style="-uslm-sgm:HD2">5b(g) Refund of Fees</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Refund of fees required.</inline> If any disclosed term, including any term provided upon request pursuant to <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref>, changes between the time the early disclosures are provided to the consumer and the time the plan is opened, and the consumer as a result decides to not enter into the plan, a creditor must refund all fees paid by the consumer in connection with the application. All fees, including credit report fees and appraisal fees, must be refunded whether such fees are paid to the creditor or directly to third parties. A <?page num="584"?>consumer is entitled to a refund of fees under these circumstances whether or not terms are guaranteed by the creditor under <ref href="/us/cfr/t12/s226.5b/d/2/i">§ 226.5b(d)(2)(i)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plans.</inline> The right to a refund of fees does not apply to changes in the annual percentage rate resulting from fluctuations in the index value in a variable-rate plan. Also, if the maximum annual percentage rate is expressed as an amount over the initial rate, the right to refund of fees would not apply to changes in the cap resulting from fluctuations in the index value.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes in terms.</inline> If a term, such as the maximum rate, is stated as a range in the early disclosures, and the term ultimately applicable to the plan falls within that range, a change does not occur for purposes of this section. If, however, no range is used and the term is changed (for example, a rate cap of 6 rather than 5 percentage points over the initial rate), the change would permit the consumer to obtain a refund of fees. If a fee imposed by the creditor is stated in the early disclosures as an estimate and the fee changes, the consumer could elect to not enter into the agreement and would be entitled to a refund of fees. On the other hand, if fees imposed by third parties are disclosed as estimates and those fees change, the consumer is not entitled to a refund of fees paid in connection with the application. Creditors must, however, use the best information reasonably available in providing disclosures about such fees.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of refunds and relation to other provisions.</inline> The refund of fees must be made as soon as reasonably possible after the creditor is notified that the consumer is not entering into the plan because of the changed term, or that the consumer wants a refund of fees. The fact that an application fee may be refunded to some applicants under this provision does not render such fees finance charges under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref> of the regulation.</p>
<heading style="-uslm-sgm:HD2">5b(h) Imposition of Nonrefundable Fees</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collection of fees after consumer receives disclosures.</inline> A fee may be collected after the consumer receives the disclosures and brochure and before the expiration of three days, although the fee must be refunded if, within three days of receiving the required information, the consumer decides to not enter into the agreement. In such a case, the consumer must be notified that the fee is refundable for three days. The notice must be clear and conspicuous and in writing, and may be included with the disclosures required under <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref> or as an attachment to them. If disclosures and brochure are mailed to the consumer, footnote 10d of the regulation provides that a nonrefundable fee may not be imposed until six business days after the mailing.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collection of fees before consumer receives disclosures.</inline> An application fee may be collected before the consumer receives the disclosures and brochure (for example, when an application contained in a magazine is mailed in with an application fee) provided that it remains refundable until three business days after the consumer receives the <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> disclosures. No other fees except a refundable membership fee may be collected until after the consumer receives the disclosures required under <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to other provisions.</inline> A fee collected before disclosures are provided may become nonrefundable except that, under <ref href="/us/cfr/t12/s226.5b/g">§ 226.5b(g)</ref>, it must be refunded if the consumer elects to not enter into the plan because of a change in terms. (Of course, all fees must be refunded if the consumer later rescinds under <ref href="/us/cfr/t12/s226.15">§ 226.15</ref>.)</p>
<heading style="-uslm-sgm:HD2">Section 226.6—Account-Opening Disclosures</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(a) Rules affecting home-equity plans.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(a)(1) Finance charge.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(a)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When finance charges accrue.</inline> Creditors are not required to disclose a specific date when finance charges will begin to accrue. Creditors may provide a general explanation such as that the consumer has 30 days from the closing date to pay the new balance before finance charges will accrue on the account.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace periods.</inline> In disclosing whether or not a grace period exists, the creditor need not use “free period,” “free-ride period,” “grace period” or any other particular descriptive phrase or term. For example, a statement that “the finance charge begins on the date the transaction is posted to your account” adequately discloses that no grace period exists. In the same fashion, a statement that “finance charges will be imposed on any new purchases only if they are not paid in full within 25 days after the close of the billing cycle” indicates that a grace period exists in the interim.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(a)(1)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Range of balances.</inline> The range of balances disclosure is inapplicable:</p>
<p style="-uslm-sgm:P">i. If only one periodic rate may be applied to the entire account balance.</p>
<p style="-uslm-sgm:P">ii. If only one periodic rate may be applied to the entire balance for a feature (for example, cash advances), even though the balance for another feature (purchases) may be subject to two rates (a 1.5% monthly periodic rate on purchase balances of $0–$500, and a 1% monthly periodic rate for balances above $500). In this example, the creditor must give a range of balances disclosure for the purchase feature.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate disclosures—coverage.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> This section covers open-end credit plans under which rate changes are specifically set forth in the account agreement and are tied to an index or formula. A creditor would use variable-rate disclosures <?page num="585"?>for plans involving rate changes such as the following:</p>
<p style="-uslm-sgm:P">A. Rate changes that are tied to the rate the creditor pays on its six-month certificates of deposit.</p>
<p style="-uslm-sgm:P">B. Rate changes that are tied to Treasury bill rates.</p>
<p style="-uslm-sgm:P">C. Rate changes that are tied to changes in the creditor's commercial lending rate.</p>
<p style="-uslm-sgm:P">ii. An open-end credit plan in which the employee receives a lower rate contingent upon employment (that is, with the rate to be increased upon termination of employment) is not a variable-rate plan.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—rate(s) in effect.</inline> In disclosing the rate(s) in effect at the time of the account-opening disclosures (as is required by <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref>), the creditor may use an insert showing the current rate; may give the rate as of a specified date and then update the disclosure from time to time, for example, each calendar month; or may disclose an estimated rate under <ref href="/us/cfr/t12/s226.5/c">§ 226.5(c)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—additional disclosures required.</inline> In addition to disclosing the rates in effect at the time of the account-opening disclosures, the disclosures under <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref> also must be made.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—index.</inline> The index to be used must be clearly identified; the creditor need not give, however, an explanation of how the index is determined or provide instructions for obtaining it.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—circumstances for increase.</inline>
</p>
<p style="-uslm-sgm:P">i. Circumstances under which the rate(s) may increase include, for example:</p>
<p style="-uslm-sgm:P">A. An increase in the Treasury bill rate.</p>
<p style="-uslm-sgm:P">B. An increase in the Federal Reserve discount rate.</p>
<p style="-uslm-sgm:P">ii. The creditor must disclose when the increase will take effect; for example:</p>
<p style="-uslm-sgm:P">A. “An increase will take effect on the day that the Treasury bill rate increases,” or</p>
<p style="-uslm-sgm:P">B. “An increase in the Federal Reserve discount rate will take effect on the first day of the creditor's billing cycle.”</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—limitations on increase.</inline> In disclosing any limitations on rate increases, limitations such as the maximum increase per year or the maximum increase over the duration of the plan must be disclosed. When there are no limitations, the creditor may, but need not, disclose that fact. (A maximum interest rate must be included in dwelling-secured open-end credit plans under which the interest rate may be changed. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.30">§ 226.30</ref> and the commentary to that section.) Legal limits such as usury or rate ceilings under state or federal statutes or regulations need not be disclosed. Examples of limitations that must be disclosed include:</p>
<p style="-uslm-sgm:P">i. “The rate on the plan will not exceed 25% annual percentage rate.”</p>
<p style="-uslm-sgm:P">ii. “Not more than <inline role="fraction" style="-uslm-sgm:FR">1/2</inline>% increase in the annual percentage rate per year will occur.”</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—effects of increase.</inline> Examples of effects of rate increases that must be disclosed include:</p>
<p style="-uslm-sgm:P">i. Any requirement for additional collateral if the annual percentage rate increases beyond a specified rate.</p>
<p style="-uslm-sgm:P">ii. Any increase in the scheduled minimum periodic payment amount.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—change-in-terms notice not required.</inline> No notice of a change in terms is required for a rate increase under a variable-rate plan as defined in comment 6(a)(1)(ii)–2.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounted variable-rate plans.</inline> In some variable-rate plans, creditors may set an initial interest rate that is not determined by the index or formula used to make later interest rate adjustments. Typically, this initial rate is lower than the rate would be if it were calculated using the index or formula.</p>
<p style="-uslm-sgm:P">i. For example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the current Treasury bill rate is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent, or the creditor may disregard the index or formula and set the initial rate at 9 percent.</p>
<p style="-uslm-sgm:P">ii. When creditors use an initial rate that is not calculated using the index or formula for later rate adjustments, the account-opening disclosure statement should reflect:</p>
<p style="-uslm-sgm:P">A. The initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long the initial rate will remain in effect;</p>
<p style="-uslm-sgm:P">B. The current rate that would have been applied using the index or formula (also expressed as a periodic rate and a corresponding annual percentage rate); and</p>
<p style="-uslm-sgm:P">C. The other variable-rate information required in <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref>.</p>
<p style="-uslm-sgm:P">iii. In disclosing the current periodic and annual percentage rates that would be applied using the index or formula, the creditor may use any of the disclosure options described in comment 6(a)(1)(ii)–3.</p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increased penalty rates.</inline> If the initial rate may increase upon the occurrence of one or more specific events, such as a late payment or an extension of credit that exceeds the credit limit, the creditor must disclose the initial rate and the increased penalty rate that may apply. If the penalty rate is based on an index and an increased margin, the issuer must disclose the index and the margin. The creditor must also disclose the specific event or events that may result in the increased rate, such as “22% APR, if 60 days late.” If the penalty rate cannot be determined at the time disclosures are given, the creditor must provide an explanation of the specific event or events that may result in the increased rate. At the creditor's option, the creditor may disclose the period for <?page num="586"?>which the increased rate will remain in effect, such as “until you make three timely payments.” The creditor need not disclose an increased rate that is imposed when credit privileges are permanently terminated.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(a)(1)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Explanation of balance computation method.</inline> A shorthand phrase such as “previous balance method” does not suffice in explaining the balance computation method. (See Model Clauses G–1 and G–1(A) to part 226.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Allocation of payments.</inline> Creditors may, but need not, explain how payments and other credits are allocated to outstanding balances. For example, the creditor need not disclose that payments are applied to late charges, overdue balances, and finance charges before being applied to the principal balance; or in a multifeatured plan, that payments are applied first to finance charges, then to purchases, and then to cash advances. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 7–1 for definition of multifeatured plan.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(a)(1)(iv).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance charges.</inline> In addition to disclosing the periodic rate(s) under <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref>, creditors must disclose any other type of finance charge that may be imposed, such as minimum, fixed, transaction, and activity charges; required insurance; or appraisal or credit report fees (unless excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref>). Creditors are not required to disclose the fact that no finance charge is imposed when the outstanding balance is less than a certain amount or the balance below which no finance charge will be imposed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(a)(2) Other charges.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General; examples of other charges.</inline> Under <ref href="/us/cfr/t12/s226.6/a/2">§ 226.6(a)(2)</ref>, significant charges related to the plan (that are not finance charges) must also be disclosed. For example:</p>
<p style="-uslm-sgm:P">i. Late-payment and over-the-credit-limit charges.</p>
<p style="-uslm-sgm:P">ii. Fees for providing documentary evidence of transactions requested under <ref href="/us/cfr/t12/s226.13">§ 226.13</ref> (billing error resolution).</p>
<p style="-uslm-sgm:P">iii. Charges imposed in connection with residential mortgage transactions or real estate transactions such as title, appraisal, and credit-report fees (see <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref>).</p>
<p style="-uslm-sgm:P">iv. A tax imposed on the credit transaction by a state or other governmental body, such as a documentary stamp tax on cash advances. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.4/a">§ 226.4(a)</ref>).</p>
<p style="-uslm-sgm:P">v. A membership or participation fee for a package of services that includes an open-end credit feature, unless the fee is required whether or not the open-end credit feature is included. For example, a membership fee to join a credit union is not an “other charge,” even if membership is required to apply for credit. For example, if the primary benefit of membership in an organization is the opportunity to apply for a credit card, and the other benefits offered (such as a newsletter or a member information hotline) are merely incidental to the credit feature, the membership fee would be disclosed as an “other charge.”</p>
<p style="-uslm-sgm:P">vi. Charges imposed for the termination of an open-end credit plan.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusions.</inline> The following are examples of charges that are not “other charges”</p>
<p style="-uslm-sgm:P">i. Fees charged for documentary evidence of transactions for income tax purposes.</p>
<p style="-uslm-sgm:P">ii. Amounts payable by a consumer for collection activity after default; attorney's fees, whether or not automatically imposed; foreclosure costs; post-judgment interest rates imposed by law; and reinstatement or reissuance fees.</p>
<p style="-uslm-sgm:P">iii. Premiums for voluntary credit life or disability insurance, or for property insurance, that are not part of the finance charge.</p>
<p style="-uslm-sgm:P">iv. Application fees under <ref href="/us/cfr/t12/s226.4/c/1">§ 226.4(c)(1)</ref>.</p>
<p style="-uslm-sgm:P">v. A monthly service charge for a checking account with overdraft protection that is applied to all checking accounts, whether or not a credit feature is attached.</p>
<p style="-uslm-sgm:P">vi. Charges for submitting as payment a check that is later returned unpaid (See commentary to <ref href="/us/cfr/t12/s226.4/c/2">§ 226.4(c)(2)</ref>).</p>
<p style="-uslm-sgm:P">vii. Charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> also comment 7(a)(2)–2.)</p>
<p style="-uslm-sgm:P">viii. Taxes and filing or notary fees excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/e">§ 226.4(e)</ref>.</p>
<p style="-uslm-sgm:P">ix. A fee to expedite delivery of a credit card, either at account opening or during the life of the account, provided delivery of the card is also available by standard mail service (or other means at least as fast) without paying a fee for delivery.</p>
<p style="-uslm-sgm:P">x. A fee charged for arranging a single payment on the credit account, upon the consumer's request (regardless of how frequently the consumer requests the service), if the credit plan provides that the consumer may make payments on the account by another reasonable means, such as by standard mail service, without paying a fee to the creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(a)(3) Home-equity plan information.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Additional disclosures required.</inline> For home-equity plans, creditors must provide several of the disclosures set forth in <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref> along with the disclosures required under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>. Creditors also must disclose a list of the conditions that permit the creditor to terminate the plan, freeze or reduce the credit limit, and implement specified modifications to the original terms. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 5b(d)(4)(iii)–1.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosures.</inline> The home-equity disclosures provided under this section must be in a form the consumer can keep, and are governed by <ref href="/us/cfr/t12/s226.5/a/1">§ 226.5(a)(1)</ref>. The segregation standard set forth in <ref href="/us/cfr/t12/s226.5b/a">§ 226.5b(a)</ref> does not apply to home-equity disclosures provided under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>.
<?page num="587"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of payment and variable-rate examples.</inline>
</p>
<p style="-uslm-sgm:P">i. The payment-example disclosure in <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref> and the variable-rate information in <ref href="/us/cfr/t12/s226.5b/d/12/viii">§ 226.5b(d)(12)(viii)</ref>, (d)(12)(x), (d)(12)(xi), and (d)(12)(xii) need not be provided with the disclosures under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> if the disclosures under <ref href="/us/cfr/t12/s226.5b/d">§ 226.5b(d)</ref> were provided in a form the consumer could keep; and the disclosures of the payment example under <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref>, the maximum-payment example under <ref href="/us/cfr/t12/s226.5b/d/12/x">§ 226.5b(d)(12)(x)</ref> and the historical table under <ref href="/us/cfr/t12/s226.5b/d/12/xi">§ 226.5b(d)(12)(xi)</ref> included a representative payment example for the category of payment options the consumer has chosen.</p>
<p style="-uslm-sgm:P">ii. For example, if a creditor offers three payment options (one for each of the categories described in the commentary to <ref href="/us/cfr/t12/s226.5b/d/5">§ 226.5b(d)(5)</ref>), describes all three options in its early disclosures, and provides all of the disclosures in a retainable form, that creditor need not provide the <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref> or (d)(12) disclosures again when the account is opened. If the creditor showed only one of the three options in the early disclosures (which would be the case with a separate disclosure form rather than a combined form, as discussed under <ref href="/us/cfr/t12/s226.5b/a">§ 226.5b(a)</ref>), the disclosures under <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref>, (d)(12)(viii), (d)(12)(x), (d)(12)(xi) and (d)(12)(xii) must be given to any consumer who chooses one of the other two options. If the <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref> and (d)(12) disclosures are provided with the second set of disclosures, they need not be transaction-specific, but may be based on a representative example of the category of payment option chosen.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures for the repayment period.</inline> The creditor must provide disclosures about both the draw and repayment phases when giving the disclosures under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>. Specifically, the creditor must make the disclosures in <ref href="/us/cfr/t12/s226.6/a/3">§ 226.6(a)(3)</ref>, state the corresponding annual percentage rate, and provide the variable-rate information required in <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref> for the repayment phase. To the extent the corresponding annual percentage rate, the information in <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref>, and any other required disclosures are the same for the draw and repayment phase, the creditor need not repeat such information, as long as it is clear that the information applies to both phases.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(a)(4) Security interests.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Creditors are not required to use specific terms to describe a security interest, or to explain the type of security or the creditor's rights with respect to the collateral.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification of property.</inline> Creditors sufficiently identify collateral by type by stating, for example, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">motor vehicle</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">household appliances.</inline> (Creditors should be aware, however, that the federal credit practices rules, as well as some state laws, prohibit certain security interests in household goods.) The creditor may, at its option, provide a more specific identification (for example, a model and serial number.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Spreader clause.</inline> If collateral for preexisting credit with the creditor will secure the plan being opened, the creditor must disclose that fact. (Such security interests may be known as “spreader” or “dragnet” clauses, or as “cross-collateralization” clauses.) The creditor need not specifically identify the collateral; a reminder such as “collateral securing other loans with us may also secure this loan” is sufficient. At the creditor's option, a more specific description of the property involved may be given.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Additional collateral.</inline> If collateral is required when advances reach a certain amount, the creditor should disclose the information available at the time of the account-opening disclosures. For example, if the creditor knows that a security interest will be taken in household goods if the consumer's balance exceeds $1,000, the creditor should disclose accordingly. If the creditor knows that security will be required if the consumer's balance exceeds $1,000, but the creditor does not know what security will be required, the creditor must disclose on the initial disclosure statement that security will be required if the balance exceeds $1,000, and the creditor must provide a change-in-terms notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> at the time the security is taken. (See comment 6(a)(4)–2.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collateral from third party.</inline> Security interests taken in connection with the plan must be disclosed, whether the collateral is owned by the consumer or a third party.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(a)(5) Statement of billing rights.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to Model Forms G–3, G–3(A), G–4, and G–4(A).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b) Rules affecting open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">6(b)(1) Form of disclosures; tabular format for open-end (not home-secured) plans.</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to tabular summary for applications and solicitations.</inline> See commentary to <ref href="/us/cfr/t12/s226.5a/a">§ 226.5a(a)</ref>, (b), and (c) regarding format and content requirements, except for the following:</p>
<p style="-uslm-sgm:P">i. Creditors must use the accuracy standard for annual percentage rates in <ref href="/us/cfr/t12/s226.6/b/4/ii/G">§ 226.6(b)(4)(ii)(G)</ref>.</p>
<p style="-uslm-sgm:P">ii. Generally, creditors must disclose the specific rate for each feature that applies to the account. If the rates on an open-end (not home-secured) plan vary by state and the creditor is providing the account-opening table in person at the time the plan is established in connection with financing the purchase of goods or services the creditor may, at its option, disclose in the account-opening table (A) the rate applicable to the consumer's account, or (B) the range of rates, if the disclosure includes a statement that the rate varies by state and refers the consumer to the account agreement or other disclosure provided with the account-opening table <?page num="588"?>where the rate applicable to the consumer's account is disclosed.</p>
<p style="-uslm-sgm:P">iii. Creditors must explain whether or not a grace period exists for all features on the account. The row heading “Paying Interest” must be used if any one feature on the account does not have a grace period.</p>
<p style="-uslm-sgm:P">iv. Creditors must name the balance computation method used for each feature of the account and state that an explanation of the balance computation method(s) is provided in the account-opening disclosures.</p>
<p style="-uslm-sgm:P">v. Creditors must state that consumers' billing rights are provided in the account-opening disclosures.</p>
<p style="-uslm-sgm:P">vi. If fees on an open-end (not home-secured) plan vary by state and the creditor is providing the account-opening table in person at the time the plan is established in connection with financing the purchase of goods or services the creditor may, at its option, disclose in the account-opening table (A) the specific fee applicable to the consumer's account, or (B) the range of fees, if the disclosure includes a statement that the amount of the fee varies by state and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the fee applicable to the consumer's account is disclosed.</p>
<p style="-uslm-sgm:P">vii. Creditors that must disclose the amount of available credit must state the initial credit limit provided on the account.</p>
<p style="-uslm-sgm:P">viii. Creditors must disclose directly beneath the table the circumstances under which an introductory rate may be revoked and the rate that will apply after the introductory rate is revoked. Issuers of credit card accounts under an open-end (not home-secured) consumer credit plan are subject to limitations on the circumstances under which an introductory rate may be revoked. (See comment 5a(b)(1)–5 for guidance on how a card issuer may disclose the circumstances under which an introductory rate may be revoked.)</p>
<p style="-uslm-sgm:P">ix. The applicable forms providing safe harbors for account-opening tables are under appendix G–17 to part 226.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard.</inline> See comment 5(a)(1)–1 for the clear and conspicuous standard applicable to <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> disclosures.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology.</inline> Section 226.6(b)(1) generally requires that the headings, content, and format of the tabular disclosures be substantially similar, but need not be identical, to the tables in appendix G to part 226; but see <ref href="/us/cfr/t12/s226.5/a/2">§ 226.5(a)(2)</ref> for terminology requirements applicable to <ref href="/us/cfr/t12/s226.6/b">§ 226.6(b)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(2) Required disclosures for account-opening table for open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(2)(iii) Fixed finance charge; minimum interest charge.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example of brief statement. See</inline> Samples G–17(B), G–17(C), and G–17(D) for guidance on how to provide a brief description of a minimum interest charge.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(2)(v) Grace period.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace period.</inline> Creditors must state any conditions on the applicability of the grace period. A creditor, however, may not disclose under <ref href="/us/cfr/t12/s226.6/b/2/v">§ 226.6(b)(2)(v)</ref> the limitations on the imposition of finance charges as a result of a loss of a grace period in <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>, or the impact of payment allocation on whether interest is charged on transactions as a result of a loss of a grace period. Some creditors may offer a grace period on all types of transactions under which interest will not be charged on transactions if the consumer pays the outstanding balance shown on a periodic statement in full by the due date shown on that statement for one or more billing cycles. In these circumstances, <ref href="/us/cfr/t12/s226.6/b/2/v">§ 226.6(b)(2)(v)</ref> requires that the creditor disclose the grace period and the conditions for its applicability using the following language, or substantially similar language, as applicable: “Your due date is [at least] __ days after the close of each billing cycle. We will not charge you any interest on your account if you pay your entire balance by the due date each month.” However, other creditors may offer a grace period on all types of transactions under which interest may be charged on transactions even if the consumer pays the outstanding balance shown on a periodic statement in full by the due date shown on that statement each billing cycle. In these circumstances, <ref href="/us/cfr/t12/s226.6/b/2/v">§ 226.6(b)(2)(v)</ref> requires the creditor to amend the above disclosure language to describe accurately the conditions on the applicability of the grace period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No grace period.</inline> Creditors may use the following language to describe that no grace period is offered, as applicable: “We will begin charging interest on [applicable transactions] on the transaction date.”</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace period on some features.</inline> Some creditors do not offer a grace period on cash advances and balance transfers, but offer a grace period for all purchases under which interest will not be charged on purchases if the consumer pays the outstanding balance shown on a periodic statement in full by the due date shown on that statement for one or more billing cycles. In these circumstances, <ref href="/us/cfr/t12/s226.6/b/2/v">§ 226.6(b)(2)(v)</ref> requires that the creditor disclose the grace period for purchases and the conditions for its applicability, and the lack of a grace period for cash advances and balance transfers using the following language, or substantially similar language, as applicable: “Your due date is [at least] __ days after the close of each billing cycle. We will not charge you any interest on purchases if you pay your entire balance by the due date each month. We will begin charging interest on cash advances and balance transfers on the transaction date.” However, other creditors may offer a grace period on all purchases under which interest may be charged on purchases even if the consumer pays the <?page num="589"?>outstanding balance shown on a periodic statement in full by the due date shown on that statement each billing cycle. In these circumstances, <ref href="/us/cfr/t12/s226.6/a/2/v">§ 226.6(a)(2)(v)</ref> requires the creditor to amend the above disclosure language to describe accurately the conditions on the applicability of the grace period. Also, some creditors may not offer a grace period on cash advances and balance transfers, and will begin charging interest on these transactions from a date other than the transaction date, such as the posting date. In these circumstances, <ref href="/us/cfr/t12/s226.6/a/2/v">§ 226.6(a)(2)(v)</ref> requires the creditor to amend the above disclosure language to be accurate.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(2)(vi) Balance computation method.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of same balance computation method for all features.</inline> In cases where the balance for each feature is computed using the same balance computation method, a single identification of the name of the balance computation method is sufficient. In this case, a creditor may use an appropriate name listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (including new purchases)”</inline>) to satisfy the requirement to disclose the name of the method for all features on the account, even though the name only refers to purchases. For example, if a creditor uses the average daily balance method including new transactions for all features, a creditor may use the name “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (including new purchases)”</inline> listed in <ref href="/us/cfr/t12/s226.5a/g/i">§ 226.5a(g)(i)</ref> to satisfy the requirement to disclose the name of the balance computation method for all features. As an alternative, in this situation, a creditor may revise the balance computation names listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> to refer more broadly to all new credit transactions, such as using the language “new transactions” or “current transactions” (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g., “average daily balance (including new transactions)”</inline>), rather than simply referring to new purchases when the same method is used to calculate the balances for all features of the account. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Samples G–17(B) and G–17(C) for guidance on how to disclose the balance computation method where the same method is used for all features on the account.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of balance computation names in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> for balances other than purchases.</inline> The names of the balance computation methods listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> describe balance computation methods for purchases. When a creditor is disclosing the name of the balance computation methods separately for each feature, in using the names listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> to satisfy the requirements of <ref href="/us/cfr/t12/s226.6/b/2/vi">§ 226.6(b)(2)(vi)</ref> for features other than purchases, a creditor must revise the names listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> to refer to the other features. For example, when disclosing the name of the balance computation method applicable to cash advances, a creditor must revise the name listed in <ref href="/us/cfr/t12/s226.5a/g/i">§ 226.5a(g)(i)</ref> to disclose it as “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (including new cash advances)”</inline> when the balance for cash advances is figured by adding the outstanding balance (including new cash advances and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. Similarly, a creditor must revise the name listed in <ref href="/us/cfr/t12/s226.5a/g/ii">§ 226.5a(g)(ii)</ref> to disclose it as “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (excluding new cash advances)”</inline> when the balance for cash advances is figured by adding the outstanding balance (excluding new cash advances and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 6(b)(2)(vi)–1 for guidance on the use of one balance computation name when the same balance computation method is used for all features on the account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(2)(xiii) Available credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Right to reject the plan.</inline> Creditors may use the following language to describe consumers' right to reject a plan after receiving account-opening disclosures: “You may still reject this plan, provided that you have not yet used the account or paid a fee after receiving a billing statement. If you do reject the plan, you are not responsible for any fees or charges.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(3) Disclosure of charges imposed as part of open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When finance charges accrue.</inline> Creditors are not required to disclose a specific date when a cost that is a finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref> will begin to accrue.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace periods.</inline> In disclosing in the account agreement or disclosure statement whether or not a grace period exists, the creditor need not use any particular descriptive phrase or term. However, the descriptive phrase or term must be sufficiently similar to the disclosures provided pursuant to <ref href="/us/cfr/t12/s226.5a/b/5">§§ 226.5a(b)(5)</ref> and 226.6(b)(2)(v) to satisfy a creditor's duty to provide consistent terminology under <ref href="/us/cfr/t12/s226.5/a/2">§ 226.5(a)(2)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No finance charge imposed below certain balance.</inline> Creditors are not required to disclose the fact that no finance charge is imposed when the outstanding balance is less than a certain amount or the balance below which no finance charge will be imposed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(b)(3)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Failure to use the plan as agreed.</inline> Late payment fees, over-the-limit fees, and fees for payments returned unpaid are examples of charges resulting from consumers' failure to use the plan as agreed.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of fees that affect the plan.</inline> Examples of charges the payment, or nonpayment, of which affects the consumer's account are:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Access to the plan.</inline> Fees for using the card at the creditor's ATM to obtain a cash advance, fees to obtain additional cards including replacements for lost or stolen cards, fees to expedite delivery of cards or other credit devices, application and membership <?page num="590"?>fees, and annual or other participation fees identified in <ref href="/us/cfr/t12/s226.4/c/4">§ 226.4(c)(4)</ref>.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of credit extended.</inline> Fees for increasing the credit limit on the account, whether at the consumer's request or unilaterally by the creditor.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing or method of billing or payment.</inline> Fees to pay by telephone or via the Internet.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Threshold test.</inline> If the creditor is unsure whether a particular charge is a cost imposed as part of the plan, the creditor may at its option consider such charges as a cost imposed as part of the plan for purposes of the Truth in Lending Act.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(b)(3)(iii)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees for package of services.</inline> A fee to join a credit union is an example of a fee for a package of services that is not imposed as part of the plan, even if the consumer must join the credit union to apply for credit. In contrast, a membership fee is an example of a fee for a package of services that is considered to be imposed as part of a plan where the primary benefit of membership in the organization is the opportunity to apply for a credit card, and the other benefits offered (such as a newsletter or a member information hotline) are merely incidental to the credit feature.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(4) Disclosure of rates for open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(b)(4)(i)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Range of balances.</inline> Creditors are not required to disclose the range of balances:</p>
<p style="-uslm-sgm:P">i. If only one periodic interest rate may be applied to the entire account balance.</p>
<p style="-uslm-sgm:P">ii. If only one periodic interest rate may be applied to the entire balance for a feature (for example, cash advances), even though the balance for another feature (purchases) may be subject to two rates (a 1.5% monthly periodic interest rate on purchase balances of $0–$500, and a 1% periodic interest rate for balances above $500). In this example, the creditor must give a range of balances disclosure for the purchase feature.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 6(b)(4)(i)(D).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Explanation of balance computation method.</inline> Creditors do not provide a sufficient explanation of a balance computation method by using a shorthand phrase such as “previous balance method” or the name of a balance computation method listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref>. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Model Clauses G–1(A) in appendix G to part 226. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.6/b/2/vi">§ 226.6(b)(2)(vi)</ref> regarding balance computation descriptions in the account-opening summary.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Allocation of payments.</inline> Creditors may, but need not, explain how payments and other credits are allocated to outstanding balances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(4)(ii) Variable-rate accounts.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate disclosures—coverage.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> Examples of open-end plans that permit the rate to change and are considered variable-rate plans include:</p>
<p style="-uslm-sgm:P">A. Rate changes that are tied to the rate the creditor pays on its six-month certificates of deposit.</p>
<p style="-uslm-sgm:P">B. Rate changes that are tied to Treasury bill rates.</p>
<p style="-uslm-sgm:P">C. Rate changes that are tied to changes in the creditor's commercial lending rate.</p>
<p style="-uslm-sgm:P">ii. Examples of open-end plans that permit the rate to change and are not considered variable-rate include:</p>
<p style="-uslm-sgm:P">A. Rate changes that are invoked under a creditor's contract reservation to increase the rate without reference to such an index or formula (for example, a plan that simply provides that the creditor reserves the right to raise its rates).</p>
<p style="-uslm-sgm:P">B. Rate changes that are triggered by a specific event such as an open-end credit plan in which the employee receives a lower rate contingent upon employment, and the rate increases upon termination of employment.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—circumstances for increase.</inline>
</p>
<p style="-uslm-sgm:P">i. The following are examples that comply with the requirement to disclose circumstances under which the rate(s) may increase:</p>
<p style="-uslm-sgm:P">A. “The Treasury bill rate increases.”</p>
<p style="-uslm-sgm:P">B. “The Federal Reserve discount rate increases.”</p>
<p style="-uslm-sgm:P">ii. Disclosing the frequency with which the rate may increase includes disclosing when the increase will take effect; for example:</p>
<p style="-uslm-sgm:P">A. “An increase will take effect on the day that the Treasury bill rate increases.”</p>
<p style="-uslm-sgm:P">B. “An increase in the Federal Reserve discount rate will take effect on the first day of the creditor's billing cycle.”</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—limitations on increase.</inline> In disclosing any limitations on rate increases, limitations such as the maximum increase per year or the maximum increase over the duration of the plan must be disclosed. When there are no limitations, the creditor may, but need not, disclose that fact. Legal limits such as usury or rate ceilings under state or federal statutes or regulations need not be disclosed. Examples of limitations that must be disclosed include:</p>
<p style="-uslm-sgm:P">i. “The rate on the plan will not exceed 25% annual percentage rate.”</p>
<p style="-uslm-sgm:P">ii. “Not more than <inline role="fraction" style="-uslm-sgm:FR">1/2</inline> of 1% increase in the annual percentage rate per year will occur.”</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plan—effects of increase.</inline> Examples of effects of rate increases that must be disclosed include:</p>
<p style="-uslm-sgm:P">i. Any requirement for additional collateral if the annual percentage rate increases beyond a specified rate.</p>
<p style="-uslm-sgm:P">ii. Any increase in the scheduled minimum periodic payment amount.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounted variable-rate plans.</inline> In some variable-rate plans, creditors may set an initial interest rate that is not determined by <?page num="591"?>the index or formula used to make later interest rate adjustments. Typically, this initial rate is lower than the rate would be if it were calculated using the index or formula.</p>
<p style="-uslm-sgm:P">i. For example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the current Treasury bill rate is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent, or the creditor may disregard the index or formula and set the initial rate at 9 percent.</p>
<p style="-uslm-sgm:P">ii. When creditors disclose in the account-opening disclosures an initial rate that is not calculated using the index or formula for later rate adjustments, the disclosure should reflect:</p>
<p style="-uslm-sgm:P">A. The initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long the initial rate will remain in effect;</p>
<p style="-uslm-sgm:P">B. The current rate that would have been applied using the index or formula (also expressed as a periodic rate and a corresponding annual percentage rate); and</p>
<p style="-uslm-sgm:P">C. The other variable-rate information required by <ref href="/us/cfr/t12/s226.6/b/4/ii">§ 226.6(b)(4)(ii)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(4)(iii) Rate changes not due to index or formula.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Events that cause the initial rate to change.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes based on expiration of time period.</inline> If the initial rate will change at the expiration of a time period, creditors that disclose the initial rate in the account-opening disclosure must identify the expiration date and the fact that the initial rate will end at that time.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes based on specified contract terms.</inline> If the account agreement provides that the creditor may change the initial rate upon the occurrence of a specified event or events, the creditor must identify the events or events. Examples include the consumer not making the required minimum payment when due, or the termination of an employee preferred rate when the employment relationship is terminated.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate that will apply after initial rate changes.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increased margins.</inline> If the initial rate is based on an index and the rate may increase due to a change in the margin applied to the index, the creditor must disclose the increased margin. If more than one margin could apply, the creditor may disclose the highest margin.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Risk-based pricing.</inline> In some plans, the amount of the rate change depends on how the creditor weighs the occurrence of events specified in the account agreement that authorize the creditor to change rates, as well as other factors. Creditors must state the increased rate that may apply. At the creditor's option, the creditor may state the possible rates as a range, or by stating only the highest rate that could be assessed. The creditor must disclose the period for which the increased rate will remain in effect, such as “until you make three timely payments,” or if there is no limitation, the fact that the increased rate may remain indefinitely.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of rate change on balances.</inline> Creditors must disclose information to consumers about the balance to which the new rate will apply and the balance to which the current rate at the time of the change will apply. Card issuers subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> may be subject to certain restrictions on the application of increased rates to certain balances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(5) Additional disclosures for open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(5)(i) Voluntary credit insurance, debt cancellation or debt suspension.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing.</inline> Under <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref>, disclosures required to exclude the cost of voluntary credit insurance or debt cancellation or debt suspension coverage from the finance charge must be provided before the consumer agrees to the purchase of the insurance or coverage. Creditors comply with <ref href="/us/cfr/t12/s226.6/b/5/i">§ 226.6(b)(5)(i)</ref> if they provide those disclosures in accordance with <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref>. For example, if the disclosures required by <ref href="/us/cfr/t12/s226.4/d">§ 226.4(d)</ref> are provided at application, creditors need not repeat those disclosures at account opening.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(5)(ii) Security interests.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Creditors are not required to use specific terms to describe a security interest, or to explain the type of security or the creditor's rights with respect to the collateral.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification of property.</inline> Creditors sufficiently identify collateral by type by stating, for example, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">motor vehicle</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">household appliances.</inline> (Creditors should be aware, however, that the federal credit practices rules, as well as some state laws, prohibit certain security interests in household goods.) The creditor may, at its option, provide a more specific identification (for example, a model and serial number.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Spreader clause.</inline> If collateral for preexisting credit with the creditor will secure the plan being opened, the creditor must disclose that fact. (Such security interests may be known as “spreader” or “dragnet” clauses, or as “cross-collateralization” clauses.) The creditor need not specifically identify the collateral; a reminder such as “collateral securing other loans with us may also secure this loan” is sufficient. At the creditor's option, a more specific description of the property involved may be given.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Additional collateral.</inline> If collateral is required when advances reach a certain amount, the creditor should disclose the information available at the time of the account-opening disclosures. For example, if the creditor knows that a security interest will be taken in household goods if the consumer's balance exceeds $1,000, the creditor should disclose accordingly. If the creditor <?page num="592"?>knows that security will be required if the consumer's balance exceeds $1,000, but the creditor does not know what security will be required, the creditor must disclose on the initial disclosure statement that security will be required if the balance exceeds $1,000, and the creditor must provide a change-in-terms notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> at the time the security is taken. (See comment 6(b)(5)(ii)–2.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collateral from third party.</inline> Security interests taken in connection with the plan must be disclosed, whether the collateral is owned by the consumer or a third party.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">6(b)(5)(iii) Statement of billing rights.</inline>
</p>
<p style="-uslm-sgm:P">1. See the commentary to Model Forms G–3(A) and G–4(A).</p>
<heading style="-uslm-sgm:HD2">Section 226.7—Periodic Statement</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> Some plans involve a number of different features, such as purchases, cash advances, or overdraft checking. Groups of transactions subject to different finance charge terms because of the dates on which the transactions took place are treated like different features for purposes of disclosures on the periodic statements. The commentary includes additional guidance for multifeatured plans.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a) Rules affecting home-equity plans.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(1) Previous balance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit balances.</inline> If the previous balance is a credit balance, it must be disclosed in such a way so as to inform the consumer that it is a credit balance, rather than a debit balance.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In a multifeatured plan, the previous balance may be disclosed either as an aggregate balance for the account or as separate balances for each feature (for example, a previous balance for purchases and a previous balance for cash advances). If separate balances are disclosed, a total previous balance is optional.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accrued finance charges allocated from payments.</inline> Some open-end credit plans provide that the amount of the finance charge that has accrued since the consumer's last payment is directly deducted from each new payment, rather than being separately added to each statement and reflected as an increase in the obligation. In such a plan, the previous balance need not reflect finance charges accrued since the last payment.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(2) Identification of transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In identifying transactions under <ref href="/us/cfr/t12/s226.7/a/2">§ 226.7(a)(2)</ref> for multifeatured plans, creditors may, for example, choose to arrange transactions by feature (such as disclosing sale transactions separately from cash advance transactions) or in some other clear manner, such as by arranging the transactions in general chronological order.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automated teller machine (ATM) charges imposed by other institutions in shared or interchange systems.</inline> A charge imposed on the cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system and included by the terminal-operating institution in the amount of the transaction need not be separately disclosed on the periodic statement.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(3) Credits.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification—sufficiency.</inline> The creditor need not describe each credit by type (returned merchandise, rebate of finance charge, etc.)—“credit” would suffice—except if the creditor is using the periodic statement to satisfy the billing-error correction notice requirement. (See the commentary to <ref href="/us/cfr/t12/s226.13/e">§ 226.13(e)</ref> and (f).)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> A creditor may list credits relating to credit extensions (payments, rebates, etc.) together with other types of credits (such as deposits to a checking account), as long as the entries are identified so as to inform the consumer which type of credit each entry represents.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date.</inline> If only one date is disclosed (that is, the crediting date as required by the regulation), no further identification of that date is necessary. More than one date may be disclosed for a single entry, as long as it is clear which date represents the date on which credit was given.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Totals.</inline> A total of amounts credited during the billing cycle is not required.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(4) Periodic rates.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of periodic rates—whether or not actually applied.</inline> Except as provided in <ref href="/us/cfr/t12/s226.7/a/4/ii">§ 226.7(a)(4)(ii)</ref>, any periodic rate that may be used to compute finance charges (and its corresponding annual percentage rate) must be disclosed whether or not it is applied during the billing cycle. For example:</p>
<p style="-uslm-sgm:P">i. If the consumer's account has both a purchase feature and a cash advance feature, the creditor must disclose the rate for each, even if the consumer only makes purchases on the account during the billing cycle.</p>
<p style="-uslm-sgm:P">ii. If the rate varies (such as when it is tied to a particular index), the creditor must disclose each rate in effect during the cycle for which the statement was issued.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of periodic rates required only if imposition possible.</inline> With regard to the periodic rate disclosure (and its corresponding annual percentage rate), only rates that <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">could have</inline> been imposed during the billing cycle reflected on the periodic statement need to be disclosed. For example:</p>
<p style="-uslm-sgm:P">i. If the creditor is changing rates effective during the next billing cycle (because of a variable-rate plan), the rates required to be disclosed under <ref href="/us/cfr/t12/s226.7/a/4">§ 226.7(a)(4)</ref> are only those in effect during the billing cycle reflected on the periodic statement. For example, if the monthly rate applied during May was 1.5%, but the creditor will increase the rate to 1.8% effective June 1, 1.5% (and its corresponding annual percentage rate) is the only required disclosure under <ref href="/us/cfr/t12/s226.7/a/4">§ 226.7(a)(4)</ref> for the periodic statement reflecting the May account activity.
<?page num="593"?></p>
<p style="-uslm-sgm:P">ii. If rates applicable to a particular type of transaction changed after a certain date and the old rate is only being applied to transactions that took place prior to that date, the creditor need not continue to disclose the old rate for those consumers that have no outstanding balances to which that rate could be applied.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple rates—same transaction.</inline> If two or more periodic rates are applied to the same balance for the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">same</inline> type of transaction (for example, if the finance charge consists of a monthly periodic rate of 1.5% applied to the outstanding balance and a required credit life insurance component calculated at 0.1% per month on the same outstanding balance), the creditor may do either of the following:</p>
<p style="-uslm-sgm:P">i. Disclose each periodic rate, the range of balances to which it is applicable, and the corresponding annual percentage rate for each. (For example, 1.5% monthly, 18% annual percentage rate; 0.1% monthly, 1.2% annual percentage rate.)</p>
<p style="-uslm-sgm:P">ii. Disclose one composite periodic rate (that is, 1.6% per month) along with the applicable range of balances and the corresponding annual percentage rate.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Corresponding annual percentage rate.</inline> In disclosing the annual percentage rate that corresponds to each periodic rate, the creditor may use “corresponding annual percentage rate,” “nominal annual percentage rate,” “corresponding nominal annual percentage rate,” or similar phrases.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate same as actual annual percentage rate.</inline> When the corresponding rate is the same as the annual percentage rate disclosed under <ref href="/us/cfr/t12/s226.7/a/7">§ 226.7(a)(7)</ref>, the creditor need disclose only one annual percentage rate, but must use the phrase “annual percentage rate.”</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Range of balances.</inline> See comment 6(a)(1)(ii)–1. A creditor is not required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(5) Balance on which finance charge computed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitation to periodic rates.</inline> Section 226.7(a)(5) only requires disclosure of the balance(s) to which a periodic rate was applied and does not apply to balances on which other kinds of finance charges (such as transaction charges) were imposed. For example, if a consumer obtains a $1,500 cash advance subject to both a 1% transaction fee and a 1% monthly periodic rate, the creditor need only disclose the balance subject to the monthly rate (which might include portions of earlier cash advances not paid off in previous cycles).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Split rates applied to balance ranges.</inline> If split rates were applied to a balance because different portions of the balance fall within two or more balance ranges, the creditor need not separately disclose the portions of the balance subject to such different rates since the range of balances to which the rates apply has been separately disclosed. For example, a creditor could disclose a balance of $700 for purchases even though a monthly periodic rate of 1.5% applied to the first $500, and a monthly periodic rate of 1% to the remainder. This option to disclose a combined balance does not apply when the finance charge is computed by applying the split rates to each day's balance (in contrast, for example, to applying the rates to the average daily balance). In that case, the balances must be disclosed using any of the options that are available if two or more daily rates are imposed. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 7(a)(5)–5.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Monthly rate on average daily balance.</inline> Creditors may apply a monthly periodic rate to an average daily balance.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In a multifeatured plan, the creditor must disclose a separate balance (or balances, as applicable) to which a periodic rate was applied for each feature or group of features subject to different periodic rates or different balance computation methods. Separate balances are not required, however, merely because a grace period is available for some features but not others. A total balance for the entire plan is optional. This does not affect how many balances the creditor must disclose—or may disclose—within each feature. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See,</inline> for example, comment 7(a)(5)–5.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Daily rate on daily balances.</inline> i. If the finance charge is computed on the balance each day by application of one or more daily periodic rates, the balance on which the finance charge was computed may be disclosed in any of the following ways for each feature:</p>
<p style="-uslm-sgm:P">ii. If a single daily periodic rate is imposed, the balance to which it is applicable may be stated as:</p>
<p style="-uslm-sgm:P">A. A balance for each day in the billing cycle.</p>
<p style="-uslm-sgm:P">B. A balance for each day in the billing cycle on which the balance in the account changes.</p>
<p style="-uslm-sgm:P">C. The sum of the daily balances during the billing cycle.</p>
<p style="-uslm-sgm:P">D. The average daily balance during the billing cycle, in which case the creditor shall explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of the finance charge.</p>
<p style="-uslm-sgm:P">iii. If two or more daily periodic rates may be imposed, the balances to which the rates are applicable may be stated as:</p>
<p style="-uslm-sgm:P">A. A balance for each day in the billing cycle.</p>
<p style="-uslm-sgm:P">B. A balance for each day in the billing cycle on which the balance in the account changes.</p>
<p style="-uslm-sgm:P">C. Two or more average daily balances, each applicable to the daily periodic rates imposed for the time that those rates were in effect, as long as the creditor explains that the finance charge is or may be determined <?page num="594"?>by (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) multiplying each of the average balances by the number of days in the billing cycle (or if the daily rate varied during the cycle, by multiplying by the number of days the applicable rate was in effect), (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) multiplying each of the results by the applicable daily periodic rate, and (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) adding these products together.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Explanation of balance computation method.</inline> See the commentary to 6(a)(1)(iii).</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information to compute balance.</inline> In connection with disclosing the finance charge balance, the creditor need not give the consumer all of the information necessary to compute the balance if that information is not otherwise required to be disclosed. For example, if current purchases are included from the date they are posted to the account, the posting date need not be disclosed.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Non-deduction of credits.</inline> The creditor need not specifically identify the total dollar amount of credits not deducted in computing the finance charge balance. Disclosure of the amount of credits not deducted is accomplished by listing the credits (<ref href="/us/cfr/t12/s226.7/a/3">§ 226.7(a)(3)</ref>) and indicating which credits will not be deducted in determining the balance (for example, “credits after the 15th of the month are not deducted in computing the finance charge.”).</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of one balance computation method explanation when multiple balances disclosed.</inline> Sometimes the creditor will disclose more than one balance to which a periodic rate was applied, even though each balance was computed using the same balance computation method. For example, if a plan involves purchases and cash advances that are subject to different rates, more than one balance must be disclosed, even though the same computation method is used for determining the balance for each feature. In these cases, one explanation of the balance computation method is sufficient. Sometimes the creditor separately discloses the portions of the balance that are subject to different rates because different portions of the balance fall within two or more balance ranges, even when a combined balance disclosure would be permitted under comment 7(a)(5)–2. In these cases, one explanation of the balance computation method is also sufficient (assuming, of course, that all portions of the balance were computed using the same method).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(6) Amount of finance charge and other charges.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 7(a)(6)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total.</inline> A total finance charge amount for the plan is not required.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Itemization—types of finance charges.</inline> Each type of finance charge (such as periodic rates, transaction charges, and minimum charges) imposed during the cycle must be separately itemized; for example, disclosure of only a combined finance charge attributable to both a minimum charge and transaction charges would not be permissible. Finance charges of the same type may be disclosed, however, individually or as a total. For example, five transaction charges of $1 may be listed separately or as $5.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Itemization—different periodic rates.</inline> Whether different periodic rates are applicable to different types of transactions or to different balance ranges, the creditor may give the finance charge attributable to each rate or may give a total finance charge amount. For example, if a creditor charges 1.5% per month on the first $500 of a balance and 1% per month on amounts over $500, the creditor may itemize the two components ($7.50 and $1.00) of the $8.50 charge, or may disclose $8.50.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In a multifeatured plan, in disclosing the amount of the finance charge attributable to the application of periodic rates no total periodic rate disclosure for the entire plan need be given.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance charges not added to account.</inline> A finance charge that is not included in the new balance because it is payable to a third party (such as required life insurance) must still be shown on the periodic statement as a finance charge.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance charges other than periodic rates.</inline> See comment 6(a)(1)(iv)–1 for examples.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accrued finance charges allocated from payments.</inline> Some plans provide that the amount of the finance charge that has accrued since the consumer's last payment is directly deducted from each new payment, rather than being separately added to each statement and therefore reflected as an increase in the obligation. In such a plan, no disclosure is required of finance charges that have accrued since the last payment.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Start-up fees.</inline> Points, loan fees, and similar finance charges relating to the opening of the account that are paid prior to the issuance of the first periodic statement need not be disclosed on the periodic statement. If, however, these charges are financed as part of the plan, including charges that are paid out of the first advance, the charges must be disclosed as part of the finance charge on the first periodic statement. However, they need not be factored into the annual percentage rate. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.14/c/3">§ 226.14(c)(3)</ref>.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 7(a)(6)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification.</inline> In identifying any <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other charges</inline> actually imposed during the billing cycle, the type is adequately described as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">late charge</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">membership fee,</inline> for example. Similarly, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">closing costs</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">settlement costs,</inline> for example, may be used to describe charges imposed in connection with real estate transactions that are excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref>, if the same term (such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">closing costs</inline>) was used in the initial disclosures and if the creditor chose to itemize and individually disclose the costs included in that term. Even though the taxes <?page num="595"?>and filing or notary fees excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/e">§ 226.4(e)</ref> are not required to be disclosed as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other charges</inline> under <ref href="/us/cfr/t12/s226.6/a/2">§ 226.6(a)(2)</ref>, these charges may be included in the amount shown as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">closing costs</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">settlement costs</inline> on the periodic statement, if the charges were itemized and disclosed as part of the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">closing costs</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">settlement costs</inline> on the initial disclosure statement. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 6(a)(2)–1 for examples of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other charges.</inline>)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date.</inline> The date of imposing or debiting <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other charges</inline> need not be disclosed.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total.</inline> Disclosure of the total amount of other charges is optional.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Itemization—types of other charges.</inline> Each type of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other charge</inline> (such as late-payment charges, over-the-credit-limit charges, and membership fees) imposed during the cycle must be separately itemized; for example, disclosure of only a total of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other charges</inline> attributable to both an over-the-credit-limit charge and a late-payment charge would not be permissible. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other charges</inline> of the same type may be disclosed, however, individually or as a total. For example, three fees of $3 for providing copies related to the resolution of a billing error could be listed separately or as $9.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(7) Annual percentage rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</inline> For home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, creditors are not required to disclose an effective annual percentage rate. Creditors that state an annualized rate in addition to the corresponding annual percentage rate required by <ref href="/us/cfr/t12/s226.7/a/4">§ 226.7(a)(4)</ref> must calculate that rate in accordance with <ref href="/us/cfr/t12/s226.14/c">§ 226.14(c)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Labels.</inline> Creditors that choose to disclose an annual percentage rate calculated under <ref href="/us/cfr/t12/s226.14/c">§ 226.14(c)</ref> and label the figure as “annual percentage rate” must label the periodic rate expressed as an annualized rate as the “corresponding APR,” “nominal APR,” or a similar phrase as provided in comment 7(a)(4)–4. Creditors also comply with the label requirement if the rate calculated under <ref href="/us/cfr/t12/s226.14/c">§ 226.14(c)</ref> is described as the “effective APR” or something similar. For those creditors, the periodic rate expressed as an annualized rate could be labeled “annual percentage rate,” consistent with the requirement under <ref href="/us/cfr/t12/s226.7/b/4">§ 226.7(b)(4)</ref>. If the two rates represent different values, creditors must label the rates differently to meet the clear and conspicuous standard under <ref href="/us/cfr/t12/s226.5/a/1">§ 226.5(a)(1)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(8) Grace period.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology.</inline> Although the creditor is required to indicate any time period the consumer may have to pay the balance outstanding without incurring additional finance charges, no specific wording is required, so long as the language used is consistent with that used on the account-opening disclosure statement. For example, “To avoid additional finance charges, pay the new balance before ____” would suffice.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(9) Address for notice of billing errors.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology.</inline> The periodic statement should indicate the general purpose for the address for billing-error inquiries, although a detailed explanation or particular wording is not required.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Telephone number.</inline> A telephone number, e-mail address, or Web site location may be included, but the mailing address for billing-error inquiries, which is the required disclosure, must be clear and conspicuous. The address is deemed to be clear and conspicuous if a precautionary instruction is included that telephoning or notifying the creditor by e-mail or Web site will not preserve the consumer's billing rights, unless the creditor has agreed to treat billing error notices provided by electronic means as written notices, in which case the precautionary instruction is required only for telephoning.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(a)(10) Closing date of billing cycle; new balance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit balances.</inline> See comment 7(a)(1)–1.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In a multifeatured plan, the new balance may be disclosed for each feature or for the plan as a whole. If separate new balances are disclosed, a total new balance is optional.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accrued finance charges allocated from payments.</inline> Some plans provide that the amount of the finance charge that has accrued since the consumer's last payment is directly deducted from each new payment, rather than being separately added to each statement and therefore reflected as an increase in the obligation. In such a plan, the new balance need not reflect finance charges accrued since the last payment.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b) Rules affecting open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest or similar transactions.</inline> Creditors offer a variety of payment plans for purchases that permit consumers to avoid interest charges if the purchase balance is paid in full by a certain date. “Deferred interest” has the same meaning as in <ref href="/us/cfr/t12/s226.16/h/2">§ 226.16(h)(2)</ref> and associated commentary. The following provides guidance for a deferred interest or similar plan where, for example, no interest charge is imposed on a $500 purchase made in January if the $500 balance is paid by July 31.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual percentage rates.</inline> Under <ref href="/us/cfr/t12/s226.7/b/4">§ 226.7(b)(4)</ref>, creditors must disclose each annual percentage rate that may be used to compute the interest charge. Under some plans with a deferred interest or similar feature, if the deferred interest balance is not paid by a certain date, July 31 in this example, interest charges applicable to the billing cycles between the date of purchase in January and July 31 may be imposed. Annual percentage rates that may apply to the deferred interest balance ($500 in this example) if the balance is not paid in full by July 31 must appear on periodic statements for the billing cycles between the date of purchase and July <?page num="596"?>31. However, if the consumer does not pay the deferred interest balance by July 31, the creditor is not required to identify, on the periodic statement disclosing the interest charge for the deferred interest balance, annual percentage rates that have been disclosed in previous billing cycles between the date of purchase and July 31.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balances subject to periodic rates.</inline> Under <ref href="/us/cfr/t12/s226.7/b/5">§ 226.7(b)(5)</ref>, creditors must disclose the balances subject to interest during a billing cycle. The deferred interest balance ($500 in this example) is not subject to interest for billing cycles between the date of purchase and July 31 in this example. Periodic statements sent for those billing cycles should not include the deferred interest balance in the balance disclosed under <ref href="/us/cfr/t12/s226.7/b/5">§ 226.7(b)(5)</ref>. This amount must be separately disclosed on periodic statements and identified by a term other than the term used to identify the balance disclosed under <ref href="/us/cfr/t12/s226.7/b/5">§ 226.7(b)(5)</ref> (such as “deferred interest balance”). During any billing cycle in which an interest charge on the deferred interest balance is debited to the account, the balance disclosed under <ref href="/us/cfr/t12/s226.7/b/5">§ 226.7(b)(5)</ref> should include the deferred interest balance for that billing cycle.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of interest charge.</inline> Under <ref href="/us/cfr/t12/s226.7/b/6/ii">§ 226.7(b)(6)(ii)</ref>, creditors must disclose interest charges imposed during a billing cycle. For some deferred interest purchases, the creditor may impose interest from the date of purchase if the deferred interest balance ($500 in this example) is not paid in full by July 31 in this example, but otherwise will not impose interest for billing cycles between the date of purchase and July 31. Periodic statements for billing cycles preceding July 31 in this example should not include in the interest charge disclosed under <ref href="/us/cfr/t12/s226.7/b/6/ii">§ 226.7(b)(6)(ii)</ref> the amounts a consumer may owe if the deferred interest balance is not paid in full by July 31. In this example, the February periodic statement should not identify as interest charges interest attributable to the $500 January purchase. This amount must be separately disclosed on periodic statements and identified by a term other than “interest charge” (such as “contingent interest charge” or “deferred interest charge”). The interest charge on a deferred interest balance should be reflected on the periodic statement under <ref href="/us/cfr/t12/s226.7/b/6/ii">§ 226.7(b)(6)(ii)</ref> for the billing cycle in which the interest charge is debited to the account.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Due date to avoid obligation for finance charges under a deferred interest or similar program.</inline> Section 226.7(b)(14) requires disclosure on periodic statements of the date by which any outstanding balance subject to a deferred interest or similar program must be paid in full in order to avoid the obligation for finance charges on such balance. This disclosure must appear on the front of any page of each periodic statement issued during the deferred interest period beginning with the first periodic statement issued during the deferred interest period that reflects the deferred interest or similar transaction.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(1) Previous balance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit balances.</inline> If the previous balance is a credit balance, it must be disclosed in such a way so as to inform the consumer that it is a credit balance, rather than a debit balance.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In a multifeatured plan, the previous balance may be disclosed either as an aggregate balance for the account or as separate balances for each feature (for example, a previous balance for purchases and a previous balance for cash advances). If separate balances are disclosed, a total previous balance is optional.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accrued finance charges allocated from payments.</inline> Some open-end credit plans provide that the amount of the finance charge that has accrued since the consumer's last payment is directly deducted from each new payment, rather than being separately added to each statement and reflected as an increase in the obligation. In such a plan, the previous balance need not reflect finance charges accrued since the last payment.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(2) Identification of transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> Creditors may, but are not required to, arrange transactions by feature (such as disclosing purchase transactions separately from cash advance transactions). Pursuant to <ref href="/us/cfr/t12/s226.7/b/6">§ 226.7(b)(6)</ref>, however, creditors must group all fees and all interest separately from transactions and may not disclose any fees or interest charges with transactions.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automated teller machine (ATM) charges imposed by other institutions in shared or interchange systems.</inline> A charge imposed on the cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system and included by the terminal-operating institution in the amount of the transaction need not be separately disclosed on the periodic statement.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(3) Credits.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification—sufficiency.</inline> The creditor need not describe each credit by type (returned merchandise, rebate of finance charge, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">etc.</inline>)—“credit” would suffice—except if the creditor is using the periodic statement to satisfy the billing-error correction notice requirement. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.13/e">§ 226.13(e)</ref> and (f).) Credits may be distinguished from transactions in any way that is clear and conspicuous, for example, by use of debit and credit columns or by use of plus signs and/or minus signs.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date.</inline> If only one date is disclosed (that is, the crediting date as required by the regulation), no further identification of that date is necessary. More than one date may be disclosed for a single entry, as long as it is clear which date represents the date on which credit was given.
<?page num="597"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Totals.</inline> A total of amounts credited during the billing cycle is not required.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(4) Periodic rates.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of periodic interest rates—whether or not actually applied.</inline> Except as provided in <ref href="/us/cfr/t12/s226.7/b/4/ii">§ 226.7(b)(4)(ii)</ref>, any periodic interest rate that may be used to compute finance charges, expressed as and labeled “Annual Percentage Rate,” must be disclosed whether or not it is applied during the billing cycle. For example</p>
<p style="-uslm-sgm:P">i. If the consumer's account has both a purchase feature and a cash advance feature, the creditor must disclose the annual percentage rate for each, even if the consumer only makes purchases on the account during the billing cycle.</p>
<p style="-uslm-sgm:P">ii. If the annual percentage rate varies (such as when it is tied to a particular index), the creditor must disclose each annual percentage rate in effect during the cycle for which the statement was issued.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of periodic interest rates required only if imposition possible.</inline> With regard to the periodic interest rate disclosure (and its corresponding annual percentage rate), only rates that could have been imposed during the billing cycle reflected on the periodic statement need to be disclosed. For example</p>
<p style="-uslm-sgm:P">i. If the creditor is changing annual percentage rates effective during the next billing cycle (either because it is changing terms or because of a variable-rate plan), the annual percentage rates required to be disclosed under <ref href="/us/cfr/t12/s226.7/b/4">§ 226.7(b)(4)</ref> are only those in effect during the billing cycle reflected on the periodic statement. For example, if the annual percentage rate applied during May was 18%, but the creditor will increase the rate to 21% effective June 1, 18% is the only required disclosure under <ref href="/us/cfr/t12/s226.7/b/4">§ 226.7(b)(4)</ref> for the periodic statement reflecting the May account activity.</p>
<p style="-uslm-sgm:P">ii. If the consumer has an overdraft line that might later be expanded upon the consumer's request to include secured advances, the rates for the secured advance feature need not be given until such time as the consumer has requested and received access to the additional feature.</p>
<p style="-uslm-sgm:P">iii. If annual percentage rates applicable to a particular type of transaction changed after a certain date and the old rate is only being applied to transactions that took place prior to that date, the creditor need not continue to disclose the old rate for those consumers that have no outstanding balances to which that rate could be applied.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple rates—same transaction.</inline> If two or more periodic rates are applied to the same balance for the same type of transaction (for example, if the interest charge consists of a monthly periodic interest rate of 1.5% applied to the outstanding balance and a required credit life insurance component calculated at 0.1% per month on the same outstanding balance), creditors must disclose the periodic interest rate, expressed as an 18% annual percentage rate and the range of balances to which it is applicable. Costs attributable to the credit life insurance component must be disclosed as a fee under <ref href="/us/cfr/t12/s226.7/b/6/iii">§ 226.7(b)(6)(iii)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees.</inline> Creditors that identify fees in accordance with <ref href="/us/cfr/t12/s226.7/b/6/iii">§ 226.7(b)(6)(iii)</ref> need not identify the periodic rate at which a fee would accrue if the fee remains unpaid. For example, assume a fee is imposed for a late payment in the previous cycle and that the fee, unpaid, would be included in the purchases balance and accrue interest at the rate for purchases. The creditor need not separately disclose that the purchase rate applies to the portion of the purchases balance attributable to the unpaid fee.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Ranges of balances. See</inline> comment 6(b)(4)(i)(B)–1. A creditor is not required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest transactions. See</inline> comment 7(b)–1.i.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(5) Balance on which finance charge computed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Split rates applied to balance ranges.</inline> If split rates were applied to a balance because different portions of the balance fall within two or more balance ranges, the creditor need not separately disclose the portions of the balance subject to such different rates since the range of balances to which the rates apply has been separately disclosed. For example, a creditor could disclose a balance of $700 for purchases even though a monthly periodic rate of 1.5% applied to the first $500, and a monthly periodic rate of 1% to the remainder. This option to disclose a combined balance does not apply when the interest charge is computed by applying the split rates to each day's balance (in contrast, for example, to applying the rates to the average daily balance). In that case, the balances must be disclosed using any of the options that are available if two or more daily rates are imposed. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 7(b)(5)–4.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Monthly rate on average daily balance.</inline> Creditors may apply a monthly periodic rate to an average daily balance.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In a multifeatured plan, the creditor must disclose a separate balance (or balances, as applicable) to which a periodic rate was applied for each feature. Separate balances are not required, however, merely because a grace period is available for some features but not others. A total balance for the entire plan is optional. This does not affect how many balances the creditor must disclose—or may disclose—within each feature. (See, for example, comments 7(b)(5)–4 and 7(b)(4)–5.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Daily rate on daily balance.</inline> i. If a finance charge is computed on the balance each day by application of one or more daily periodic <?page num="598"?>interest rates, the balance on which the interest charge was computed may be disclosed in any of the following ways for each feature</p>
<p style="-uslm-sgm:P">ii. If a single daily periodic interest rate is imposed, the balance to which it is applicable may be stated as</p>
<p style="-uslm-sgm:P">A. A balance for each day in the billing cycle.</p>
<p style="-uslm-sgm:P">B. A balance for each day in the billing cycle on which the balance in the account changes.</p>
<p style="-uslm-sgm:P">C. The sum of the daily balances during the billing cycle.</p>
<p style="-uslm-sgm:P">D. The average daily balance during the billing cycle, in which case the creditor may, at its option, explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of interest.</p>
<p style="-uslm-sgm:P">iii. If two or more daily periodic interest rates may be imposed, the balances to which the rates are applicable may be stated as</p>
<p style="-uslm-sgm:P">A. A balance for each day in the billing cycle.</p>
<p style="-uslm-sgm:P">B. A balance for each day in the billing cycle on which the balance in the account changes.</p>
<p style="-uslm-sgm:P">C. Two or more average daily balances, each applicable to the daily periodic interest rates imposed for the time that those rates were in effect. The creditor may, at its option, explain that interest is or may be determined by (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) multiplying each of the average balances by the number of days in the billing cycle (or if the daily rate varied during the cycle, by multiplying by the number of days the applicable rate was in effect), (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) multiplying each of the results by the applicable daily periodic rate, and (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) adding these products together.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information to compute balance.</inline> In connection with disclosing the interest charge balance, the creditor need not give the consumer all of the information necessary to compute the balance if that information is not otherwise required to be disclosed. For example, if current purchases are included from the date they are posted to the account, the posting date need not be disclosed.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Non-deduction of credits.</inline> The creditor need not specifically identify the total dollar amount of credits not deducted in computing the finance charge balance. Disclosure of the amount of credits not deducted is accomplished by listing the credits (<ref href="/us/cfr/t12/s226.7/b/3">§ 226.7(b)(3)</ref>) and indicating which credits will not be deducted in determining the balance (for example, “credits after the 15th of the month are not deducted in computing the interest charge.”).</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of one balance computation method explanation when multiple balances disclosed.</inline> Sometimes the creditor will disclose more than one balance to which a periodic rate was applied, even though each balance was computed using the same balance computation method. For example, if a plan involves purchases and cash advances that are subject to different rates, more than one balance must be disclosed, even though the same computation method is used for determining the balance for each feature. In these cases, one explanation or a single identification of the name of the balance computation method is sufficient. Sometimes the creditor separately discloses the portions of the balance that are subject to different rates because different portions of the balance fall within two or more balance ranges, even when a combined balance disclosure would be permitted under comment 7(b)(5)–1. In these cases, one explanation or a single identification of the name of the balance computation method is also sufficient (assuming, of course, that all portions of the balance were computed using the same method). In these cases, a creditor may use an appropriate name listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (including new purchases)</inline>”) as the single identification of the name of the balance computation method applicable to all features, even though the name only refers to purchases. For example, if a creditor uses the average daily balance method including new transactions for all features, a creditor may use the name “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (including new purchases)</inline>” listed in <ref href="/us/cfr/t12/s226.5a/g/i">§ 226.5a(g)(i)</ref> to satisfy the requirement to disclose the name of the balance computation method for all features. As an alternative, in this situation, a creditor may revise the balance computation names listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> to refer more broadly to all new credit transactions, such as using the language “new transactions” or “current transactions” (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (including new transactions)</inline>”), rather than simply referring to new purchases, when the same method is used to calculate the balances for all features of the account.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of balance computation names in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> for balances other than purchases.</inline> The names of the balance computation methods listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> describe balance computation methods for purchases. When a creditor is disclosing the name of the balance computation methods separately for each feature, in using the names listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> to satisfy the requirements of <ref href="/us/cfr/t12/s226.7/b/5">§ 226.7(b)(5)</ref> for features other than purchases, a creditor must revise the names listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref> to refer to the other features. For example, when disclosing the name of the balance computation method applicable to cash advances, a creditor must revise the name listed in <ref href="/us/cfr/t12/s226.5a/g/i">§ 226.5a(g)(i)</ref> to disclose it as “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (including new cash advances)</inline>” when the balance for cash advances is figured by adding the outstanding balance (including new cash advances and deducting payments and credits) for each day in the <?page num="599"?>billing cycle, and then dividing by the number of days in the billing cycle. Similarly, a creditor must revise the name listed in <ref href="/us/cfr/t12/s226.5a/g/ii">§ 226.5a(g)(ii)</ref> to disclose it as “<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">average daily balance (excluding new cash advances)</inline>” when the balance for cash advances is figured by adding the outstanding balance (excluding new cash advances and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 7(b)(5)–7 for guidance on the use of one balance computation method explanation or name when multiple balances are disclosed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(6) Charges imposed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of charges. See</inline> commentary to <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees.</inline> Costs attributable to periodic rates other than interest charges shall be disclosed as a fee. For example, if a consumer obtains credit life insurance that is calculated at 0.1% per month on an outstanding balance and a monthly interest rate of 1.5% applies to the same balance, the creditor must disclose the dollar cost attributable to interest as an “interest charge” and the credit insurance cost as a “fee.”</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total fees and interest charged for calendar year to date.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Monthly statements.</inline> Some creditors send monthly statements but the statement periods do not coincide with the calendar month. For creditors sending monthly statements, the following comply with the requirement to provide calendar year-to-date totals.</p>
<p style="-uslm-sgm:P">A. A creditor may disclose calendar-year-to-date totals at the end of the calendar year by separately aggregating finance charges attributable to periodic interest rates and fees for 12 monthly cycles, starting with the period that begins during January and finishing with the period that begins during December. For example, if statement periods begin on the 10th day of each month, the statement covering <date date="2011-12-10">December 10, 2011</date> through <date date="2012-01-09">January 9, 2012</date>, may disclose the separate year-to-date totals for interest charged and fees imposed from <date date="2011-01-10">January 10, 2011</date>, through <date date="2012-01-09">January 9, 2012</date>. Alternatively, the creditor could provide a statement for the cycle ending <date date="2012-01-09">January 9, 2012</date>, showing the separate year-to-date totals for interest charged and fees imposed <date date="2011-01-01">January 1, 2011</date>, through <date date="2011-12-31">December 31, 2011</date>.</p>
<p style="-uslm-sgm:P">B. A creditor may disclose calendar-year-to-date totals at the end of the calendar year by separately aggregating finance charges attributable to periodic interest rates and fees for 12 monthly cycles, starting with the period that begins during December and finishing with the period that begins during November. For example, if statement periods begin on the 10th day of each month, the statement covering <date date="2011-11-10">November 10, 2011</date> through <date date="2011-12-09">December 9, 2011</date>, may disclose the separate year-to-date totals for interest charged and fees imposed from <date date="2010-12-10">December 10, 2010</date>, through <date date="2011-12-09">December 9, 2011</date>.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Quarterly statements.</inline> Creditors issuing quarterly statements may apply the guidance set forth for monthly statements to comply with the requirement to provide calendar year-to-date totals on quarterly statements.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minimum charge in lieu of interest.</inline> A minimum charge imposed if a charge would otherwise have been determined by applying a periodic rate to a balance except for the fact that such charge is smaller than the minimum must be disclosed as a fee. For example, assume a creditor imposes a minimum charge of $1.50 in lieu of interest if the calculated interest for a billing period is less than that minimum charge. If the interest calculated on a consumer's account for a particular billing period is 50 cents, the minimum charge of $1.50 would apply. In this case, the entire $1.50 would be disclosed as a fee; the periodic statement would reflect the $1.50 as a fee, and $0 in interest.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjustments to year-to-date totals.</inline> In some cases, a creditor may provide a statement for the current period reflecting that fees or interest charges imposed during a previous period were waived or reversed and credited to the account. Creditors may, but are not required to, reflect the adjustment in the year-to-date totals, nor, if an adjustment is made, to provide an explanation about the reason for the adjustment. Such adjustments should not affect the total fees or interest charges imposed for the current statement period.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acquired accounts.</inline> An institution that acquires an account or plan must include, as applicable, fees and charges imposed on the account or plan prior to the acquisition in the aggregate disclosures provided under <ref href="/us/cfr/t12/s226.7/b/6">§ 226.7(b)(6)</ref> for the acquired account or plan. Alternatively, the institution may provide separate totals reflecting activity prior and subsequent to the account or plan acquisition. For example, a creditor that acquires an account or plan on August 12 of a given calendar year may provide one total for the period from January 1 to August 11 and a separate total for the period beginning on August 12.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account upgrades.</inline> A creditor that upgrades, or otherwise changes, a consumer's plan to a different open-end credit plan must include, as applicable, fees and charges imposed for that portion of the calendar year prior to the upgrade or change in the consumer's plan in the aggregate disclosures provided pursuant to <ref href="/us/cfr/t12/s226.7/b/6">§ 226.7(b)(6)</ref> for the new plan. For example, assume a consumer has incurred $125 in fees for the calendar year to date for a retail credit card account, which is then replaced by a cobranded credit card account also issued by the creditor. In this case, the creditor must reflect the $125 in fees incurred prior to the replacement of the retail credit card account in the calendar <?page num="600"?>year-to-date totals provided for the cobranded credit card account. Alternatively, the institution may provide two separate totals reflecting activity prior and subsequent to the plan upgrade or change.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(7) Change-in-terms and increased penalty rate summary for open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Location of summary tables.</inline> If a change-in-terms notice required by <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> is provided on or with a periodic statement, a tabular summary of key changes must appear on the front of the statement. Similarly, if a notice of a rate increase due to delinquency or default or as a penalty required by <ref href="/us/cfr/t12/s226.9/g/1">§ 226.9(g)(1)</ref> is provided on or with a periodic statement, information required to be provided about the increase, presented in a table, must appear on the front of the statement.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(8) Grace period.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology.</inline> In describing the grace period, the language used must be consistent with that used on the account-opening disclosure statement. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.5/a/2/i">§ 226.5(a)(2)(i)</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest transactions. See</inline> comment 7(b)–1.iv.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitation on the imposition of finance charges in <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>.</inline> Section 226.7(b)(8) does not require a card issuer to disclose the limitations on the imposition of finance charges as a result of a loss of a grace period in <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>, or the impact of payment allocation on whether interest is charged on transactions as a result of a loss of a grace period.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(9) Address for notice of billing errors.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology.</inline> The periodic statement should indicate the general purpose for the address for billing-error inquiries, although a detailed explanation or particular wording is not required.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Telephone number.</inline> A telephone number, e-mail address, or Web site location may be included, but the mailing address for billing-error inquiries, which is the required disclosure, must be clear and conspicuous. The address is deemed to be clear and conspicuous if a precautionary instruction is included that telephoning or notifying the creditor by e-mail or Web site will not preserve the consumer's billing rights, unless the creditor has agreed to treat billing error notices provided by electronic means as written notices, in which case the precautionary instruction is required only for telephoning.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(10) Closing date of billing cycle; new balance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit balances. See</inline> comment 7(b)(1)–1.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multifeatured plans.</inline> In a multifeatured plan, the new balance may be disclosed for each feature or for the plan as a whole. If separate new balances are disclosed, a total new balance is optional.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accrued finance charges allocated from payments.</inline> Some plans provide that the amount of the finance charge that has accrued since the consumer's last payment is directly deducted from each new payment, rather than being separately added to each statement and therefore reflected as an increase in the obligation. In such a plan, the new balance need not reflect finance charges accrued since the last payment.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(11) Due date; late payment costs.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Informal periods affecting late payments.</inline> Although the terms of the account agreement may provide that a card issuer may assess a late payment fee if a payment is not received by a certain date, the card issuer may have an informal policy or practice that delays the assessment of the late payment fee for payments received a brief period of time after the date upon which a card issuer has the contractual right to impose the fee. A card issuer must disclose the due date according to the legal obligation between the parties, and need not consider the end of an informal “courtesy period” as the due date under <ref href="/us/cfr/t12/s226.7/b/11">§ 226.7(b)(11)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assessment of late payment fees.</inline> Some state or other laws require that a certain number of days must elapse following a due date before a late payment fee may be imposed. In addition, a card issuer may be restricted by the terms of the account agreement from imposing a late payment fee until a payment is late for a certain number of days following a due date. For example, assume a payment is due on March 10 and the account agreement or state law provides that a late payment fee cannot be assessed before March 21. A card issuer must disclose the due date under the terms of the legal obligation (March 10 in this example), and not a date different than the due date, such as when the card issuer is restricted by the account agreement or state or other law from imposing a late payment fee unless a payment is late for a certain number of days following the due date (March 21 in this example). Consumers' rights under state law to avoid the imposition of late payment fees during a specified period following a due date are unaffected by the disclosure requirement. In this example, the card issuer would disclose March 10 as the due date for purposes of <ref href="/us/cfr/t12/s226.7/b/11">§ 226.7(b)(11)</ref>, but could not, under state law, assess a late payment fee before March 21.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fee or rate triggered by multiple events.</inline> If a late payment fee or penalty rate is triggered after multiple events, such as two late payments in six months, the card issuer may, but is not required to, disclose the late payment and penalty rate disclosure each month. The disclosures must be included on any periodic statement for which a late payment could trigger the late payment fee or penalty rate, such as after the consumer made one late payment in this example. For example, if a cardholder has already made one late payment, the disclosure must be on each statement for the following five billing cycles.
<?page num="601"?></p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Range of late fees or penalty rates.</inline> A card issuer that imposes a range of late payment fees or rates on a credit card account under an open-end (not home-secured) consumer credit plan may state the highest fee or rate along with an indication lower fees or rates could be imposed. For example, a phrase indicating the late payment fee could be “up to $29” complies with this requirement.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Penalty rate in effect.</inline> If the highest penalty rate has previously been triggered on an account, the card issuer may, but is not required to, delete the amount of the penalty rate and the warning that the rate may be imposed for an untimely payment, as not applicable. Alternatively, the card issuer may, but is not required to, modify the language to indicate that the penalty rate has been increased due to previous late payments (if applicable).</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Same day each month.</inline> The requirement that the due date be the same day each month means that the due date must generally be the same numerical date. For example, a consumer's due date could be the 25th of every month. In contrast, a due date that is the same relative date but not numerical date each month, such as the third Tuesday of the month, generally would not comply with this requirement. However, a consumer's due date may be the last day of each month, even though that date will not be the same numerical date. For example, if a consumer's due date is the last day of each month, it will fall on February 28th (or February 29th in a leap year) and on August 31st.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in due date.</inline> A creditor may adjust a consumer's due date from time to time provided that the new due date will be the same numerical date each month on an ongoing basis. For example, a creditor may choose to honor a consumer's request to change from a due date that is the 20th of each month to the 5th of each month, or may choose to change a consumer's due date from time to time for operational reasons. See comment 2(a)(4)–3 for guidance on transitional billing cycles.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Billing cycles longer than one month.</inline> The requirement that the due date be the same day each month does not prohibit billing cycles that are two or three months, provided that the due date for each billing cycle is on the same numerical date of the month. For example, a creditor that establishes two-month billing cycles could send a consumer periodic statements disclosing due dates of January 25, March 25, and May 25.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment due date when the creditor does not accept or receive payments by mail.</inline> If the due date in a given month falls on a day on which the creditor does not receive or accept payments by mail and the creditor is required to treat a payment received the next business day as timely pursuant to <ref href="/us/cfr/t12/s226.10/d">§ 226.10(d)</ref>, the creditor must disclose the due date according to the legal obligation between the parties, not the date as of which the creditor is permitted to treat the payment as late. For example, assume that the consumer's due date is the 4th of every month and the creditor does not accept or receive payments by mail on Thursday, July 4. Pursuant to <ref href="/us/cfr/t12/s226.10/d">§ 226.10(d)</ref>, the creditor may not treat a mailed payment received on the following business day, Friday, July 5, as late for any purpose. The creditor must nonetheless disclose July 4 as the due date on the periodic statement and may not disclose a July 5 due date.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(12) Repayment disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rounding.</inline> In disclosing on the periodic statement the minimum payment total cost estimate, the estimated monthly payment for repayment in 36 months, the total cost estimate for repayment in 36 months, and the savings estimate for repayment in 36 months under <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> or (b)(12)(ii) as applicable, a card issuer, at its option, must either round these disclosures to the nearest whole dollar or to the nearest cent. Nonetheless, an issuer's rounding for all of these disclosures must be consistent. An issuer may round all of these disclosures to the nearest whole dollar when disclosing them on the periodic statement, or may round all of these disclosures to the nearest cent. An issuer may not, however, round some of the disclosures to the nearest whole dollar, while rounding other disclosures to the nearest cent.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 7(b)(12)(i)(F).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minimum payment repayment estimate disclosed on the periodic statement is three years or less.</inline> Section 226.7(b)(12)(i)(F)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>)(i) provides that a credit card issuer is not required to provide the disclosures related to repayment in 36 months if the minimum payment repayment estimate disclosed under <ref href="/us/cfr/t12/s226.7/b/12/i/B">§ 226.7(b)(12)(i)(B)</ref> after rounding is 3 years or less. For example, if the minimum payment repayment estimate is 2 years 6 months to 3 years 5 months, issuers would be required under <ref href="/us/cfr/t12/s226.7/b/12/i/B">§ 226.7(b)(12)(i)(B)</ref> to disclose that it would take 3 years to pay off the balance in full if making only the minimum payment. In these cases, an issuer would not be required to disclose the 36-month disclosures on the periodic statement because the minimum payment repayment estimate disclosed to the consumer on the periodic statement (after rounding) is 3 years or less.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(12)(iv) Provision of information about credit counseling services.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Approved organizations.</inline> Section 226.7(b)(12)(iv)(A) requires card issuers to provide information regarding at least three organizations that have been approved by the United States Trustee or a bankruptcy administrator pursuant to <ref href="/us/usc/t11/s111/a/1">11 U.S.C. 111(a)(1)</ref> to provide credit counseling services in, at the card issuer's option, either the state in which the billing address for the account is <?page num="602"?>located or the state specified by the consumer. A card issuer does not satisfy the requirements in <ref href="/us/cfr/t12/s226.7/b/12/iv/A">§ 226.7(b)(12)(iv)(A)</ref> by providing information regarding providers that have been approved pursuant to <ref href="/us/usc/t11/s111/a/2">11 U.S.C. 111(a)(2)</ref> to offer personal financial management courses.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information regarding approved organizations.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Provision of information obtained from United States Trustee or bankruptcy administrator.</inline> A card issuer complies with the requirements of <ref href="/us/cfr/t12/s226.7/b/12/iv/A">§ 226.7(b)(12)(iv)(A)</ref> if, through the toll-free number disclosed pursuant to <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> or (b)(12)(ii), it provides the consumer with information obtained from the United States Trustee or a bankruptcy administrator, such as information obtained from the Web site operated by the United States Trustee. Section 226.7(b)(12)(iv)(A) does not require a card issuer to provide information that is not available from the United States Trustee or a bankruptcy administrator. If, for example, the Web site address for an organization approved by the United States Trustee is not available from the Web site operated by the United States Trustee, a card issuer is not required to provide a Web site address for that organization. However, <ref href="/us/cfr/t12/s226.7/b/12/iv/B">§ 226.7(b)(12)(iv)(B)</ref> requires the card issuer to, at least annually, update the information it provides for consistency with the information provided by the United States Trustee or a bankruptcy administrator.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Provision of information consistent with request of approved organization.</inline> If requested by an approved organization, a card issuer may at its option provide, in addition to the name of the organization obtained from the United States Trustee or a bankruptcy administrator, another name used by that organization through the toll-free number disclosed pursuant to <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> or (b)(12)(ii). In addition, if requested by an approved organization, a card issuer may at its option provide through the toll-free number disclosed pursuant to <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> or (b)(12)(ii) a street address, telephone number, or Web site address for the organization that is different than the street address, telephone number, or Web site address obtained from the United States Trustee or a bankruptcy administrator. However, if requested by an approved organization, a card issuer must not provide information regarding that organization through the toll-free number disclosed pursuant to <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> or (b)(12)(ii).</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information regarding approved organizations that provide credit counseling services in a language other than English.</inline> A card issuer may at its option provide through the toll-free number disclosed pursuant to <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> or (b)(12)(ii) information regarding approved organizations that provide credit counseling services in languages other than English. In the alternative, a card issuer may at its option state that such information is available from the Web site operated by the United States Trustee. Disclosing this Web site address does not by itself constitute a statement that organizations have been approved by the United States Trustee for purposes of comment 7(b)(12)(iv)–2.iv.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statements regarding approval by the United States Trustee or a bankruptcy administrator.</inline> Section 226.7(b)(12)(iv) does not require a card issuer to disclose through the toll-free number disclosed pursuant to <ref href="/us/cfr/t12/s226.7/b/12/i">§ 226.7(b)(12)(i)</ref> or (b)(12)(ii) that organizations have been approved by the United States Trustee or a bankruptcy administrator. However, if a card issuer chooses to make such a disclosure, <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref> requires that the card issuer also disclose that</p>
<p style="-uslm-sgm:P">A. The United States Trustee or a bankruptcy administrator has determined that the organizations meet the minimum requirements for nonprofit pre-bankruptcy budget and credit counseling;</p>
<p style="-uslm-sgm:P">B. The organizations may provide other credit counseling services that have not been reviewed by the United States Trustee or a bankruptcy administrator; and</p>
<p style="-uslm-sgm:P">C. The United States Trustee or the bankruptcy administrator does not endorse or recommend any particular organization.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automated response systems or devices.</inline> At their option, card issuers may use toll-free telephone numbers that connect consumers to automated systems, such as an interactive voice response system, through which consumers may obtain the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref> by inputting information using a touch-tone telephone or similar device.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Toll-free telephone number.</inline> A card issuer may provide a toll-free telephone number that is designed to handle customer service calls generally, so long as the option to receive the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref> is prominently disclosed to the consumer. For automated systems, the option to receive the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref> is prominently disclosed to the consumer if it is listed as one of the options in the first menu of options given to the consumer, such as “Press or say ‘3’ if you would like information about credit counseling services.” If the automated system permits callers to select the language in which the call is conducted and in which information is provided, the menu to select the language may precede the menu with the option to receive information about accessing credit counseling services.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Third parties.</inline> At their option, card issuers may use a third party to establish and maintain a toll-free telephone number for use by the issuer to provide the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref>.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Web site address.</inline> When making the repayment disclosures on the periodic statement <?page num="603"?>pursuant to <ref href="/us/cfr/t12/s226.7/b/12">§ 226.7(b)(12)</ref>, a card issuer at its option may also include a reference to a Web site address (in addition to the toll-free telephone number) where its customers may obtain the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref>, so long as the information provided on the Web site complies with <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref>. The Web site address disclosed must take consumers directly to the Web page where information about accessing credit counseling may be obtained. In the alternative, the card issuer may disclose the Web site address for the Web page operated by the United States Trustee where consumers may obtain information about approved credit counseling organizations. Disclosing this Web site address does not by itself constitute a statement that organizations have been approved by the United States Trustee for purposes of comment 7(b)(12)(iv)–2.iv.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Advertising or marketing information.</inline> If a consumer requests information about credit counseling services, the card issuer may not provide advertisements or marketing materials to the consumer (except for providing the name of the issuer) prior to providing the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref>. Educational materials that do not solicit business are not considered advertisements or marketing materials for this purpose. Examples</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Toll-free telephone number.</inline> As described in comment 7(b)(12)(iv)–4, an issuer may provide a toll-free telephone number that is designed to handle customer service calls generally, so long as the option to receive the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref> through that toll-free telephone number is prominently disclosed to the consumer. Once the consumer selects the option to receive the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref>, the issuer may not provide advertisements or marketing materials to the consumer (except for providing the name of the issuer) prior to providing the required information.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Web page.</inline> If the issuer discloses a link to a Web site address as part of the disclosures pursuant to comment 7(b)(12)(iv)–6, the issuer may not provide advertisements or marketing materials (except for providing the name of the issuer) on the Web page accessed by the address prior to providing the information required by <ref href="/us/cfr/t12/s226.7/b/12/iv">§ 226.7(b)(12)(iv)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(12)(v) Exemptions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Billing cycle where paying the minimum payment due for that billing cycle will pay the outstanding balance on the account for that billing cycle.</inline> Under <ref href="/us/cfr/t12/s226.7/b/12/v/C">§ 226.7(b)(12)(v)(C)</ref>, a card issuer is exempt from the repayment disclosure requirements set forth in <ref href="/us/cfr/t12/s226.7/b/12">§ 226.7(b)(12)</ref> for a particular billing cycle where paying the minimum payment due for that billing cycle will pay the outstanding balance on the account for that billing cycle. For example, if the entire outstanding balance on an account for a particular billing cycle is $20 and the minimum payment is $20, an issuer would not need to comply with the repayment disclosure requirements for that particular billing cycle. In addition, this exemption would apply to a charged-off account where payment of the entire account balance is due immediately.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">7(b)(13) Format requirements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combined deposit account and credit account statements.</inline> Some financial institutions provide information about deposit account and open-end credit account activity on one periodic statement. For purposes of providing disclosures on the front of the first page of the periodic statement pursuant to <ref href="/us/cfr/t12/s226.7/b/13">§ 226.7(b)(13)</ref>, the first page of such a combined statement shall be the page on which credit transactions first appear.</p>
<heading style="-uslm-sgm:HD2">Section 226.8—Identifying Transactions on Periodic Statements</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8(a) Sale credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sale credit.</inline> The term “sale credit” refers to a purchase in which the consumer uses a credit card or otherwise directly accesses an open-end line of credit (see comment 8(b)–1 if access is by means of a check) to obtain goods or services from a merchant, whether or not the merchant is the card issuer or creditor. “Sale credit” includes:</p>
<p style="-uslm-sgm:P">i. The purchase of funds-transfer services (such as a wire transfer) from an intermediary.</p>
<p style="-uslm-sgm:P">ii. The purchase of services from the card issuer or creditor. For the purchase of services that are costs imposed as part of the plan under <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref>, card issuers and creditors comply with the requirements for identifying transactions under this section by disclosing the fees in accordance with the requirements of <ref href="/us/cfr/t12/s226.7/b/6">§ 226.7(b)(6)</ref>. For the purchases of services that are not costs imposed as part of the plan, card issuers and creditors may, at their option, identify transactions under this section or in accordance with the requirements of <ref href="/us/cfr/t12/s226.7/b/6">§ 226.7(b)(6)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount—transactions not billed in full.</inline> If sale transactions are not billed in full on any single statement, but are billed periodically in precomputed installments, the first periodic statement reflecting the transaction must show either the full amount of the transaction together with the date the transaction actually took place; or the amount of the first installment that was debited to the account together with the date of the transaction or the date on which the first installment was debited to the account. In any event, subsequent periodic statements should reflect each installment due, together with either any other identifying information required by <ref href="/us/cfr/t12/s226.8/a">§ 226.8(a)</ref> (such as the seller's name and address in a three-party situation) or other appropriate identifying information relating the transaction to the first billing. The debiting date for the particular installment, or the date the transaction took place, <?page num="604"?>may be used as the date of the transaction on these subsequent statements.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date—when a transaction takes place.</inline>
</p>
<p style="-uslm-sgm:P">i. If the consumer conducts the transaction in person, the date of the transaction is the calendar date on which the consumer made the purchase or order, or secured the advance.</p>
<p style="-uslm-sgm:P">ii. For transactions billed to the account on an ongoing basis (other than installments to pay a precomputed amount), the date of the transaction is the date on which the amount is debited to the account. This might include, for example, monthly insurance premiums.</p>
<p style="-uslm-sgm:P">iii. For mail, Internet, or telephone orders, a creditor may disclose as the transaction date either the invoice date, the debiting date, or the date the order was placed by telephone or via the Internet.</p>
<p style="-uslm-sgm:P">iv. In a foreign transaction, the debiting date may be considered the transaction date.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date—sufficiency of description.</inline>
</p>
<p style="-uslm-sgm:P">i. If the creditor discloses only the date of the transaction, the creditor need not identify it as the “transaction date.” If the creditor discloses more than one date (for example, the transaction date and the posting date), the creditor must identify each.</p>
<p style="-uslm-sgm:P">ii. The month and day sufficiently identify the transaction date, unless the posting of the transaction is delayed so long that the year is needed for a clear disclosure to the consumer.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Same or related persons.</inline> i. For purposes of identifying transactions, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">same or related persons</inline> refers to, for example:</p>
<p style="-uslm-sgm:P">A. Franchised or licensed sellers of a creditor's product or service.</p>
<p style="-uslm-sgm:P">B. Sellers who assign or sell open-end sales accounts to a creditor or arrange for such credit under a plan that allows the consumer to use the credit only in transactions with that seller.</p>
<p style="-uslm-sgm:P">ii. A seller is not related to the creditor merely because the seller and the creditor have an agreement authorizing the seller to honor the creditor's credit card.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Brief identification—sufficiency of description.</inline> The “brief identification” provision in <ref href="/us/cfr/t12/s226.8/a/1/i">§ 226.8(a)(1)(i)</ref> requires a designation that will enable the consumer to reconcile the periodic statement with the consumer's own records. In determining the sufficiency of the description, the following rules apply:</p>
<p style="-uslm-sgm:P">i. While item-by-item descriptions are not necessary, reasonable precision is required. For example, “merchandise,” “miscellaneous,” “second-hand goods,” or “promotional items” would not suffice.</p>
<p style="-uslm-sgm:P">ii. A reference to a department in a sales establishment that accurately conveys the identification of the types of property or services available in the department is sufficient—for example, “jewelry,” or “sporting goods.”</p>
<p style="-uslm-sgm:P">iii. A number or symbol that is related to an identification list printed elsewhere on the statement that reasonably identifies the transaction with the creditor is sufficient.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Seller's name—sufficiency of description.</inline> The requirement contemplates that the seller's name will appear on the periodic statement in essentially the same form as it appears on transaction documents provided to the consumer at the time of the sale. The seller's name may also be disclosed as, for example:</p>
<p style="-uslm-sgm:P">i. A more complete spelling of the name that was alphabetically abbreviated on the receipt or other credit document.</p>
<p style="-uslm-sgm:P">ii. An alphabetical abbreviation of the name on the periodic statement even if the name appears in a more complete spelling on the receipt or other credit document. Terms that merely indicate the form of a business entity, such as “Inc.,” “Co.,” or “Ltd.,” may always be omitted.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Location of transaction.</inline>
</p>
<p style="-uslm-sgm:P">i. If the seller has multiple stores or branches within a city, the creditor need not identify the specific branch at which the sale occurred.</p>
<p style="-uslm-sgm:P">ii. When no meaningful address is available because the consumer did not make the purchase at any fixed location of the seller, the creditor may omit the address, or may provide some other identifying designation, such as “aboard plane,” “ABC Airways Flight,” “customer's home,” “telephone order,” “Internet order” or “mail order.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8(b) Nonsale credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonsale credit.</inline> The term “nonsale credit” refers to any form of loan credit including, for example:</p>
<p style="-uslm-sgm:P">i. A cash advance.</p>
<p style="-uslm-sgm:P">ii. An advance on a credit plan that is accessed by overdrafts on a checking account.</p>
<p style="-uslm-sgm:P">iii. The use of a “supplemental credit device” in the form of a check or draft or the use of the overdraft credit plan accessed by a debit card, even if such use is in connection with a purchase of goods or services.</p>
<p style="-uslm-sgm:P">iv. Miscellaneous debits to remedy mispostings, returned checks, and similar entries.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount—overdraft credit plans.</inline> If credit is extended under an overdraft credit plan tied to a checking account or by means of a debit card tied to an overdraft credit plan:</p>
<p style="-uslm-sgm:P">i. The amount to be disclosed is that of the credit extension, not the face amount of the check or the total amount of the debit/credit transaction.</p>
<p style="-uslm-sgm:P">ii. The creditor may disclose the amount of the credit extensions on a cumulative daily basis, rather than the amount attributable to each check or each use of the debit card that accesses the credit plan.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date of transaction.</inline> See comment 8(a)–4.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonsale transaction—sufficiency of identification.</inline> The creditor sufficiently identifies a <?page num="605"?>nonsale transaction by describing the type of advance it represents, such as cash advance, loan, overdraft loan, or any readily understandable trade name for the credit program.</p>
<heading style="-uslm-sgm:HD2">Section 226.9—Subsequent Disclosure Requirements</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(a) Furnishing statement of billing rights.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(a)(1) Annual statement.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The creditor may provide the annual billing rights statement:</p>
<p style="-uslm-sgm:P">i. By sending it in one billing period per year to each consumer that gets a periodic statement for that period; or</p>
<p style="-uslm-sgm:P">ii. By sending a copy to all of its accountholders sometime during the calendar year but not necessarily all in one billing period (for example, sending the annual notice in connection with renewal cards or when imposing annual membership fees).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantially similar.</inline> See the commentary to Model Forms G–3 and G–3(A) in appendix G to part 226.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(a)(2) Alternative summary statement.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing from long-form to short form statement and vice versa.</inline> If the creditor has been sending the long-form annual statement, and subsequently decides to use the alternative summary statement, the first summary statement must be sent no later than 12 months after the last long-form statement was sent. Conversely, if the creditor wants to switch to the long-form, the first long-form statement must be sent no later than 12 months after the last summary statement.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantially similar.</inline> See the commentary to Model Forms G–4 and G–4(A) in appendix G to part 226.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(b) Disclosures for supplemental credit access devices and additional features.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit access device—examples. Credit access device</inline> includes, for example, a blank check, payee-designated check, blank draft or order, or authorization form for issuance of a check; it does not include a check issued payable to a consumer representing loan proceeds or the disbursement of a cash advance.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit account feature—examples.</inline> A new credit account <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">feature</inline> would include, for example:</p>
<p style="-uslm-sgm:P">i. The addition of overdraft checking to an existing account (although the regular checks that could trigger the overdraft feature are not themselves “devices”).</p>
<p style="-uslm-sgm:P">ii. The option to use an existing credit card to secure cash advances, when previously the card could only be used for purchases.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 9(b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Different finance charge terms.</inline> Except as provided in <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref> for checks that access a credit card account, if the finance charge terms are different from those previously disclosed, the creditor may satisfy the requirement to give the finance charge terms either by giving a complete set of new account-opening disclosures reflecting the terms of the added device or feature or by giving only the finance charge disclosures for the added device or feature.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(b)(3) Checks that access a credit card account.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(b)(3)(i) Disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Front of the page containing the checks.</inline> The following would comply with the requirement that the tabular disclosures provided pursuant to <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref> appear on the front of the page containing the checks</p>
<p style="-uslm-sgm:P">i. Providing the tabular disclosure on the front of the first page on which checks appear, for an offer where checks are provided on multiple pages;</p>
<p style="-uslm-sgm:P">ii. Providing the tabular disclosure on the front of a mini-book or accordion booklet containing the checks; or</p>
<p style="-uslm-sgm:P">iii. Providing the tabular disclosure on the front of the solicitation letter, when the checks are printed on the front of the same page as the solicitation letter even if the checks can be separated by the consumer from the solicitation letter using perforations.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combined disclosures for checks and other transactions subject to the same terms.</inline> A card issuer may include in the tabular disclosure provided pursuant to <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref> disclosures regarding the terms offered on non-check transactions, provided that such transactions are subject to the same terms that are required to be disclosed pursuant to <ref href="/us/cfr/t12/s226.9/b/3/i">§ 226.9(b)(3)(i)</ref> for the checks that access a credit card account. However, a card issuer may not include in the table information regarding additional terms that are not required disclosures for checks that access a credit card account pursuant to <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 9(b)(3)(i)(D).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace period.</inline> A creditor may not disclose under <ref href="/us/cfr/t12/s226.9/b/3/i/D">§ 226.9(b)(3)(i)(D)</ref> the limitations on the imposition of finance charges as a result of a loss of a grace period in <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>, or the impact of payment allocation on whether interest is charged on transactions as a result of a loss of a grace period. Some creditors may offer a grace period on credit extended by the use of an access check under which interest will not be charged on the check transactions if the consumer pays the outstanding balance shown on a periodic statement in full by the due date shown on that statement for one or more billing cycles. In these circumstances, <ref href="/us/cfr/t12/s226.9/b/3/i/D">§ 226.9(b)(3)(i)(D)</ref> requires that the creditor disclose the grace period using the following language, or substantially similar language, as applicable: “Your due date is [at least] __ days after the close of each billing cycle. We will not charge you any interest on check transactions if you pay your entire balance by the due date each month.” However, other creditors may offer a grace period on check transactions under which interest may be charged on check transactions even if the consumer pays the outstanding balance shown on a periodic statement in full by the due date shown on <?page num="606"?>that statement each billing cycle. In these circumstances, <ref href="/us/cfr/t12/s226.9/b/3/i/D">§ 226.9(b)(3)(i)(D)</ref> requires the creditor to amend the above disclosure language to describe accurately the conditions on the applicability of the grace period. Creditors may use the following language to describe that no grace period on check transactions is offered, as applicable: “We will begin charging interest on these checks on the transaction date.”</p>
<p style="-uslm-sgm:P">9(c) Change in terms.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c) Change in terms.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(1) Rules affecting home-equity plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes initially disclosed.</inline> No notice of a change in terms need be given if the specific change is set forth initially, such as: rate increases under a properly disclosed variable-rate plan, a rate increase that occurs when an employee has been under a preferential rate agreement and terminates employment, or an increase that occurs when the consumer has been under an agreement to maintain a certain balance in a savings account in order to keep a particular rate and the account balance falls below the specified minimum. The rules in <ref href="/us/cfr/t12/s226.5b/f">§ 226.5b(f)</ref> relating to home-equity plans limit the ability of a creditor to change the terms of such plans.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State law issues.</inline> Examples of issues not addressed by <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> because they are controlled by state or other applicable law include:</p>
<p style="-uslm-sgm:P">i. The types of changes a creditor may make. (But see <ref href="/us/cfr/t12/s226.5b/f">§ 226.5b(f)</ref>)</p>
<p style="-uslm-sgm:P">ii. How changed terms affect existing balances, such as when a periodic rate is changed and the consumer does not pay off the entire existing balance before the new rate takes effect.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in billing cycle.</inline> Whenever the creditor changes the consumer's billing cycle, it must give a change-in-terms notice if the change either affects any of the terms required to be disclosed under <ref href="/us/cfr/t12/s226.6/a">§ 226.6(a)</ref> or increases the minimum payment, unless an exception under <ref href="/us/cfr/t12/s226.9/c/1/ii">§ 226.9(c)(1)(ii)</ref> applies; for example, the creditor must give advance notice if the creditor initially disclosed a 25-day grace period on purchases and the consumer will have fewer days during the billing cycle change.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(1)(i) Written notice required.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affected consumers.</inline> Change-in-terms notices need only go to those consumers who may be affected by the change. For example, a change in the periodic rate for check overdraft credit need not be disclosed to consumers who do not have that feature on their accounts.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing—effective date of change.</inline> The rule that the notice of the change in terms be provided at least 15 days before the change takes effect permits mid-cycle changes when there is clearly no retroactive effect, such as the imposition of a transaction fee. Any change in the balance computation method, in contrast, would need to be disclosed at least 15 days prior to the billing cycle in which the change is to be implemented.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing—advance notice not required.</inline> Advance notice of 15 days is not necessary—that is, a notice of change in terms is required, but it may be mailed or delivered as late as the effective date of the change—in two circumstances:</p>
<p style="-uslm-sgm:P">i. If there is an increased periodic rate or any other finance charge attributable to the consumer's delinquency or default.</p>
<p style="-uslm-sgm:P">ii. If the consumer agrees to the particular change. This provision is intended for use in the unusual instance when a consumer substitutes collateral or when the creditor can advance additional credit only if a change relatively unique to that consumer is made, such as the consumer's providing additional security or paying an increased minimum payment amount. Therefore, the following are not “agreements” between the consumer and the creditor for purposes of <ref href="/us/cfr/t12/s226.9/c/1/i">§ 226.9(c)(1)(i)</ref>: The consumer's general acceptance of the creditor's contract reservation of the right to change terms; the consumer's use of the account (which might imply acceptance of its terms under state law); and the consumer's acceptance of a unilateral term change that is not particular to that consumer, but rather is of general applicability to consumers with that type of account.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of change-in-terms notice.</inline> A complete new set of the initial disclosures containing the changed term complies with <ref href="/us/cfr/t12/s226.9/c/1/i">§ 226.9(c)(1)(i)</ref> if the change is highlighted in some way on the disclosure statement, or if the disclosure statement is accompanied by a letter or some other insert that indicates or draws attention to the term change.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security interest change—form of notice.</inline> A copy of the security agreement that describes the collateral securing the consumer's account may be used as the notice, when the term change is the addition of a security interest or the addition or substitution of collateral.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes to home-equity plans entered into on or after <date date="1989-11-07">November 7, 1989</date>.</inline> Section 226.9(c)(1) applies when, by written agreement under <ref href="/us/cfr/t12/s226.5b/f/3/iii">§ 226.5b(f)(3)(iii)</ref>, a creditor changes the terms of a home-equity plan—entered into on or after <date date="1989-11-07">November 7, 1989</date>—at or before its scheduled expiration, for example, by renewing a plan on terms different from those of the original plan. In disclosing the change:</p>
<p style="-uslm-sgm:P">i. If the index is changed, the maximum annual percentage rate is increased (to the limited extent permitted by <ref href="/us/cfr/t12/s226.30">§ 226.30</ref>), or a variable-rate feature is added to a fixed-rate plan, the creditor must include the disclosures required by <ref href="/us/cfr/t12/s226.5b/d/12/x">§ 226.5b(d)(12)(x)</ref> and (d)(12)(xi), unless these disclosures are unchanged from those given earlier.</p>
<p style="-uslm-sgm:P">ii. If the minimum payment requirement is changed, the creditor must include the disclosures required by <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref> (and, in <?page num="607"?>variable-rate plans, the disclosures required by <ref href="/us/cfr/t12/s226.5b/d/12/x">§ 226.5b(d)(12)(x)</ref> and (d)(12)(xi)) unless the disclosures given earlier contained representative examples covering the new minimum payment requirement. (See the commentary to <ref href="/us/cfr/t12/s226.5b/d/5/iii">§ 226.5b(d)(5)(iii)</ref>, (d)(12)(x) and (d)(12)(xi) for a discussion of representative examples.)</p>
<p style="-uslm-sgm:P">iii. When the terms are changed pursuant to a written agreement as described in <ref href="/us/cfr/t12/s226.5b/f/3/iii">§ 226.5b(f)(3)(iii)</ref>, the advance-notice requirement does not apply.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(1)(ii) Notice not required.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes not requiring notice.</inline> The following are examples of changes that do not require a change-in-terms notice:</p>
<p style="-uslm-sgm:P">i. A change in the consumer's credit limit.</p>
<p style="-uslm-sgm:P">ii. A change in the name of the credit card or credit card plan.</p>
<p style="-uslm-sgm:P">iii. The substitution of one insurer for another.</p>
<p style="-uslm-sgm:P">iv. A termination or suspension of credit privileges. (But see <ref href="/us/cfr/t12/s226.5b/f">§ 226.5b(f)</ref>.)</p>
<p style="-uslm-sgm:P">v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Skip features.</inline> If a credit program allows consumers to skip or reduce one or more payments during the year, or involves temporary reductions in finance charges, no notice of the change in terms is required either prior to the reduction or upon resumption of the higher rates or payments if these features are explained on the initial disclosure statement (including an explanation of the terms upon resumption). For example, a merchant may allow consumers to skip the December payment to encourage holiday shopping, or a teachers' credit union may not require payments during summer vacation. Otherwise, the creditor must give notice prior to resuming the original schedule or rate, even though no notice is required prior to the reduction. The change-in-terms notice may be combined with the notice offering the reduction. For example, the periodic statement reflecting the reduction or skip feature may also be used to notify the consumer of the resumption of the original schedule or rate, either by stating explicitly when the higher payment or charges resume, or by indicating the duration of the skip option. Language such as “You may skip your October payment,” or “We will waive your finance charges for January,” may serve as the change-in-terms notice.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(1)(iii) Notice to restrict credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written request for reinstatement.</inline> If a creditor requires the request for reinstatement of credit privileges to be in writing, the notice under <ref href="/us/cfr/t12/s226.9/c/1/iii">§ 226.9(c)(1)(iii)</ref> must state that fact.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice not required.</inline> A creditor need not provide a notice under this paragraph if, pursuant to the commentary to <ref href="/us/cfr/t12/s226.5b/f/2">§ 226.5b(f)(2)</ref>, a creditor freezes a line or reduces a credit line rather than terminating a plan and accelerating the balance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(2) Rules affecting open-end (not home-secured) plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes initially disclosed.</inline> Except as provided in <ref href="/us/cfr/t12/s226.9/g/1">§ 226.9(g)(1)</ref>, no notice of a change in terms need be given if the specific change is set forth initially consistent with any applicable requirements, such as rate or fee increases upon expiration of a specific period of time that were disclosed in accordance with <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> or rate increases under a properly disclosed variable-rate plan in accordance with <ref href="/us/cfr/t12/s226.9/c/2/v/C">§ 226.9(c)(2)(v)(C)</ref>. In contrast, notice must be given if the contract allows the creditor to increase a rate or fee at its discretion.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State law issues.</inline> Some issues are not addressed by <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> because they are controlled by state or other applicable laws. These issues include the types of changes a creditor may make, to the extent otherwise permitted by this regulation.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in billing cycle.</inline> Whenever the creditor changes the consumer's billing cycle, it must give a change-in-terms notice if the change affects any of the terms described in <ref href="/us/cfr/t12/s226.9/c/2/i">§ 226.9(c)(2)(i)</ref>, unless an exception under <ref href="/us/cfr/t12/s226.9/c/2/v">§ 226.9(c)(2)(v)</ref> applies; for example, the creditor must give advance notice if the creditor initially disclosed a 28-day grace period on purchases and the consumer will have fewer days during the billing cycle change. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> <ref href="/us/cfr/t12/s226.7/b/11/i/A">§ 226.7(b)(11)(i)(A)</ref> regarding the general requirement that the payment due date for a credit card account under an open-end (not home-secured) consumer credit plan must be the same day each month.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>.</inline> If a creditor adds a feature to the account on the type of terms otherwise required to be disclosed under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>, the creditor must satisfy: The requirement to provide the finance charge disclosures for the added feature under <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>; and any applicable requirement to provide a change-in-terms notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, including any advance notice that must be provided. For example, if a creditor adds a balance transfer feature to an account more than 30 days after account-opening disclosures are provided, it must give the finance charge disclosures for the balance transfer feature under <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref> as well as comply with the change-in-terms notice requirements under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, including providing notice of the change at least 45 days prior to the effective date of the change. Similarly, if a creditor makes a balance transfer offer on finance charge terms that are higher than those previously disclosed for balance transfers, it would also generally be required to provide a change-in-terms notice at least 45 days in advance of the effective date of the change. A creditor may provide a single notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> to satisfy the notice requirements of both paragraphs (b) and (c) of <ref href="/us/cfr/t12/s226.9">§ 226.9</ref>. For checks that access a <?page num="608"?>credit card account subject to the disclosure requirements in <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref>, a creditor is not subject to the notice requirements under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> even if the applicable rate or fee is higher than those previously disclosed for such checks. Thus, for example, the creditor need not wait 45 days before applying the new rate or fee for transactions made using such checks, but the creditor must make the required disclosures on or with the checks in accordance with <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(2)(i) Changes where written advance notice is required.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affected consumers.</inline> Change-in-terms notices need only go to those consumers who may be affected by the change. For example, a change in the periodic rate for check overdraft credit need not be disclosed to consumers who do not have that feature on their accounts. If a single credit account involves multiple consumers that may be affected by the change, the creditor should refer to <ref href="/us/cfr/t12/s226.5/d">§ 226.5(d)</ref> to determine the number of notices that must be given.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing—effective date of change.</inline> The rule that the notice of the change in terms be provided at least 45 days before the change takes effect permits mid-cycle changes when there is clearly no retroactive effect, such as the imposition of a transaction fee. Any change in the balance computation method, in contrast, would need to be disclosed at least 45 days prior to the billing cycle in which the change is to be implemented.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes agreed to by the consumer.</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 5(b)(1)(i)–6.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of change-in-terms notice.</inline> Except if <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref> applies, a complete new set of the initial disclosures containing the changed term complies with <ref href="/us/cfr/t12/s226.9/c/2/i">§ 226.9(c)(2)(i)</ref> if the change is highlighted on the disclosure statement, or if the disclosure statement is accompanied by a letter or some other insert that indicates or draws attention to the term being changed.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security interest change—form of notice.</inline> A creditor must provide a description of any security interest it is acquiring under <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref>. A copy of the security agreement that describes the collateral securing the consumer's account may also be used as the notice, when the term change is the addition of a security interest or the addition or substitution of collateral.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples. See</inline> comment 55(a)–1 and 55(b)–3 for examples of how a card issuer that is subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> may comply with the timing requirements for notices required by <ref href="/us/cfr/t12/s226.9/c/2/i">§ 226.9(c)(2)(i)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(2)(iii) Charges not covered by <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> Generally, if a creditor increases any component of a charge, or introduces a new charge, that is imposed as part of the plan under <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref> but is not required to be disclosed as part of the account-opening summary table under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2), the creditor must either, at its option (i) provide at least 45 days' written advance notice before the change becomes effective to comply with the requirements of <ref href="/us/cfr/t12/s226.9/c/2/i">§ 226.9(c)(2)(i)</ref>, or (ii) provide notice orally or in writing, or electronically if the consumer requests the service electronically, of the amount of the charge to an affected consumer before the consumer agrees to or becomes obligated to pay the charge, at a time and in a manner that a consumer would be likely to notice the disclosure. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary under <ref href="/us/cfr/t12/s226.5/a/1/iii">§ 226.5(a)(1)(iii)</ref> regarding disclosure of such changes in electronic form.) For example, a fee for expedited delivery of a credit card is a charge imposed as part of the plan under <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref> but is not required to be disclosed in the account-opening summary table under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2). If a creditor changes the amount of that expedited delivery fee, the creditor may provide written advance notice of the change to affected consumers at least 45 days before the change becomes effective. Alternatively, the creditor may provide oral or written notice, or electronic notice if the consumer requests the service electronically, of the amount of the charge to an affected consumer before the consumer agrees to or becomes obligated to pay the charge, at a time and in a manner that the consumer would be likely to notice the disclosure. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 5(b)(1)(ii)–1 for examples of disclosures given at a time and in a manner that the consumer would be likely to notice them.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(2)(iv) Disclosure requirements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing margin for calculating a variable rate.</inline> If a creditor is changing a margin used to calculate a variable rate, the creditor must disclose the amount of the new rate (as calculated using the new margin) in the table described in <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref>, and include a reminder that the rate is a variable rate. For example, if a creditor is changing the margin for a variable rate that uses the prime rate as an index, the creditor must disclose in the table the new rate (as calculated using the new margin) and indicate that the rate varies with the market based on the prime rate.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing index for calculating a variable rate.</inline> If a creditor is changing the index used to calculate a variable rate, the creditor must disclose the amount of the new rate (as calculated using the new index) and indicate that the rate varies and how the rate is determined, as explained in <ref href="/us/cfr/t12/s226.6/b/2/i/A">§ 226.6(b)(2)(i)(A)</ref>. For example, if a creditor is changing from using a prime rate to using the LIBOR in calculating a variable rate, the creditor would disclose in the table the new rate (using the new index) and indicate that the rate varies with the market based on the LIBOR.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing from a variable rate to a non-variable rate.</inline> If a creditor is changing a rate applicable to a consumer's account from a <?page num="609"?>variable rate to a non-variable rate, the creditor generally must provide a notice as otherwise required under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> even if the variable rate at the time of the change is higher than the non-variable rate. However, a creditor is not required to provide a notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> if the creditor provides the disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> or (c)(2)(v)(D) in connection with changing a variable rate to a lower non-variable rate. Similarly, a creditor is not required to provide a notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> when changing a variable rate to a lower non-variable rate in order to comply with <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or a similar Federal or State statute or regulation. Finally, a creditor is not required to provide a notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> when changing a variable rate to a lower non-variable rate in order to comply with <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing from a non-variable rate to a variable rate.</inline> If a creditor is changing a rate applicable to a consumer's account from a non-variable rate to a variable rate, the creditor generally must provide a notice as otherwise required under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> even if the non-variable rate is higher than the variable rate at the time of the change. However, a creditor is not required to provide a notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> if the creditor provides the disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> or (c)(2)(v)(D) in connection with changing a non-variable rate to a lower variable rate. Similarly, a creditor is not required to provide a notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> when changing a non-variable rate to a lower variable rate in order to comply with <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or a similar Federal or State statute or regulation. Finally, a creditor is not required to provide a notice under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> when changing a non-variable rate to a lower variable rate in order to comply with <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 55(b)(2)–4 regarding the limitations in <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref> on changing the rate that applies to a protected balance from a non-variable rate to a variable rate.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes in the penalty rate, the triggers for the penalty rate, or how long the penalty rate applies.</inline> If a creditor is changing the amount of the penalty rate, the creditor must also redisclose the triggers for the penalty rate and the information about how long the penalty rate applies even if those terms are not changing. Likewise, if a creditor is changing the triggers for the penalty rate, the creditor must redisclose the amount of the penalty rate and information about how long the penalty rate applies. If a creditor is changing how long the penalty rate applies, the creditor must redisclose the amount of the penalty rate and the triggers for the penalty rate, even if they are not changing.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes in fees.</inline> If a creditor is changing part of how a fee that is disclosed in a tabular format under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2) is determined, the creditor must redisclose all relevant information related to that fee regardless of whether this other information is changing. For example, if a creditor currently charges a cash advance fee of “Either $5 or 3% of the transaction amount, whichever is greater. (Max: $100),” and the creditor is only changing the minimum dollar amount from $5 to $10, the issuer must redisclose the other information related to how the fee is determined. For example, the creditor in this example would disclose the following: “Either $10 or 3% of the transaction amount, whichever is greater. (Max: $100).”</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combining a notice described in <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref> with a notice described in <ref href="/us/cfr/t12/s226.9/g/3">§ 226.9(g)(3)</ref>.</inline> If a creditor is required to provide a notice described in <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref> and a notice described in <ref href="/us/cfr/t12/s226.9/g/3">§ 226.9(g)(3)</ref> to a consumer, the creditor may combine the two notices. This would occur if penalty pricing has been triggered, and other terms are changing on the consumer's account at the same time.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content.</inline> Sample G–20 contains an example of how to comply with the requirements in <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref> when a variable rate is being changed to a non-variable rate on a credit card account. The sample explains when the new rate will apply to new transactions and to which balances the current rate will continue to apply. Sample G–21 contains an example of how to comply with the requirements in <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref> when the late payment fee on a credit card account is being increased, and the returned payment fee is also being increased. The sample discloses the consumer's right to reject the changes in accordance with <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref>.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard. See</inline> comment 5(a)(1)-1 for the clear and conspicuous standard applicable to disclosures required under <ref href="/us/cfr/t12/s226.9/c/2/iv/A">§ 226.9(c)(2)(iv)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>).</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology. See</inline> <ref href="/us/cfr/t12/s226.5/a/2">§ 226.5(a)(2)</ref> for terminology requirements applicable to disclosures required under <ref href="/us/cfr/t12/s226.9/c/2/iv/A">§ 226.9(c)(2)(iv)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>).</p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasons for increase.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> Section 226.9(c)(2)(iv)(A)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8</inline>) requires card issuers to disclose the principal reason(s) for increasing an annual percentage rate applicable to a credit card account under an open-end (not home-secured) consumer credit plan. The regulation does not mandate a minimum number of reasons that must be disclosed. However, the specific reasons disclosed under <ref href="/us/cfr/t12/s226.9/c/2/iv/A">§ 226.9(c)(2)(iv)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8</inline>) are required to relate to and accurately describe the principal factors actually considered by the card issuer in increasing the rate. A card issuer may describe the reasons for the increase in general terms. For example, the notice of a rate increase triggered by a decrease of 100 points in a consumer's credit score may state that the increase is due to “a decline in your creditworthiness” or “a decline in your credit score.” Similarly, a notice of a rate increase triggered by a 10% increase in the card issuer's cost of funds may be disclosed as “a change in market conditions.” In some circumstances, it may be appropriate for a <?page num="610"?>card issuer to combine the disclosure of several reasons in one statement. However, <ref href="/us/cfr/t12/s226.9/c/2/iv/A">§ 226.9(c)(2)(iv)(A)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">8</inline>) requires that the notice specifically disclose any violation of the terms of the account on which the rate is being increased, such as a late payment or a returned payment, if such violation of the account terms is one of the four principal reasons for the rate increase.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Assume that a consumer made a late payment on the credit card account on which the rate increase is being imposed, made a late payment on a credit card account with another card issuer, and the consumer's credit score decreased, in part due to such late payments. The card issuer may disclose the reasons for the rate increase as a decline in the consumer's credit score and the consumer's late payment on the account subject to the increase. Because the late payment on the credit card account with the other issuer also likely contributed to the decline in the consumer's credit score, it is not required to be separately disclosed. However, the late payment on the credit card account on which the rate increase is being imposed must be specifically disclosed even if that late payment also contributed to the decline in the consumer's credit score.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(c)(2)(v) Notice not required.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes not requiring notice.</inline> The following are examples of changes that do not require a change-in-terms notice</p>
<p style="-uslm-sgm:P">i. A change in the consumer's credit limit except as otherwise required by <ref href="/us/cfr/t12/s226.9/c/2/vi">§ 226.9(c)(2)(vi)</ref>.</p>
<p style="-uslm-sgm:P">ii. A change in the name of the credit card or credit card plan.</p>
<p style="-uslm-sgm:P">iii. The substitution of one insurer for another.</p>
<p style="-uslm-sgm:P">iv. A termination or suspension of credit privileges.</p>
<p style="-uslm-sgm:P">v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Skip features.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Skipped or reduced payments.</inline> If a credit program allows consumers to skip or reduce one or more payments during the year, no notice of the change in terms is required either prior to the reduction in payments or upon resumption of the higher payments if these features are explained on the account-opening disclosure statement (including an explanation of the terms upon resumption). For example, a merchant may allow consumers to skip the December payment to encourage holiday shopping, or a teacher's credit union may not require payments during summer vacation. Otherwise, the creditor must give notice prior to resuming the original payment schedule, even though no notice is required prior to the reduction. The change-in-terms notice may be combined with the notice offering the reduction. For example, the periodic statement reflecting the skip feature may also be used to notify the consumer of the resumption of the original payment schedule, either by stating explicitly when the higher resumes or by indicating the duration of the skip option. Language such as “You may skip your October payment” may serve as the change-in-terms notice.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary reductions in interest rates or fees.</inline> If a credit program involves temporary reductions in an interest rate or fee, no notice of the change in terms is required either prior to the reduction or upon resumption of the original rate or fee if these features are disclosed in advance in accordance with the requirements of <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>. Otherwise, the creditor must give notice prior to resuming the original rate or fee, even though no notice is required prior to the reduction. The notice provided prior to resuming the original rate or fee must comply with the timing requirements of <ref href="/us/cfr/t12/s226.9/c/2/i">§ 226.9(c)(2)(i)</ref> and the content and format requirements of <ref href="/us/cfr/t12/s226.9/c/2/iv/A">§ 226.9(c)(2)(iv)(A)</ref>, (B) (if applicable), (C) (if applicable), and (D). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 55(b)–3 for guidance regarding the application of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> in these circumstances.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing from a variable rate to a non-variable rate. See</inline> comment 9(c)(2)(iv)–3.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing from a non-variable rate to a variable rate. See</inline> comment 9(c)(2)(iv)–4.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary rate or fee reductions offered by telephone.</inline> The timing requirements of <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> are deemed to have been met, and written disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> may be provided as soon as reasonably practicable after the first transaction subject to a rate that will be in effect for a specified period of time (a temporary rate) or the imposition of a fee that will be in effect for a specified period of time (a temporary fee) if</p>
<p style="-uslm-sgm:P">i. The consumer accepts the offer of the temporary rate or temporary fee by telephone;</p>
<p style="-uslm-sgm:P">ii. The creditor permits the consumer to reject the temporary rate or temporary fee offer and have the rate or rates or fee that previously applied to the consumer's balances reinstated for 45 days after the creditor mails or delivers the written disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>, except that the creditor need not permit the consumer to reject a temporary rate or temporary fee offer if the rate or rates or fee that will apply following expiration of the temporary rate do not exceed the rate or rates or fee that applied immediately prior to commencement of the temporary rate or temporary fee; and</p>
<p style="-uslm-sgm:P">iii. The disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> and the consumer's right to reject the temporary rate or temporary fee offer and have the rate or rates or fee that previously applied to the consumer's account reinstated, if applicable, are disclosed to the consumer as part of the temporary rate or temporary fee offer.
<?page num="611"?></p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">First listing.</inline> The disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) are only required to be provided in close proximity and in equal prominence to the first listing of the temporary rate or fee in the disclosure provided to the consumer. For purposes of <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>, the first statement of the temporary rate or fee is the most prominent listing on the front side of the first page of the disclosure. If the temporary rate or fee does not appear on the front side of the first page of the disclosure, then the first listing of the temporary rate or fee is the most prominent listing of the temporary rate on the subsequent pages of the disclosure. For advertising requirements for promotional rates, see <ref href="/us/cfr/t12/s226.16/g">§ 226.16(g)</ref>.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Close proximity—point of sale.</inline> Creditors providing the disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> of this section in person in connection with financing the purchase of goods or services may, at the creditor's option, disclose the annual percentage rate or fee that would apply after expiration of the period on a separate page or document from the temporary rate or fee and the length of the period, provided that the disclosure of the annual percentage rate or fee that would apply after the expiration of the period is equally prominent to, and is provided at the same time as, the disclosure of the temporary rate or fee and length of the period.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of annual percentage rates.</inline> If a rate disclosed pursuant to <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> or (c)(2)(v)(D) is a variable rate, the creditor must disclose the fact that the rate may vary and how the rate is determined. For example, a creditor could state “After <date date="2009-10-01">October 1, 2009</date>, your APR will be 14.99%. This APR will vary with the market based on the Prime Rate.”</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest or similar programs.</inline> If the applicable conditions are met, the exception in <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> applies to deferred interest or similar promotional programs under which the consumer is not obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time. For purposes of this comment and <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>, “deferred interest” has the same meaning as in <ref href="/us/cfr/t12/s226.16/h/2">§ 226.16(h)(2)</ref> and associated commentary. For such programs, a creditor must disclose pursuant to <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) the length of the deferred interest period and the rate that will apply to the balance subject to the deferred interest program if that balance is not paid in full prior to expiration of the deferred interest period. Examples of language that a creditor may use to make the required disclosures under <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) include</p>
<p style="-uslm-sgm:P">i. “No interest if paid in full in 6 months. If the balance is not paid in full in 6 months, interest will be imposed from the date of purchase at a rate of 15.99%.”</p>
<p style="-uslm-sgm:P">ii. “No interest if paid in full by <date date="2010-12-31">December 31, 2010</date>. If the balance is not paid in full by that date, interest will be imposed from the transaction date at a rate of 15%.”</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship between <ref href="/us/cfr/t12/s226.9/c/2/v/B">§§ 226.9(c)(2)(v)(B)</ref> and 226.6(b).</inline> A disclosure of the information described in <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>) provided in the account-opening table in accordance with <ref href="/us/cfr/t12/s226.6/b">§ 226.6(b)</ref> complies with the requirements of <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>), if the listing of the introductory rate in such tabular disclosure also is the first listing as described in comment 9(c)(2)(v)–6.</p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of the terms of a workout or temporary hardship arrangement.</inline> In order for the exception in <ref href="/us/cfr/t12/s226.9/c/2/v/D">§ 226.9(c)(2)(v)(D)</ref> to apply, the disclosure provided to the consumer pursuant to <ref href="/us/cfr/t12/s226.9/c/2/v/D">§ 226.9(c)(2)(v)(D)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) must set forth</p>
<p style="-uslm-sgm:P">i. The annual percentage rate that will apply to balances subject to the workout or temporary hardship arrangement;</p>
<p style="-uslm-sgm:P">ii. The annual percentage rate that will apply to such balances if the consumer completes or fails to comply with the terms of, the workout or temporary hardship arrangement;</p>
<p style="-uslm-sgm:P">iii. Any reduced fee or charge of a type required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), (b)(2)(viii), (b)(2)(ix), (b)(2)(xi), or (b)(2)(xii) that will apply to balances subject to the workout or temporary hardship arrangement, as well as the fee or charge that will apply if the consumer completes or fails to comply with the terms of the workout or temporary hardship arrangement;</p>
<p style="-uslm-sgm:P">iv. Any reduced minimum periodic payment that will apply to balances subject to the workout or temporary hardship arrangement, as well as the minimum periodic payment that will apply if the consumer completes or fails to comply with the terms of the workout or temporary hardship arrangement; and</p>
<p style="-uslm-sgm:P">v. If applicable, that the consumer must make timely minimum payments in order to remain eligible for the workout or temporary hardship arrangement.</p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Index not under creditor's control. See</inline> comment 55(b)(2)–2 for guidance on when an index is deemed to be under a creditor's control.</p>
<p style="-uslm-sgm:P">13. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary rates—relationship to <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.59 requires a card issuer to review rate increases imposed due to the revocation of a temporary rate. In some circumstances, <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> may require an issuer to reinstate a reduced temporary rate based on that review. If, based on a review required by <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>, a creditor reinstates a temporary rate that had been revoked, the card issuer is not required to provide an additional notice to the consumer when the reinstated temporary rate expires, if the card issuer provided the disclosures required by <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> prior to the original commencement of the temporary rate. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and the associated commentary for guidance on the permissibility and applicability of rate increases.
<?page num="612"?></p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A consumer opens a new credit card account under an open-end (not home-secured) consumer credit plan on <date date="2011-01-01">January 1, 2011</date>. The annual percentage rate applicable to purchases is 18%. The card issuer offers the consumer a 15% rate on purchases made between <date date="2012-01-01">January 1, 2012</date> and <date date="2014-01-01">January 1, 2014</date>. Prior to <date date="2012-01-01">January 1, 2012</date>, the card issuer discloses, in accordance with <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>, that the rate on purchases made during that period will increase to the standard 18% rate on <date date="2014-01-01">January 1, 2014</date>. In March 2012, the consumer makes a payment that is ten days late. The card issuer, upon providing 45 days' advance notice of the change under <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref>, increases the rate on new purchases to 18% effective as of <date date="2012-06-01">June 1, 2012</date>. On <date date="2012-12-01">December 1, 2012</date>, the issuer performs a review of the consumer's account in accordance with <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>. Based on that review, the card issuer is required to reduce the rate to the original 15% temporary rate as of <date date="2013-01-15">January 15, 2013</date>. On <date date="2014-01-01">January 1, 2014</date>, the card issuer may increase the rate on purchases to 18%, as previously disclosed prior to <date date="2012-01-01">January 1, 2012</date>, without providing an additional notice to the consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(d) Finance charge imposed at time of transaction.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure prior to imposition.</inline> A person imposing a finance charge at the time of honoring a consumer's credit card must disclose the amount of the charge, or an explanation of how the charge will be determined, prior to its imposition. This must be disclosed before the consumer becomes obligated for property or services that may be paid for by use of a credit card. For example, disclosure must be given before the consumer has dinner at a restaurant, stays overnight at a hotel, or makes a deposit guaranteeing the purchase of property or services.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(e) Disclosures upon renewal of credit or charge card.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This paragraph applies to credit and charge card accounts of the type subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.5a/a/5">§ 226.5a(a)(5)</ref> and the accompanying commentary for discussion of the types of accounts subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>.) The disclosure requirements are triggered when a card issuer imposes any annual or other periodic fee on such an account or if the card issuer has changed or amended any term of a cardholder's account required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2) that has not previously been disclosed to the consumer, whether or not the card issuer originally was required to provide the application and solicitation disclosures described in <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form.</inline> The disclosures under this paragraph must be clear and conspicuous, but need not appear in a tabular format or in a prominent location. The disclosures need not be in a form the cardholder can retain.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terms at renewal.</inline> Renewal notices must reflect the terms actually in effect at the time of renewal. For example, a card issuer that offers a preferential annual percentage rate to employees during their employment must send a renewal notice to employees disclosing the lower rate actually charged to employees (although the card issuer also may show the rate charged to the general public).</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable rate.</inline> If the card issuer cannot determine the rate that will be in effect if the cardholder chooses to renew a variable-rate account, the card issuer may disclose the rate in effect at the time of mailing or delivery of the renewal notice. Alternatively, the card issuer may use the rate as of a specified date within the last 30 days before the disclosure is provided.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Renewals more frequent than annual.</inline> If a renewal fee is billed more often than annually, the renewal notice should be provided each time the fee is billed. In this instance, the fee need not be disclosed as an annualized amount. Alternatively, the card issuer may provide the notice no less than once every 12 months if the notice explains the amount and frequency of the fee that will be billed during the time period covered by the disclosure, and also discloses the fee as an annualized amount. The notice under this alternative also must state the consequences of a cardholder's decision to terminate the account after the renewal-notice period has expired. For example, if a $2 fee is billed monthly but the notice is given annually, the notice must inform the cardholder that the monthly charge is $2, the annualized fee is $24, and $2 will be billed to the account each month for the coming year unless the cardholder notifies the card issuer. If the cardholder is obligated to pay an amount equal to the remaining unpaid monthly charges if the cardholder terminates the account during the coming year but after the first month, the notice must disclose the fact.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminating credit availability.</inline> Card issuers have some flexibility in determining the procedures for how and when an account may be terminated. However, the card issuer must clearly disclose the time by which the cardholder must act to terminate the account to avoid paying a renewal fee, if applicable. State and other applicable law govern whether the card issuer may impose requirements such as specifying that the cardholder's response be in writing or that the outstanding balance be repaid in full upon termination.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of termination by cardholder.</inline> When a card issuer provides notice under <ref href="/us/cfr/t12/s226.9/e/1">§ 226.9(e)(1)</ref>, a cardholder must be given at least 30 days or one billing cycle, whichever is less, from the date the notice is mailed or delivered to make a decision whether to terminate an account.
<?page num="613"?></p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of notices.</inline> A renewal notice is deemed to be provided when mailed or delivered. Similarly, notice of termination is deemed to be given when mailed or delivered.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prompt reversal of renewal fee upon termination.</inline> In a situation where a cardholder has provided timely notice of termination and a renewal fee has been billed to a cardholder's account, the card issuer must reverse or otherwise withdraw the fee promptly. Once a cardholder has terminated an account, no additional action by the cardholder may be required.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of changes in terms required to be disclosed pursuant to <ref href="/us/cfr/t12/s226.6/b/1">§ 226.6(b)(1)</ref> and (b)(2).</inline> Clear and conspicuous disclosure of a changed term on a periodic statement provided to a consumer prior to renewal of the consumer's account constitutes prior disclosure of that term for purposes of <ref href="/us/cfr/t12/s226.9/e/1">§ 226.9(e)(1)</ref>. Card issuers should refer to <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> for additional timing, content, and formatting requirements that apply to certain changes in terms under that paragraph.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(e)(2) Notification on periodic statements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combined disclosures.</inline> If a single disclosure is used to comply with both <ref href="/us/cfr/t12/s226.9/e">§§ 226.9(e)</ref> and 226.7, the periodic statement must comply with the rules in <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> and 226.7. For example, a description substantially similar to the heading describing the grace period required by <ref href="/us/cfr/t12/s226.5a/b/5">§ 226.5a(b)(5)</ref> must be used and the name of the balance-calculation method must be identified (if listed in <ref href="/us/cfr/t12/s226.5a/g">§ 226.5a(g)</ref>) to comply with the requirements of <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>. A card issuer may include some of the renewal disclosures on a periodic statement and others on a separate document so long as there is some reference indicating that the disclosures relate to one another. All renewal disclosures must be provided to a cardholder at the same time.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preprinted notices on periodic statements.</inline> A card issuer may preprint the required information on its periodic statements. A card issuer that does so, however, must make clear on the periodic statement when the preprinted renewal disclosures are applicable. For example, the card issuer could include a special notice (not preprinted) at the appropriate time that the renewal fee will be billed in the following billing cycle, or could show the renewal date as a regular (preprinted) entry on all periodic statements.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(f) Change in credit card account insurance provider.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This paragraph applies to credit card accounts of the type subject to <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> if credit insurance (typically life, disability, and unemployment insurance) is offered on the outstanding balance of such an account. (Credit card accounts subject to <ref href="/us/cfr/t12/s226.9/f">§ 226.9(f)</ref> are the same as those subject to <ref href="/us/cfr/t12/s226.9/e">§ 226.9(e)</ref>; <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> comment 9(e)–1.) Charge card accounts are not covered by this paragraph. In addition, the disclosure requirements of this paragraph apply only where the card issuer initiates the change in insurance provider. For example, if the card issuer's current insurance provider is merged into or acquired by another company, these disclosures would not be required. Disclosures also need not be given in cases where card issuers pay for credit insurance themselves and do not separately charge the cardholder.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No increase in rate or decrease in coverage.</inline> The requirement to provide the disclosure arises when the card issuer changes the provider of insurance, even if there will be no increase in the premium rate charged to the consumer and no decrease in coverage under the insurance policy.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of notice.</inline> If a substantial decrease in coverage will result from the change in provider, the card issuer either must explain the decrease or refer to an accompanying copy of the policy or group certificate for details of the new terms of coverage. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to appendix G–13 to part 226.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discontinuation of insurance.</inline> In addition to stating that the cardholder may cancel the insurance, the card issuer may explain the effect the cancellation would have on the consumer's credit card plan.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mailing by third party.</inline> Although the card issuer is responsible for the disclosures, the insurance provider or another third party may furnish the disclosures on the card issuer's behalf.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(f)(3) Substantial decrease in coverage.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determination.</inline> Whether a substantial decrease in coverage will result from the change in provider is determined by the two-part test in <ref href="/us/cfr/t12/s226.9/f/3">§ 226.9(f)(3)</ref>: First, whether the decrease is in a significant term of coverage; and second, whether the decrease might reasonably be expected to affect a cardholder's decision to continue the insurance. If both conditions are met, the decrease must be disclosed in the notice.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(g) Increase in rates due to delinquency or default or as a penalty.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship between <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and (g) and <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>—examples.</inline> Card issuers subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> are prohibited from increasing the annual percentage rate for a category of transactions on any consumer credit card account unless specifically permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. See comments 55(a)–1 and 55(b)–3 and the commentary to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> for examples that illustrate the relationship between the notice requirements of <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and (g) and <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affected consumers.</inline> If a single credit account involves multiple consumers that may be affected by the change, the creditor should refer to <ref href="/us/cfr/t12/s226.5/d">§ 226.5(d)</ref> to determine the number of notices that must be given.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combining a notice described in <ref href="/us/cfr/t12/s226.9/g/3">§ 226.9(g)(3)</ref> with a notice described in <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref>.</inline> If a <?page num="614"?>creditor is required to provide notices pursuant to both <ref href="/us/cfr/t12/s226.9/c/2/iv">§ 226.9(c)(2)(iv)</ref> and (g)(3) to a consumer, the creditor may combine the two notices. This would occur when penalty pricing has been triggered, and other terms are changing on the consumer's account at the same time.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content.</inline> Sample G–22 contains an example of how to comply with the requirements in <ref href="/us/cfr/t12/s226.9/g/3/i">§ 226.9(g)(3)(i)</ref> when the rate on a consumer's credit card account is being increased to a penalty rate as described in <ref href="/us/cfr/t12/s226.9/g/1/ii">§ 226.9(g)(1)(ii)</ref>, based on a late payment that is not more than 60 days late. Sample G–23 contains an example of how to comply with the requirements in <ref href="/us/cfr/t12/s226.9/g/3/i">§ 226.9(g)(3)(i)</ref> when the rate increase is triggered by a delinquency of more than 60 days.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard.</inline> See comment 5(a)(1)–1 for the clear and conspicuous standard applicable to disclosures required under <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref>.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terminology.</inline> See <ref href="/us/cfr/t12/s226.5/a/2">§ 226.5(a)(2)</ref> for terminology requirements applicable to disclosures required under <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref>.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasons for increase.</inline> See comment 9(c)(2)(iv)–11 for guidance on disclosure of the reasons for a rate increase for a credit card account under an open-end (not home-secured) consumer credit plan.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(g)(4) Exception for decrease in credit limit.</inline>
</p>
<p style="-uslm-sgm:P">1. The following illustrates the requirements of <ref href="/us/cfr/t12/s226.9/g/4">§ 226.9(g)(4)</ref>. Assume that a creditor decreased the credit limit applicable to a consumer's account and sent a notice pursuant to <ref href="/us/cfr/t12/s226.9/g/4">§ 226.9(g)(4)</ref> on January 1, stating among other things that the penalty rate would apply if the consumer's balance exceeded the new credit limit as of February 16. If the consumer's balance exceeded the credit limit on February 16, the creditor could impose the penalty rate on that date. However, a creditor could not apply the penalty rate if the consumer's balance did not exceed the new credit limit on February 16, even if the consumer's balance had exceeded the new credit limit on several dates between January 1 and February 15. If the consumer's balance did not exceed the new credit limit on February 16 but the consumer conducted a transaction on February 17 that caused the balance to exceed the new credit limit, the general rule in <ref href="/us/cfr/t12/s226.9/g/1/ii">§ 226.9(g)(1)(ii)</ref> would apply and the creditor would be required to give an additional 45 days' notice prior to imposition of the penalty rate (but under these circumstances the consumer would have no ability to cure the over-the-limit balance in order to avoid penalty pricing).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(h) Consumer rejection of certain significant changes in terms.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Circumstances in which <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref> does not apply.</inline> Section 226.9(h) applies when <ref href="/us/cfr/t12/s226.9/c/2/iv/B">§ 226.9(c)(2)(iv)(B)</ref> requires disclosure of the consumer's right to reject a significant change to an account term. Thus, for example, <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref> does not apply to changes to the terms of home equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> that are accessible by a credit or charge card because <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> does not apply to such plans. Similarly, <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref> does not apply in the following circumstances because <ref href="/us/cfr/t12/s226.9/c/2/iv/B">§ 226.9(c)(2)(iv)(B)</ref> does not require disclosure of the right to reject in those circumstances: (i) An increase in the required minimum periodic payment; (ii) a change in an annual percentage rate applicable to a consumer's account (such as changing the margin or index for calculating a variable rate, changing from a variable rate to a non-variable rate, or changing from a non-variable rate to a variable rate); (iii) a change in the balance computation method necessary to comply with <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>; and (iv) when the change results from the creditor not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(h)(1) Right to reject.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable requirements for submission of rejections.</inline> A creditor may establish reasonable requirements for the submission of rejections pursuant to <ref href="/us/cfr/t12/s226.9/h/1">§ 226.9(h)(1)</ref>. For example:</p>
<p style="-uslm-sgm:P">i. It would be reasonable for a creditor to require that rejections be made by the primary account holder and that the consumer identify the account number.</p>
<p style="-uslm-sgm:P">ii. It would be reasonable for a creditor to require that rejections be made only using the toll-free telephone number disclosed pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>. It would also be reasonable for a creditor to designate additional channels for the submission of rejections (such as an address for rejections submitted by mail) so long as the creditor does not require that rejections be submitted through such additional channels.</p>
<p style="-uslm-sgm:P">iii. It would be reasonable for a creditor to require that rejections be received before the effective date disclosed pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and to treat the account as not subject to <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref> if a rejection is received on or after that date. It would not, however, be reasonable to require that rejections be submitted earlier than the day before the effective date. If a creditor is unable to process all rejections received before the effective date, the creditor may delay implementation of the change in terms until all rejections have been processed. In the alternative, the creditor could implement the change on the effective date and then, on any account for which a timely rejection was received, reverse the change and remove or credit any interest charges or fees imposed as a result of the change. For example, if the effective date for a change in terms is June 15 and the creditor cannot process all rejections received by telephone on June 14 until June 16, the creditor may delay imposition of the change until June 17. Alternatively, the <?page num="615"?>creditor could implement the change for all affected accounts on June 15 and then, once all rejections have been processed, return any account for which a timely rejection was received to the prior terms and ensure that the account is not assessed any additional interest or fees as a result of the change or that the account is credited for such interest or fees.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of account following provision of notice.</inline> A consumer does not waive or forfeit the right to reject a significant change in terms by using the account for transactions prior to the effective date of the change. Similarly, a consumer does not revoke a rejection by using the account for transactions after the rejection is received.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(h)(2)(ii) Prohibition on penalties.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Termination or suspension of credit availability.</inline> Section 226.9(h)(2)(ii) does not prohibit a creditor from terminating or suspending credit availability as a result of the consumer's rejection of a significant change in terms.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Solely as a result of rejection.</inline> A creditor is prohibited from imposing a fee or charge or treating an account as in default solely as a result of the consumer's rejection of a significant change in terms. For example, if credit availability is terminated or suspended as a result of the consumer's rejection of a significant change in terms, a creditor is prohibited from imposing a periodic fee that was not charged before the consumer rejected the change (such as a closed account fee). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> also comment 55(d)–1. However, regardless of whether credit availability is terminated or suspended as a result of the consumer's rejection, a creditor is not prohibited from continuing to charge a periodic fee that was charged before the rejection. Similarly, a creditor that charged a fee for late payment before a change was rejected is not prohibited from charging that fee after rejection of the change.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(h)(2)(iii) Repayment of outstanding balance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relevant date for repayment methods.</inline> Once a consumer has rejected a significant change in terms, <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref> prohibits the creditor from requiring repayment of the balance on the account using a method that is less beneficial to the consumer than one of the methods listed in <ref href="/us/cfr/t12/s226.55/c/2">§ 226.55(c)(2)</ref>. When applying the methods listed in <ref href="/us/cfr/t12/s226.55/c/2">§ 226.55(c)(2)</ref> pursuant to <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref>, a creditor may utilize the date on which the creditor was notified of the rejection or a later date (such as the date on which the change would have gone into effect but for the rejection). For example, assume that on April 16 a creditor provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the monthly maintenance fee for the account will increase effective June 1. The notice also states that the consumer may reject the increase by calling a specified toll-free telephone number before June 1 but that, if the consumer does so, credit availability for the account will be terminated. On May 5, the consumer calls the toll-free number and exercises the right to reject. If the creditor chooses to establish a five-year amortization period for the balance on the account consistent with <ref href="/us/cfr/t12/s226.55/c/2/ii">§ 226.55(c)(2)(ii)</ref>, that period may begin no earlier than the date on which the creditor was notified of the rejection (May 5). However, the creditor may also begin the amortization period on the date on which the change would have gone into effect but for the rejection (June 1).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balance on the account.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> When applying the methods listed in <ref href="/us/cfr/t12/s226.55/c/2">§ 226.55(c)(2)</ref> pursuant to <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref>, the provisions in <ref href="/us/cfr/t12/s226.55/c/2">§ 226.55(c)(2)</ref> and the guidance in the commentary to <ref href="/us/cfr/t12/s226.55/c/2">§ 226.55(c)(2)</ref> regarding protected balances also apply to a balance on the account subject to <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref>. If a creditor terminates or suspends credit availability based on a consumer's rejection of a significant change in terms, the balance on the account that is subject to <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref> is the balance at the end of the day on which credit availability is terminated or suspended. However, if a creditor does not terminate or suspend credit availability based on the consumer's rejection, the balance on the account subject to <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref> is the balance at the end of the day on which the creditor was notified of the rejection or, at the creditor's option, a later date.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Assume that on June 16 a creditor provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the annual fee for the account will increase effective August 1. The notice also states that the consumer may reject the increase by calling a specified toll-free telephone number before August 1 but that, if the consumer does so, credit availability for the account will be terminated. On July 20, the account has a purchase balance of $1,000 and the consumer calls the toll-free number and exercises the right to reject. On July 22, a $200 purchase is charged to the account. If the creditor terminates credit availability on July 25 as a result of the rejection, the balance subject to the repayment limitations in <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref> is the $1,200 purchase balance at the end of the day on July 25. However, if the creditor does not terminate credit availability as a result of the rejection, the balance subject to the repayment limitations in <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref> is the $1,000 purchase balance at the end of the day on the date the creditor was notified of the rejection (July 20), although the creditor may, at its option, treat the $200 purchase as part of the balance subject to <ref href="/us/cfr/t12/s226.9/h/2/iii">§ 226.9(h)(2)(iii)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">9(h)(3) Exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> Section 226.9(h)(3) provides that <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref> does not apply when the creditor has not received the consumer's required minimum periodic payment within 60 days <?page num="616"?>after the due date for that payment. The following examples illustrate the application of this exception:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account becomes more than 60 days delinquent before notice provided.</inline> Assume that a credit card account is opened on January 1 of year one and that the payment due date for the account is the fifteenth day of the month. On June 20 of year two, the creditor has not received the required minimum periodic payments due on April 15, May 15, and June 15. On June 20, the creditor provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that a monthly maintenance fee of $10 will be charged beginning on August 4. However, <ref href="/us/cfr/t12/s226.9/c/2/iv/B">§ 226.9(c)(2)(iv)(B)</ref> does not require the creditor to notify the consumer of the right to reject because the creditor has not received the April 15 minimum payment within 60 days after the due date. Furthermore, the exception in <ref href="/us/cfr/t12/s226.9/h/3">§ 226.9(h)(3)</ref> applies and the consumer may not reject the fee.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account becomes more than 60 days delinquent after rejection.</inline> Assume that a credit card account is opened on January 1 of year one and that the payment due date for the account is the fifteenth day of the month. On April 20 of year two, the creditor has not received the required minimum periodic payment due on April 15. On April 20, the creditor provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that an annual fee of $100 will be charged beginning on June 4. The notice further states that the consumer may reject the fee by calling a specified toll-free telephone number before June 4 but that, if the consumer does so, credit availability for the account will be terminated. On May 5, the consumer calls the toll-free telephone number and rejects the fee. Section 226.9(h)(2)(i) prohibits the creditor from charging the $100 fee to the account. If, however, the creditor does not receive the minimum payments due on April 15 and May 15 by June 15, <ref href="/us/cfr/t12/s226.9/h/3">§ 226.9(h)(3)</ref> permits the creditor to charge the $100 fee. The creditor must provide a second notice of the fee pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, but <ref href="/us/cfr/t12/s226.9/c/2/iv/B">§ 226.9(c)(2)(iv)(B)</ref> does not require the creditor to disclose the right to reject and <ref href="/us/cfr/t12/s226.9/h/3">§ 226.9(h)(3)</ref> does not allow the consumer to reject the fee. Similarly, the restrictions in <ref href="/us/cfr/t12/s226.9/h/2/ii">§ 226.9(h)(2)(ii)</ref> and (iii) no longer apply.</p>
<heading style="-uslm-sgm:HD2">Section 226.10—Payments</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">10(a) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Crediting date.</inline> Section 226.10(a) does not require the creditor to post the payment to the consumer's account on a particular date; the creditor is only required to credit the payment <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">as of</inline> the date of receipt.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date of receipt.</inline> The “date of receipt” is the date that the payment instrument or other means of completing the payment reaches the creditor. For example:</p>
<p style="-uslm-sgm:P">i. Payment by check is received when the creditor gets it, not when the funds are collected.</p>
<p style="-uslm-sgm:P">ii. In a payroll deduction plan in which funds are deposited to an asset account held by the creditor, and from which payments are made periodically to an open-end credit account, payment is received on the date when it is debited to the asset account (rather than on the date of the deposit), provided the payroll deduction method is voluntary and the consumer retains use of the funds until the contractual payment date.</p>
<p style="-uslm-sgm:P">iii. If the consumer elects to have payment made by a third party payor such as a financial institution, through a preauthorized payment or telephone bill-payment arrangement, payment is received when the creditor gets the third party payor's check or other transfer medium, such as an electronic fund transfer, as long as the payment meets the creditor's requirements as specified under <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>.</p>
<p style="-uslm-sgm:P">iv. Payment made via the creditor's Web site is received on the date on which the consumer authorizes the creditor to effect the payment, even if the consumer gives the instruction authorizing that payment in advance of the date on which the creditor is authorized to effect the payment. If the consumer authorizes the creditor to effect the payment immediately, but the consumer's instruction is received after 5 p.m. or any later cut-off time specified by the creditor, the date on which the consumer authorizes the creditor to effect the payment is deemed to be the next business day.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">10(b) Specific requirements for payments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment by electronic fund transfer.</inline> A creditor may be prohibited from specifying payment by preauthorized electronic fund transfer. (See section 913 of the Electronic Fund Transfer Act.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment methods promoted by creditor.</inline> If a creditor promotes a specific payment method, any payments made via that method (prior to any cut-off time specified by the creditor, to the extent permitted by <ref href="/us/cfr/t12/s226.10/b/2">§ 226.10(b)(2)</ref>) are generally conforming payments for purposes of <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>. For example</p>
<p style="-uslm-sgm:P">i. If a creditor promotes electronic payment via its Web site (such as by disclosing on the Web site itself that payments may be made via the Web site), any payments made via the creditor's Web site prior to the creditor's specified cut-off time, if any, would generally be conforming payments for purposes of <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>.</p>
<p style="-uslm-sgm:P">ii. If a creditor promotes payment by telephone (for example, by including the option to pay by telephone in a menu of options provided to consumers at a toll-free number disclosed on its periodic statement), payments made by telephone would generally be conforming payments for purposes of <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>.
<?page num="617"?></p>
<p style="-uslm-sgm:P">iii. If a creditor promotes in-person payments, for example by stating in an advertisement that payments may be made in person at its branch locations, such in-person payments made at a branch or office of the creditor generally would be conforming payments for purposes of <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>.</p>
<p style="-uslm-sgm:P">iv. If a creditor promotes that payments may be made through an unaffiliated third party, such as by disclosing the Web site address of that third party on the periodic statement, payments made via that third party's Web site generally would be conforming payments for purposes of <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>. In contrast, if a customer service representative of the creditor confirms to a consumer that payments may be made via an unaffiliated third party, but the creditor does not otherwise promote that method of payment, <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref> permits the creditor to treat payments made via such third party as nonconforming payments in accordance with <ref href="/us/cfr/t12/s226.10/b/4">§ 226.10(b)(4)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acceptance of nonconforming payments.</inline> If the creditor accepts a nonconforming payment (for example, payment mailed to a branch office, when the creditor had specified that payment be sent to a different location), finance charges may accrue for the period between receipt and crediting of payments.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Implied guidelines for payments.</inline> In the absence of specified requirements for making payments (see <ref href="/us/cfr/t12/s226.10/b">§ 226.10(b)</ref>):</p>
<p style="-uslm-sgm:P">i. Payments may be made at any location where the creditor conducts business.</p>
<p style="-uslm-sgm:P">ii. Payments may be made any time during the creditor's normal business hours.</p>
<p style="-uslm-sgm:P">iii. Payment may be by cash, money order, draft, or other similar instrument in properly negotiable form, or by electronic fund transfer if the creditor and consumer have so agreed.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payments made at point of sale.</inline> If a card issuer that is a financial institution issues a credit card under an open-end (not home-secured) consumer credit plan that can be used only for transactions with a particular merchant or merchants or a credit card that is cobranded with the name of a particular merchant or merchants, and a consumer is able to make a payment on that credit card account at a retail location maintained by such a merchant, that retail location is not considered to be a branch or office of the card issuer for purposes of <ref href="/us/cfr/t12/s226.10/b/3">§ 226.10(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In-person payments on credit card accounts.</inline> For purposes of <ref href="/us/cfr/t12/s226.10/b/3">§ 226.10(b)(3)</ref>, payments made in person at a branch or office of a financial institution include payments made with the direct assistance of, or to, a branch or office employee, for example a teller at a bank branch. A payment made at the bank branch without the direct assistance of a branch or office employee, for example a payment placed in a branch or office mail slot, is not a payment made in person for purposes of <ref href="/us/cfr/t12/s226.10/b/3">§ 226.10(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In-person payments at affiliate of card issuer.</inline> If an affiliate of a card issuer that is a financial institution shares a name with the card issuer, such as “ABC,” and accepts in-person payments on the card issuer's credit card accounts, those payments are subject to the requirements of <ref href="/us/cfr/t12/s226.10/b/3">§ 226.10(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">10(d) Crediting of payments when creditor does not receive or accept payments on due date.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A day on which the creditor does not receive or accept payments by mail may occur, for example, if the U.S. Postal Service does not deliver mail on that date.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Treating a payment as late for any purpose.</inline> See comment 5(b)(2)(ii)–2 for guidance on treating a payment as late for any purpose. When an account is not eligible for a grace period, imposing a finance charge due to a periodic interest rate does not constitute treating a payment as late.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">10(e) Limitations on fees related to method of payment.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Separate fee to allow consumers to make a payment.</inline> For purposes of <ref href="/us/cfr/t12/s226.10/e">§ 226.10(e)</ref>, the term “separate fee” means a fee imposed on a consumer for making a payment to the consumer's account. A fee or other charge imposed if payment is made after the due date, such as a late fee or finance charge, is not a separate fee to allow consumers to make a payment for purposes of <ref href="/us/cfr/t12/s226.10/e">§ 226.10(e)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Expedited.</inline> For purposes of <ref href="/us/cfr/t12/s226.10/e">§ 226.10(e)</ref>, the term “expedited” means crediting a payment the same day or, if the payment is received after any cut-off time established by the creditor, the next business day.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Service by a customer service representative.</inline> Service by a customer service representative of a creditor means any payment made to the consumer's account with the assistance of a live representative or agent of the creditor, including those made in person, on the telephone, or by electronic means. A customer service representative does not include automated means of making payment that do not involve a live representative or agent of the creditor, such as a voice response unit or interactive voice response system. Service by a customer service representative includes any payment transaction which involves the assistance of a live representative or agent of the creditor, even if an automated system is required for a portion of the transaction.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor.</inline> For purposes of <ref href="/us/cfr/t12/s226.10/e">§ 226.10(e)</ref>, the term “creditor” includes a third party that collects, receives, or processes payments on behalf of a creditor. For example</p>
<p style="-uslm-sgm:P">i. Assume that a creditor uses a service provider to receive, collect, or process on the creditor's behalf payments made through the creditor's Web site or made through an automated telephone payment service. In these circumstances, the service provider would be <?page num="618"?>considered a creditor for purposes of paragraph (e).</p>
<p style="-uslm-sgm:P">ii. Assume that a consumer pays a fee to a money transfer or payment service in order to transmit a payment to the creditor on the consumer's behalf. In these circumstances, the money transfer or payment service would not be considered a creditor for purposes of paragraph (e).</p>
<p style="-uslm-sgm:P">iii. Assume that a consumer has a checking account at a depository institution. The consumer makes a payment to the creditor from the checking account using a bill payment service provided by the depository institution. In these circumstances, the depository institution would not be considered a creditor for purposes of paragraph (e).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">10(f) Changes by card issuer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Address for receiving payment.</inline> For purposes of <ref href="/us/cfr/t12/s226.10/f">§ 226.10(f)</ref>, “address for receiving payment” means a mailing address for receiving payment, such as a post office box, or the address of a branch or office at which payments on credit card accounts are accepted.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Materiality.</inline> For purposes of <ref href="/us/cfr/t12/s226.10/f">§ 226.10(f)</ref>, a “material change” means any change in the address for receiving payment or procedures for handling cardholder payments which causes a material delay in the crediting of a payment. “Material delay” means any delay in crediting payment to a consumer's account which would result in a late payment and the imposition of a late fee or finance charge. A delay in crediting a payment which does not result in a late fee or finance charge would be immaterial.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbor.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A card issuer may elect not to impose a late fee or finance charge on a consumer's account for the 60-day period following a change in address for receiving payment or procedures for handling cardholder payments which could reasonably be expected to cause a material delay in crediting of a payment to the consumer's account. For purposes of <ref href="/us/cfr/t12/s226.10/f">§ 226.10(f)</ref>, a late fee or finance charge is not imposed if the fee or charge is waived or removed, or an amount equal to the fee or charge is credited to the account.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Retail location.</inline> For a material change in the address of a retail location or procedures for handling cardholder payments at a retail location, a card issuer may impose a late fee or finance charge on a consumer's account for a late payment during the 60-day period following the date on which the change took effect. However, if a card issuer is notified by a consumer no later than 60 days after the card issuer transmitted the first periodic statement that reflects the late fee or finance charge for a late payment that the late payment was caused by such change, the card issuer must waive or remove any late fee or finance charge, or credit an amount equal to any late fee or finance charge, imposed on the account during the 60-day period following the date on which the change took effect.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">i. A card issuer changes the mailing address for receiving payments by mail from a five-digit postal zip code to a nine-digit postal zip code. A consumer mails a payment using the five-digit postal zip code. The change in mailing address is immaterial and it does not cause a delay. Therefore, a card issuer may impose a late fee or finance charge for a late payment on the account.</p>
<p style="-uslm-sgm:P">ii. A card issuer changes the mailing address for receiving payments by mail from one post office box number to another post office box number. For a 60-day period following the change, the card issuer continues to use both post office box numbers for the collection of payments received by mail. The change in mailing address would not cause a material delay in crediting a payment because payments would be received and credited at both addresses. Therefore, a card issuer may impose a late fee or finance charge for a late payment on the account during the 60-day period following the date on which the change took effect.</p>
<p style="-uslm-sgm:P">iii. Same facts as paragraph ii. above, except the prior post office box number is no longer valid and mail sent to that address during the 60-day period following the change would be returned to sender. The change in mailing address is material and the change could cause a material delay in the crediting of a payment because a payment sent to the old address could be delayed past the due date. If, as a result, a consumer makes a late payment on the account during the 60-day period following the date on which the change took effect, a card issuer may not impose any late fee or finance charge for the late payment.</p>
<p style="-uslm-sgm:P">iv. A card issuer permanently closes a local branch office at which payments are accepted on credit card accounts. The permanent closing of the local branch office is a material change in address for receiving payment. Relying on the safe harbor, the card issuer elects not to impose a late fee or finance charge for the 60-day period following the local branch closing for late payments on consumer accounts which the issuer reasonably determines are associated with the local branch and which could reasonably be expected to have been caused by the branch closing.</p>
<p style="-uslm-sgm:P">v. A consumer has elected to make payments automatically to a credit card account, such as through a payroll deduction plan or a third party payor's preauthorized payment arrangement. A card issuer changes the procedures for handling such payments and as a result, a payment is delayed and not credited to the consumer's account before the due date. In these circumstances, a card <?page num="619"?>issuer may not impose any late fee or finance charge during the 60-day period following the date on which the change took effect for a late payment on the account.</p>
<p style="-uslm-sgm:P">vi. A card issuer no longer accepts payments in person at a retail location as a conforming method of payment, which is a material change in the procedures for handling cardholder payment. In the 60-day period following the date on which the change took effect, a consumer attempts to make a payment in person at a retail location of a card issuer. As a result, the consumer makes a late payment and the issuer charges a late fee on the consumer's account. The consumer notifies the card issuer of the late fee for the late payment which was caused by the material change. In order to comply with <ref href="/us/cfr/t12/s226.10/f">§ 226.10(f)</ref>, the card issuer must waive or remove the late fee or finance charge, or credit the consumer's account in an amount equal to the late fee or finance charge.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance charge due to periodic interest rate.</inline> When an account is not eligible for a grace period, imposing a finance charge due to a periodic interest rate does not constitute imposition of a finance charge for a late payment for purposes of <ref href="/us/cfr/t12/s226.10/f">§ 226.10(f)</ref>.</p>
<heading style="-uslm-sgm:HD2">Section 226.11—Treatment of Credit Balances; Account Termination</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">11(a) Credit balances.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of refund.</inline> The creditor may also fulfill its obligations under <ref href="/us/cfr/t12/s226.11">§ 226.11</ref> by:</p>
<p style="-uslm-sgm:P">i. Refunding any credit balance to the consumer immediately.</p>
<p style="-uslm-sgm:P">ii. Refunding any credit balance prior to receiving a written request (under <ref href="/us/cfr/t12/s226.11/a/2">§ 226.11(a)(2)</ref>) from the consumer.</p>
<p style="-uslm-sgm:P">iii. Refunding any credit balance upon the consumer's oral or electronic request.</p>
<p style="-uslm-sgm:P">iv. Making a good faith effort to refund any credit balance before 6 months have passed. If that attempt is unsuccessful, the creditor need not try again to refund the credit balance at the end of the 6-month period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of refund.</inline> The phrases <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any part of the remaining credit balance</inline> in <ref href="/us/cfr/t12/s226.11/a/2">§ 226.11(a)(2)</ref> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any part of the credit balance remaining in the account</inline> in <ref href="/us/cfr/t12/s226.11/a/3">§ 226.11(a)(3)</ref> mean the amount of the credit balance at the time the creditor is required to make the refund. The creditor may take into consideration intervening purchases or other debits to the consumer's account (including those that have not yet been reflected on a periodic statement) that decrease or eliminate the credit balance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 11(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written requests</inline>—<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">standing orders.</inline> The creditor is not required to honor standing orders requesting refunds of any credit balance that may be created on the consumer's account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 11(a)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith effort to refund.</inline> The creditor must take positive steps to return any credit balance that has remained in the account for over 6 months. This includes, if necessary, attempts to trace the consumer through the consumer's last known address or telephone number, or both.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith effort unsuccessful.</inline> Section 226.11 imposes no further duties on the creditor if a good faith effort to return the balance is unsuccessful. The ultimate disposition of the credit balance (or any credit balance of $1 or less) is to be determined under other applicable law.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">11(b) Account termination.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 11(b)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Expiration date.</inline> The credit agreement determines whether or not an open-end plan has a stated expiration (maturity) date. Creditors that offer accounts with no stated expiration date are prohibited from terminating those accounts solely because a consumer does not incur a finance charge, even if credit cards or other access devices associated with the account expire after a stated period. Creditors may still terminate such accounts for inactivity consistent with <ref href="/us/cfr/t12/s226.11/b/2">§ 226.11(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">11(c) Timely settlement of estate debts</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Administrator of an estate.</inline> For purposes of <ref href="/us/cfr/t12/s226.11/c">§ 226.11(c)</ref>, the term “administrator” means an administrator, executor, or any personal representative of an estate who is authorized to act on behalf of the estate.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> The following are examples of reasonable procedures that satisfy this rule:</p>
<p style="-uslm-sgm:P">i. A card issuer may decline future transactions and terminate the account upon receiving reasonable notice of the consumer's death.</p>
<p style="-uslm-sgm:P">ii. A card issuer may credit the account for fees and charges imposed after the date of receiving reasonable notice of the consumer's death.</p>
<p style="-uslm-sgm:P">iii. A card issuer may waive the estate's liability for all charges made to the account after receiving reasonable notice of the consumer's death.</p>
<p style="-uslm-sgm:P">iv. A card issuer may authorize an agent to handle matters in accordance with the requirements of this rule.</p>
<p style="-uslm-sgm:P">v. A card issuer may require administrators of an estate to provide documentation indicating authority to act on behalf of the estate.</p>
<p style="-uslm-sgm:P">vi. A card issuer may establish or designate a department, business unit, or communication channel for administrators, such as a specific mailing address or toll-free number, to handle matters in accordance with the requirements of this rule.</p>
<p style="-uslm-sgm:P">vii. A card issuer may direct administrators, who call a general customer service toll-free number or who send correspondence by mail to an address for general correspondence, to an appropriate customer service representative, department, business unit, or communication channel to handle matters in <?page num="620"?>accordance with the requirements of this rule.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Request by an administrator of an estate.</inline> A card issuer may receive a request for the amount of the balance on a deceased consumer's account in writing or by telephone call from the administrator of an estate. If a request is made in writing, such as by mail, the request is received on the date the card issuer receives the correspondence.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timely statement of balance.</inline> A card issuer must disclose the balance on a deceased consumer's account, upon request by the administrator of the decedent's estate. A card issuer may provide the amount, if any, by a written statement or by telephone. This does not preclude a card issuer from providing the balance amount to appropriate persons, other than the administrator, such as the spouse or a relative of the decedent, who indicate that they may pay any balance. This provision does not relieve card issuers of the requirements to provide a periodic statement, under <ref href="/us/cfr/t12/s226.5/b/2">§ 226.5(b)(2)</ref>. A periodic statement, under <ref href="/us/cfr/t12/s226.5/b/2">§ 226.5(b)(2)</ref>, may satisfy the requirements of <ref href="/us/cfr/t12/s226.11/c/2">§ 226.11(c)(2)</ref>, if provided within 30 days of receiving a request by an administrator of the estate.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Imposition of fees and interest charges.</inline> Section 226.11(c)(3) does not prohibit a card issuer from imposing fees and finance charges due to a periodic interest rate based on balances for days that precede the date on which the card issuer receives a request pursuant to <ref href="/us/cfr/t12/s226.11/c/2">§ 226.11(c)(2)</ref>. For example, if the last day of the billing cycle is June 30 and the card issuer receives a request pursuant to <ref href="/us/cfr/t12/s226.11/c/2">§ 226.11(c)(2)</ref> on June 25, the card issuer may charge interest that accrued prior to June 25.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A card issuer receives a request from an administrator for the amount of the balance on a deceased consumer's account on March 1. The card issuer discloses to the administrator on March 25 that the balance is $1,000. If the card issuer receives payment in full of the $1,000 on April 24, the card issuer must waive or rebate any additional interest that accrued on the $1,000 balance between March 25 and April 24. If the card issuer receives a payment of $1,000 on April 25, the card issuer is not required to waive or rebate interest charges on the $1,000 balance in respect of the period between March 25 and April 25. If the card issuer receives a partial payment of $500 on April 24, the card issuer is not required to waive or rebate interest charges on the $1,000 balance in respect of the period between March 25 and April 25.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application to joint accounts.</inline> A card issuer may impose fees and charges on an account of a deceased consumer if a joint accountholder remains on the account. If only an authorized user remains on the account of a deceased consumer, however, then a card issuer may not impose fees and charges.</p>
<heading style="-uslm-sgm:HD2">Section 226.12—Special Credit Card Provisions</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope.</inline> Sections 226.12(a) and (b) deal with the issuance and liability rules for credit cards, whether the card is intended for consumer, business, or any other purposes. Sections 226.12(a) and (b) are exceptions to the general rule that the regulation applies only to consumer credit. (See <ref href="/us/cfr/t12/s226.1">§§ 226.1</ref> and 226.3.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition of “accepted credit card”.</inline> For purposes of this section, “accepted credit card” means any credit card that a cardholder has requested or applied for and received, or has signed, used, or authorized another person to use to obtain credit. Any credit card issued as a renewal or substitute in accordance with <ref href="/us/cfr/t12/s226.12/a">§ 226.12(a)</ref> becomes an accepted credit card when received by the cardholder.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(a) Issuance of credit cards.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(a)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Explicit request.</inline> A request or application for a card must be explicit. For example, a request for an overdraft plan tied to a checking account does not constitute an application for a credit card with overdraft checking features.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Addition of credit features.</inline> If the consumer has a non-credit card, the addition of credit features to the card (for example, the granting of overdraft privileges on a checking account when the consumer already has a check guarantee card) constitutes issuance of a credit card.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variance of card from request.</inline> The request or application need not correspond exactly to the card that is issued. For example:</p>
<p style="-uslm-sgm:P">i. The name of the card requested may be different when issued.</p>
<p style="-uslm-sgm:P">ii. The card may have features in addition to those reflected in the request or application.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible form of request.</inline> The request or application may be oral (in response to a telephone solicitation by a card issuer, for example) or written.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Time of issuance.</inline> A credit card may be issued in response to a request made before any cards are ready for issuance (for example, if a new program is established), even if there is some delay in issuance.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Persons to whom cards may be issued.</inline> A card issuer may issue a credit card to the person who requests it, and to anyone else for whom that person requests a card and who will be an authorized user on the requester's account. In other words, cards may be sent to consumer A on A's request, and also (on A's request) to consumers B and C, who will be authorized users on A's account. In these circumstances, the following rules apply:</p>
<p style="-uslm-sgm:P">i. The additional cards may be imprinted in either A's name or in the names of B and C.</p>
<p style="-uslm-sgm:P">ii. No liability for unauthorized use (by persons other than B and C), not even the <?page num="621"?>$50, may be imposed on B or C since they are merely users and not cardholders as that term is defined in <ref href="/us/cfr/t12/s226.2">§ 226.2</ref> and used in <ref href="/us/cfr/t12/s226.12/b">§ 226.12(b)</ref>; of course, liability of up to $50 for unauthorized use of B's and C's cards may be imposed on A.</p>
<p style="-uslm-sgm:P">iii. Whether B and C may be held liable for their own use, or on the account generally, is a matter of state or other applicable law.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Issuance of non-credit cards.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Under <ref href="/us/cfr/t12/s226.12/a/1">§ 226.12(a)(1)</ref>, a credit card cannot be issued except in response to a request or an application. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 2(a)(15)–2 for examples of cards or devices that are and are not credit cards.) A non-credit card may be sent on an unsolicited basis by an issuer that does not propose to connect the card to any credit plan; a credit feature may be added to a previously issued non-credit card only upon the consumer's specific request.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> A purchase-price discount card may be sent on an unsolicited basis by an issuer that does not propose to connect the card to any credit plan. An issuer demonstrates that it proposes to connect the card to a credit plan by, for example, including promotional materials about credit features or account agreements and disclosures required by <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>. The issuer will violate the rule against unsolicited issuance if, for example, at the time the card is sent a credit plan can be accessed by the card or the recipient of the unsolicited card has been preapproved for credit that the recipient can access by contacting the issuer and activating the card.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unsolicited issuance of PINs.</inline> A card issuer may issue personal identification numbers (PINs) to existing credit cardholders without a specific request from the cardholders, provided the PINs cannot be used alone to obtain credit. For example, the PINs may be necessary if consumers wish to use their existing credit cards at automated teller machines or at merchant locations with point of sale terminals that require PINs.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Renewal.</inline> Renewal generally contemplates the regular replacement of existing cards because of, for example, security reasons or new technology or systems. It also includes the re-issuance of cards that have been suspended temporarily, but does not include the opening of a new account after a previous account was closed.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution—examples.</inline> Substitution encompasses the replacement of one card with another because the underlying account relationship has changed in some way—such as when the card issuer has:</p>
<p style="-uslm-sgm:P">i. Changed its name.</p>
<p style="-uslm-sgm:P">ii. Changed the name of the card.</p>
<p style="-uslm-sgm:P">iii. Changed the credit or other features available on the account. For example, the original card could be used to make purchases and obtain cash advances at teller windows. The substitute card might be usable, in addition, for obtaining cash advances through automated teller machines. (If the substitute card constitutes an access device, as defined in Regulation E, then the Regulation E issuance rules would have to be followed.) The substitution of one card with another on an unsolicited basis is not permissible, however, where in conjunction with the substitution an additional credit card account is opened and the consumer is able to make new purchases or advances under both the original and the new account with the new card. For example, if a retail card issuer replaces its credit card with a combined retailer/bank card, each of the creditors maintains a separate account, and both accounts can be accessed for new transactions by use of the new credit card, the card cannot be provided to a consumer without solicitation.</p>
<p style="-uslm-sgm:P">iv. Substituted a card user's name on the substitute card for the cardholder's name appearing on the original card.</p>
<p style="-uslm-sgm:P">v. Changed the merchant base, provided that the new card is honored by at least one of the persons that honored the original card. However, unless the change in the merchant base is the addition of an affiliate of the existing merchant base, the substitution of a new card for another on an unsolicited basis is not permissible where the account is inactive. A credit card cannot be issued in these circumstances without a request or application. For purposes of <ref href="/us/cfr/t12/s226.12/a">§ 226.12(a)</ref>, an account is inactive if no credit has been extended and if the account has no outstanding balance for the prior 24 months. (See <ref href="/us/cfr/t12/s226.11/b/2">§ 226.11(b)(2)</ref>.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution—successor card issuer.</inline> Substitution also occurs when a successor card issuer replaces the original card issuer (for example, when a new card issuer purchases the accounts of the original issuer and issues its own card to replace the original one). A permissible substitution exists even if the original issuer retains the existing receivables and the new card issuer acquires the right only to future receivables, provided use of the original card is cut off when use of the new card becomes possible.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution—non-credit-card plan.</inline> A credit card that replaces a retailer's open-end credit plan not involving a credit card is not considered a substitute for the retailer's plan—even if the consumer used the retailer's plan. A credit card cannot be issued in these circumstances without a request or application.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">One-for-one rule.</inline> An accepted card may be replaced by no more than one renewal or substitute card. For example, the card issuer may not replace a credit card permitting purchases and cash advances with two cards, one for the purchases and another for the cash advances.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">One-for-one rule—exceptions.</inline> The regulation does not prohibit the card issuer from:
<?page num="622"?></p>
<p style="-uslm-sgm:P">i. Replacing a debit/credit card with a credit card and another card with only debit functions (or debit functions plus an associated overdraft capability), since the latter card could be issued on an unsolicited basis under Regulation E.</p>
<p style="-uslm-sgm:P">ii. Replacing an accepted card with more than one renewal or substitute card, provided that:</p>
<p style="-uslm-sgm:P">A. No replacement card accesses any account not accessed by the accepted card;</p>
<p style="-uslm-sgm:P">B. For terms and conditions required to be disclosed under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>, all replacement cards are issued subject to the same terms and conditions, except that a creditor may vary terms for which no change in terms notice is required under <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>; and</p>
<p style="-uslm-sgm:P">C. Under the account's terms the consumer's total liability for unauthorized use with respect to the account does not increase.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Methods of terminating replaced card.</inline> The card issuer need not physically retrieve the original card, provided the old card is voided in some way, for example:</p>
<p style="-uslm-sgm:P">i. The issuer includes with the new card a notification that the existing card is no longer valid and should be destroyed immediately.</p>
<p style="-uslm-sgm:P">ii. The original card contained an expiration date.</p>
<p style="-uslm-sgm:P">iii. The card issuer, in order to preclude use of the card, reprograms computers or issues instructions to authorization centers.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Incomplete replacement.</inline> If a consumer has duplicate credit cards on the same account (Card A—one type of bank credit card, for example), the card issuer may not replace the duplicate cards with one Card A and one Card B (Card B—another type of bank credit card) unless the consumer requests Card B.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple entities.</inline> Where multiple entities share responsibilities with respect to a credit card issued by one of them, the entity that issued the card may replace it on an unsolicited basis, if that entity terminates the original card by voiding it in some way, as described in comment 12(a)(2)–7. The other entity or entities may not issue a card on an unsolicited basis in these circumstances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(b) Liability of cardholder for unauthorized use.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Meaning of cardholder.</inline> For purposes of this provision, cardholder includes any person (including organizations) to whom a credit card is issued for any purpose, including business. When a corporation is the cardholder, required disclosures should be provided to the corporation (as opposed to an employee user).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Imposing liability.</inline> A card issuer is not required to impose liability on a cardholder for the unauthorized use of a credit card; if the card issuer does not seek to impose liability, the issuer need not conduct any investigation of the cardholder's claim.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable investigation.</inline> If a card issuer seeks to impose liability when a claim of unauthorized use is made by a cardholder, the card issuer must conduct a reasonable investigation of the claim. In conducting its investigation, the card issuer may reasonably request the cardholder's cooperation. The card issuer may not automatically deny a claim based solely on the cardholder's failure or refusal to comply with a particular request, including providing an affidavit or filing a police report; however, if the card issuer otherwise has no knowledge of facts confirming the unauthorized use, the lack of information resulting from the cardholder's failure or refusal to comply with a particular request may lead the card issuer reasonably to terminate the investigation. The procedures involved in investigating claims may differ, but actions such as the following represent steps that a card issuer may take, as appropriate, in conducting a reasonable investigation:</p>
<p style="-uslm-sgm:P">i. Reviewing the types or amounts of purchases made in relation to the cardholder's previous purchasing pattern.</p>
<p style="-uslm-sgm:P">ii. Reviewing where the purchases were delivered in relation to the cardholder's residence or place of business.</p>
<p style="-uslm-sgm:P">iii. Reviewing where the purchases were made in relation to where the cardholder resides or has normally shopped.</p>
<p style="-uslm-sgm:P">iv. Comparing any signature on credit slips for the purchases to the signature of the cardholder or an authorized user in the card issuer's records, including other credit slips.</p>
<p style="-uslm-sgm:P">v. Requesting documentation to assist in the verification of the claim.</p>
<p style="-uslm-sgm:P">vi. Requiring a written, signed statement from the cardholder or authorized user. For example, the creditor may include a signature line on a billing rights form that the cardholder may send in to provide notice of the claim. However, a creditor may not require the cardholder to provide an affidavit or signed statement under penalty of perjury as part of a reasonable investigation.</p>
<p style="-uslm-sgm:P">vii. Requesting a copy of a police report, if one was filed.</p>
<p style="-uslm-sgm:P">viii. Requesting information regarding the cardholder's knowledge of the person who allegedly used the card or of that person's authority to do so.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Checks that access a credit card account.</inline> The liability provisions for unauthorized use under <ref href="/us/cfr/t12/s226.12/b/1">§ 226.12(b)(1)</ref> only apply to transactions involving the use of a credit card, and not if an unauthorized transaction is made using a check accessing the credit card account. However, the billing error provisions in <ref href="/us/cfr/t12/s226.13">§ 226.13</ref> apply to both of these types of transactions.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(b)(1)(ii) Limitation on amount.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Meaning of authority.</inline> Section 226.12(b)(1)(i) defines unauthorized use in terms of whether the user has actual, implied, or apparent authority. Whether such <?page num="623"?>authority exists must be determined under state or other applicable law.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Liability limits—dollar amounts.</inline> As a general rule, the cardholder's liability for a series of unauthorized uses cannot exceed either $50 or the value obtained through the unauthorized use before the card issuer is notified, whichever is less.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Implied or apparent authority.</inline> If a cardholder furnishes a credit card and grants authority to make credit transactions to a person (such as a family member or coworker) who exceeds the authority given, the cardholder is liable for the transaction(s) unless the cardholder has notified the creditor that use of the credit card by that person is no longer authorized.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card obtained through robbery or fraud.</inline> An unauthorized use includes, but is not limited to, a transaction initiated by a person who has obtained the credit card from the consumer, or otherwise initiated the transaction, through fraud or robbery.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(b)(2) Conditions of liability.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Issuer's option not to comply.</inline> A card issuer that chooses not to impose any liability on cardholders for unauthorized use need not comply with the disclosure and identification requirements discussed in <ref href="/us/cfr/t12/s226.12/b/2">§ 226.12(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(b)(2)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of liability and means of notifying issuer.</inline> The disclosures referred to in <ref href="/us/cfr/t12/s226.12/b/2/ii">§ 226.12(b)(2)(ii)</ref> may be given, for example, with the initial disclosures under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>, on the credit card itself, or on periodic statements. They may be given at any time preceding the unauthorized use of the card.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Meaning of “adequate notice.”</inline> For purposes of this provision, “adequate notice” means a printed notice to a cardholder that sets forth clearly the pertinent facts so that the cardholder may reasonably be expected to have noticed it and understood its meaning. The notice may be given by any means reasonably assuring receipt by the cardholder.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(b)(2)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Means of identifying cardholder or user.</inline> To fulfill the condition set forth in <ref href="/us/cfr/t12/s226.12/b/2/iii">§ 226.12(b)(2)(iii)</ref>, the issuer must provide some method whereby the cardholder or the authorized user can be identified. This could include, for example, a signature, photograph, or fingerprint on the card or other biometric means, or electronic or mechanical confirmation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification by magnetic strip.</inline> Unless a magnetic strip (or similar device not readable without physical aids) must be used in conjunction with a secret code or the like, it would not constitute sufficient means of identification. Sufficient identification also does not exist if a “pool” or group card, issued to a corporation and signed by a corporate agent who will not be a user of the card, is intended to be used by another employee for whom no means of identification is provided.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transactions not involving card.</inline> The cardholder may not be held liable under <ref href="/us/cfr/t12/s226.12/b">§ 226.12(b)</ref> when the card itself (or some other sufficient means of identification of the cardholder) is not presented. Since the issuer has not provided a means to identify the user under these circumstances, the issuer has not fulfilled one of the conditions for imposing liability. For example, when merchandise is ordered by telephone or the Internet by a person without authority to do so, using a credit card account number by itself or with other information that appears on the card (for example, the card expiration date and a 3- or 4-digit cardholder identification number), no liability may be imposed on the cardholder.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(b)(3) Notification to card issuer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">How notice must be provided.</inline> Notice given in a normal business manner—for example, by mail, telephone, or personal visit—is effective even though it is not given to, or does not reach, some particular person within the issuer's organization. Notice also may be effective even though it is not given at the address or phone number disclosed by the card issuer under <ref href="/us/cfr/t12/s226.12/b/2/ii">§ 226.12(b)(2)(ii)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Who must provide notice.</inline> Notice of loss, theft, or possible unauthorized use need not be initiated by the cardholder. Notice is sufficient so long as it gives the “pertinent information” which would include the name or card number of the cardholder and an indication that unauthorized use has or may have occurred.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>.</inline> The liability protections afforded to cardholders in <ref href="/us/cfr/t12/s226.12">§ 226.12</ref> do not depend upon the cardholder's following the error resolution procedures in <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>. For example, the written notification and time limit requirements of <ref href="/us/cfr/t12/s226.13">§ 226.13</ref> do not affect the <ref href="/us/cfr/t12/s226.12">§ 226.12</ref> protections. (See also comment 12(b)–4.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(b)(5) Business use of credit cards.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agreement for higher liability for business use cards.</inline> The card issuer may not rely on <ref href="/us/cfr/t12/s226.12/b/5">§ 226.12(b)(5)</ref> if the business is clearly not in a position to provide 10 or more cards to employees (for example, if the business has only 3 employees). On the other hand, the issuer need not monitor the personnel practices of the business to make sure that it has at least 10 employees at all times.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unauthorized use by employee.</inline> The protection afforded to an employee against liability for unauthorized use in excess of the limits set in <ref href="/us/cfr/t12/s226.12/b">§ 226.12(b)</ref> applies only to unauthorized use by someone other than the employee. If the employee uses the card in an unauthorized manner, the regulation sets no restriction on the employee's potential liability for such use.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(c) Right of cardholder to assert claims or defenses against card issuer.</inline>
<?page num="624"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>.</inline> The <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref> credit card “holder in due course” provision deals with the consumer's right to assert against the card issuer a claim or defense concerning property or services purchased with a credit card, if the merchant has been unwilling to resolve the dispute. Even though certain merchandise disputes, such as non-delivery of goods, may also constitute “billing errors” under <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>, that section operates independently of <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref>. The cardholder whose asserted billing error involves undelivered goods may institute the error resolution procedures of <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>; but whether or not the cardholder has done so, the cardholder may assert claims or defenses under <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref>. Conversely, the consumer may pay a disputed balance and thus have no further right to assert claims and defenses, but still may assert a billing error if notice of that billing error is given in the proper time and manner. An assertion that a particular transaction resulted from unauthorized use of the card could also be both a “defense” and a billing error.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Claims and defenses assertible.</inline> Section 226.12(c) merely preserves the consumer's right to assert against the card issuer any claims or defenses that can be asserted against the merchant. It does not determine what claims or defenses are valid as to the merchant; this determination must be made under state or other applicable law.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transactions excluded.</inline> Section 226.12(c) does not apply to the use of a check guarantee card or a debit card in connection with an overdraft credit plan, or to a check guarantee card used in connection with cash-advance checks.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Method of calculating the amount of credit outstanding.</inline> The amount of the claim or defense that the cardholder may assert shall not exceed the amount of credit outstanding for the disputed transaction at the time the cardholder first notifies the card issuer or the person honoring the credit card of the existence of the claim or defense. However, when a consumer has asserted a claim or defense against a creditor pursuant to <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref>, the creditor must apply any payment or other credit in a manner that avoids or minimizes any reduction in the amount subject to that claim or defense. Accordingly, to determine the amount of credit outstanding for purposes of this section, payments and other credits must be applied first to amounts other than the disputed transaction.</p>
<p style="-uslm-sgm:P">i. For examples of how to comply with <ref href="/us/cfr/t12/s226.12">§§ 226.12</ref> and 226.53 for credit card accounts under an open-end (not home-secured) consumer credit plan, see comment 53–3.</p>
<p style="-uslm-sgm:P">ii. For other types of credit card accounts, creditors may, at their option, apply payments consistent with <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> and comment 53–3. In the alternative, payments and other credits may be applied to: Late charges in the order of entry to the account; then to finance charges in the order of entry to the account; and then to any debits other than the transaction subject to the claim or defense in the order of entry to the account. In these circumstances, if more than one item is included in a single extension of credit, credits are to be distributed pro rata according to prices and applicable taxes.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(c)(1) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Situations excluded and included.</inline> The consumer may assert claims or defenses only when the goods or services are “purchased with the credit card.” This could include mail, the Internet or telephone orders, if the purchase is charged to the credit card account. But it would exclude:</p>
<p style="-uslm-sgm:P">i. Use of a credit card to obtain a cash advance, even if the consumer then uses the money to purchase goods or services. Such a transaction would not involve “property or services purchased with the credit card.”</p>
<p style="-uslm-sgm:P">ii. The purchase of goods or services by use of a check accessing an overdraft account and a credit card used solely for identification of the consumer. (On the other hand, if the credit card is used to make partial payment for the purchase and not merely for identification, the right to assert claims or defenses would apply to credit extended via the credit card, although not to the credit extended on the overdraft line.)</p>
<p style="-uslm-sgm:P">iii. Purchases made by use of a check guarantee card in conjunction with a cash advance check (or by cash advance checks alone). (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 12(c)–3.) A cash advance check is a check that, when written, does not draw on an asset account; instead, it is charged entirely to an open-end credit account.</p>
<p style="-uslm-sgm:P">iv. Purchases effected by use of either a check guarantee card or a debit card when used to draw on overdraft credit plans. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 12(c)–3.) The debit card exemption applies whether the card accesses an asset account via point of sale terminals, automated teller machines, or in any other way, and whether the card qualifies as an “access device” under Regulation E or is only a paper based debit card. If a card serves both as an ordinary credit card and also as check guarantee or debit card, a transaction will be subject to this rule on asserting claims and defenses when used as an ordinary credit card, but not when used as a check guarantee or debit card.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(c)(2) Adverse credit reports prohibited.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope of prohibition.</inline> Although an amount in dispute may not be reported as delinquent until the matter is resolved:</p>
<p style="-uslm-sgm:P">i. That amount may be reported as disputed.</p>
<p style="-uslm-sgm:P">ii. Nothing in this provision prohibits the card issuer from undertaking its normal collection activities for the delinquent and undisputed portion of the account.
<?page num="625"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Settlement of dispute.</inline> A card issuer may not consider a dispute settled and report an amount disputed as delinquent or begin collection of the disputed amount until it has completed a reasonable investigation of the cardholder's claim. A reasonable investigation requires an independent assessment of the cardholder's claim based on information obtained from both the cardholder and the merchant, if possible. In conducting an investigation, the card issuer may request the cardholder's reasonable cooperation. The card issuer may not automatically consider a dispute settled if the cardholder fails or refuses to comply with a particular request. However, if the card issuer otherwise has no means of obtaining information necessary to resolve the dispute, the lack of information resulting from the cardholder's failure or refusal to comply with a particular request may lead the card issuer reasonably to terminate the investigation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(c)(3) Limitations.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(c)(3)(i)(A).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Resolution with merchant.</inline> The consumer must have tried to resolve the dispute with the merchant. This does not require any special procedures or correspondence between them, and is a matter for factual determination in each case. The consumer is not required to seek satisfaction from the manufacturer of the goods involved. When the merchant is in bankruptcy proceedings, the consumer is not required to file a claim in those proceedings, and may instead file a claim for the property or service purchased with the credit card with the card issuer directly.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(c)(3)(i)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Geographic limitation.</inline> The question of where a transaction occurs (as in the case of mail, Internet, or telephone orders, for example) is to be determined under state or other applicable law.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(c)(3)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Merchant honoring card.</inline> The exceptions (stated in <ref href="/us/cfr/t12/s226.12/c/3/ii">§ 226.12(c)(3)(ii)</ref>) to the amount and geographic limitations in <ref href="/us/cfr/t12/s226.12/c/3/i/B">§ 226.12(c)(3)(i)(B)</ref> do not apply if the merchant merely honors, or indicates through signs or advertising that it honors, a particular credit card.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(d) Offsets by card issuer prohibited.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(d)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on accounts.</inline> “Freezing” or placing a hold on funds in the cardholder's deposit account is the functional equivalent of an offset and would contravene the prohibition in <ref href="/us/cfr/t12/s226.12/d/1">§ 226.12(d)(1)</ref>, unless done in the context of one of the exceptions specified in <ref href="/us/cfr/t12/s226.12/d/2">§ 226.12(d)(2)</ref>. For example, if the terms of a security agreement permitted the card issuer to place a hold on the funds, the hold would not violate the offset prohibition. Similarly, if an order of a bankruptcy court required the card issuer to turn over deposit account funds to the trustee in bankruptcy, the issuer would not violate the regulation by placing a hold on the funds in order to comply with the court order.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Funds intended as deposits.</inline> If the consumer tenders funds as a deposit (to a checking account, for example), the card issuer may not apply the funds to repay indebtedness on the consumer's credit card account.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Types of indebtedness; overdraft accounts.</inline> The offset prohibition applies to any indebtedness arising from transactions under a credit card plan, including accrued finance charges and other charges on the account. The prohibition also applies to balances arising from transactions not using the credit card itself but taking place under plans that involve credit cards. For example, if the consumer writes a check that accesses an overdraft line of credit, the resulting indebtedness is subject to the offset prohibition since it is incurred through a credit card plan, even though the consumer did not use an associated check guarantee or debit card.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When prohibition applies in case of termination of account.</inline> The offset prohibition applies even after the card issuer terminates the cardholder's credit card privileges, if the indebtedness was incurred prior to termination. If the indebtedness was incurred after termination, the prohibition does not apply.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(d)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security interest—limitations.</inline> In order to qualify for the exception stated in <ref href="/us/cfr/t12/s226.12/d/2">§ 226.12(d)(2)</ref>, a security interest must be affirmatively agreed to by the consumer and must be disclosed in the issuer's account-opening disclosures under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>. The security interest must not be the functional equivalent of a right of offset; as a result, routinely including in agreements contract language indicating that consumers are giving a security interest in any deposit accounts maintained with the issuer does not result in a security interest that falls within the exception in <ref href="/us/cfr/t12/s226.12/d/2">§ 226.12(d)(2)</ref>. For a security interest to qualify for the exception under <ref href="/us/cfr/t12/s226.12/d/2">§ 226.12(d)(2)</ref> the following conditions must be met:</p>
<p style="-uslm-sgm:P">i. The consumer must be aware that granting a security interest is a condition for the credit card account (or for more favorable account terms) and must specifically intend to grant a security interest in a deposit account. Indicia of the consumer's awareness and intent include at least one of the following (or a substantially similar procedure that evidences the consumer's awareness and intent):</p>
<p style="-uslm-sgm:P">A. Separate signature or initials on the agreement indicating that a security interest is being given.</p>
<p style="-uslm-sgm:P">B. Placement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions.
<?page num="626"?></p>
<p style="-uslm-sgm:P">C. Reference to a specific amount of deposited funds or to a specific deposit account number.</p>
<p style="-uslm-sgm:P">ii. The security interest must be obtainable and enforceable by creditors generally. If other creditors could not obtain a security interest in the consumer's deposit accounts to the same extent as the card issuer, the security interest is prohibited by <ref href="/us/cfr/t12/s226.12/d/2">§ 226.12(d)(2)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security interest—after-acquired property.</inline> As used in <ref href="/us/cfr/t12/s226.12/d/2">§ 226.12(d)(2)</ref>, the term “security interest” does not exclude (as it does for other Regulation Z purposes) interests in after-acquired property. Thus, a consensual security interest in deposit-account funds, including funds deposited after the granting of the security interest would constitute a permissible exception to the prohibition on offsets.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Court order.</inline> If the card issuer obtains a judgment against the cardholder, and if state and other applicable law and the terms of the judgment do not so prohibit, the card issuer may offset the indebtedness against the cardholder's deposit account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(d)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automatic payment plans—scope of exception.</inline> With regard to automatic debit plans under <ref href="/us/cfr/t12/s226.12/d/3">§ 226.12(d)(3)</ref>, the following rules apply:</p>
<p style="-uslm-sgm:P">i. The cardholder's authorization must be in writing and signed or initialed by the cardholder.</p>
<p style="-uslm-sgm:P">ii. The authorizing language need not appear directly above or next to the cardholder's signature or initials, provided it appears on the same document and that it clearly spells out the terms of the automatic debit plan.</p>
<p style="-uslm-sgm:P">iii. If the cardholder has the option to accept or reject the automatic debit feature (such option may be required under section 913 of the Electronic Fund Transfer Act), the fact that the option exists should be clearly indicated.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automatic payment plans—additional exceptions.</inline> The following practices are not prohibited by <ref href="/us/cfr/t12/s226.12/d/1">§ 226.12(d)(1)</ref>:</p>
<p style="-uslm-sgm:P">i. Automatically deducting charges for participation in a program of banking services (one aspect of which may be a credit card plan).</p>
<p style="-uslm-sgm:P">ii. Debiting the cardholder's deposit account on the cardholder's specific request rather than on an automatic periodic basis (for example, a cardholder might check a box on the credit card bill stub, requesting the issuer to debit the cardholder's account to pay that bill).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12(e) Prompt notification of returns and crediting of refunds.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(e)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Normal channels.</inline> The term normal channels refers to any network or interchange system used for the processing of the original charge slips (or equivalent information concerning the transaction).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 12(e)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Crediting account.</inline> The card issuer need not actually post the refund to the consumer's account within three business days after receiving the credit statement, provided that it credits the account as of a date within that time period.</p>
<heading style="-uslm-sgm:HD2">Section 226.13—Billing Error Resolution</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor's failure to comply with billing error provisions.</inline> Failure to comply with the error resolution procedures may result in the forfeiture of disputed amounts as prescribed in section 161(e) of the act. (Any failure to comply may also be a violation subject to the liability provisions of section 130 of the act.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges for error resolution.</inline> If a billing error occurred, whether as alleged or in a different amount or manner, the creditor may not impose a charge related to any aspect of the error resolution process (including charges for documentation or investigation) and must credit the consumer's account if such a charge was assessed pending resolution. Since the act grants the consumer error resolution rights, the creditor should avoid any chilling effect on the good faith assertion of errors that might result if charges are assessed when no billing error has occurred.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(a) Definition of billing error.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(a)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Actual, implied, or apparent authority.</inline> Whether use of a credit card or open-end credit plan is authorized is determined by state or other applicable law. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 12(b)(1)(ii)–1.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(a)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> i. Section 226.13(a)(3) covers disputes about goods or services that are “not accepted” or “not delivered * * * as agreed”; for example:</p>
<p style="-uslm-sgm:P">A. The appearance on a periodic statement of a purchase, when the consumer refused to take delivery of goods because they did not comply with the contract.</p>
<p style="-uslm-sgm:P">B. Delivery of property or services different from that agreed upon.</p>
<p style="-uslm-sgm:P">C. Delivery of the wrong quantity.</p>
<p style="-uslm-sgm:P">D. Late delivery.</p>
<p style="-uslm-sgm:P">E. Delivery to the wrong location.</p>
<p style="-uslm-sgm:P">ii. Section 226.13(a)(3) does not apply to a dispute relating to the quality of property or services that the consumer accepts. Whether acceptance occurred is determined by state or other applicable law.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application to purchases made using a third-party payment intermediary.</inline> Section 226.13(a)(3) generally applies to disputes about goods and services that are purchased using a third-party payment intermediary, such as a person-to-person Internet payment service, funded through use of a consumer's open-end credit plan when the goods or services are not accepted by the consumer or not delivered to the consumer as agreed. However, the extension of credit must be made at <?page num="627"?>the time the consumer purchases the good or service and match the amount of the transaction to purchase the good or service (including ancillary taxes and fees). Under these circumstances, the property or service for which the extension of credit is made is not the payment service, but rather the good or service that the consumer has purchased using the payment service. Thus, for example, <ref href="/us/cfr/t12/s226.13/a/3">§ 226.13(a)(3)</ref> would not apply to purchases using a third party payment intermediary that is funded through use of an open-end credit plan if:</p>
<p style="-uslm-sgm:P">i. The extension of credit is made to fund the third-party payment intermediary “account,” but the consumer does not contemporaneously use those funds to purchase a good or service at that time.</p>
<p style="-uslm-sgm:P">ii. The extension of credit is made to fund only a portion of the purchase amount, and the consumer uses other sources to fund the remaining amount.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice to merchant not required.</inline> A consumer is not required to first notify the merchant or other payee from whom he or she has purchased goods or services and attempt to resolve a dispute regarding the good or service before providing a billing-error notice to the creditor under <ref href="/us/cfr/t12/s226.13/a/3">§ 226.13(a)(3)</ref> asserting that the goods or services were not accepted or delivered as agreed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(a)(5).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Computational errors.</inline> In periodic statements that are combined with other information, the error resolution procedures are triggered only if the consumer asserts a computational billing error in the credit-related portion of the periodic statement. For example, if a bank combines a periodic statement reflecting the consumer's credit card transactions with the consumer's monthly checking statement, a computational error in the checking account portion of the combined statement is not a billing error.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(a)(6).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Documentation requests.</inline> A request for documentation such as receipts or sales slips, unaccompanied by an allegation of an error under <ref href="/us/cfr/t12/s226.13/a">§ 226.13(a)</ref> or a request for additional clarification under <ref href="/us/cfr/t12/s226.13/a/6">§ 226.13(a)(6)</ref>, does not trigger the error resolution procedures. For example, a request for documentation merely for purposes such as tax preparation or recordkeeping does not trigger the error resolution procedures.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(b) Billing error notice.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Withdrawal of billing error notice by consumer.</inline> The creditor need not comply with the requirements of <ref href="/us/cfr/t12/s226.13/c">§ 226.13(c)</ref> through (g) of this section if the consumer concludes that no billing error occurred and voluntarily withdraws the billing error notice. The consumer's withdrawal of a billing error notice may be oral, electronic or written.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of written notice.</inline> The creditor may require that the written notice not be made on the payment medium or other material accompanying the periodic statement if the creditor so stipulates in the billing rights statement required by <ref href="/us/cfr/t12/s226.6/a/5">§§ 226.6(a)(5)</ref> or (b)(5)(iii), and 226.9(a). In addition, if the creditor stipulates in the billing rights statement that it accepts billing error notices submitted electronically, and states the means by which a consumer may electronically submit a billing error notice, a notice sent in such manner will be deemed to satisfy the written notice requirement for purposes of <ref href="/us/cfr/t12/s226.13/b">§ 226.13(b)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(b)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Failure to send periodic statement—timing.</inline> If the creditor has failed to send a periodic statement, the 60-day period runs from the time the statement should have been sent. Once the statement is provided, the consumer has another 60 days to assert any billing errors reflected on it.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Failure to reflect credit—timing.</inline> If the periodic statement fails to reflect a credit to the account, the 60-day period runs from transmittal of the statement on which the credit should have appeared.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transmittal.</inline> If a consumer has arranged for periodic statements to be held at the financial institution until called for, the statement is “transmitted” when it is first made available to the consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identity of the consumer.</inline> The billing error notice need not specify both the name and the account number if the information supplied enables the creditor to identify the consumer's name and account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(c) Time for resolution; general procedures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary or provisional corrections.</inline> A creditor may temporarily correct the consumer's account in response to a billing error notice, but is not excused from complying with the remaining error resolution procedures within the time limits for resolution.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Correction without investigation.</inline> A creditor may correct a billing error in the manner and amount asserted by the consumer without the investigation or the determination normally required. The creditor must comply, however, with all other applicable provisions. If a creditor follows this procedure, no presumption is created that a billing error occurred.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship with <ref href="/us/cfr/t12/s226.12">§ 226.12</ref>.</inline> The consumer's rights under the billing error provisions in <ref href="/us/cfr/t12/s226.13">§ 226.13</ref> are independent of the provisions set forth in <ref href="/us/cfr/t12/s226.12/b">§ 226.12(b)</ref> and (c). (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 12(b)–4, 12(b)(3)–3, and 12(c)–1.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(c)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Time for resolution.</inline> The phrase two complete billing cycles means two actual billing cycles occurring after receipt of the billing error notice, not a measure of time equal to two billing cycles. For example, if a creditor on a monthly billing cycle receives a billing error notice mid-cycle, it has the remainder <?page num="628"?>of that cycle plus the next two full billing cycles to resolve the error.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finality of error resolution procedure.</inline> A creditor must comply with the error resolution procedures and complete its investigation to determine whether an error occurred within two complete billing cycles as set forth in <ref href="/us/cfr/t12/s226.13/c/2">§ 226.13(c)(2)</ref>. Thus, for example, <ref href="/us/cfr/t12/s226.13/c/2">§ 226.13(c)(2)</ref> prohibits a creditor from reversing amounts previously credited for an alleged billing error even if the creditor obtains evidence after the error resolution time period has passed indicating that the billing error did not occur as asserted by the consumer. Similarly, if a creditor fails to mail or deliver a written explanation setting forth the reason why the billing error did not occur as asserted, or otherwise fails to comply with the error resolution procedures set forth in <ref href="/us/cfr/t12/s226.13/f">§ 226.13(f)</ref>, the creditor generally must credit the disputed amount and related finance or other charges, as applicable, to the consumer's account. However, if a consumer receives more than one credit to correct the same billing error, <ref href="/us/cfr/t12/s226.13">§ 226.13</ref> does not prevent a creditor from reversing amounts it has previously credited to correct that error, provided that the total amount of the remaining credits is equal to or more than the amount of the error and that the consumer does not incur any fees or other charges as a result of the timing of the creditor's reversal. For example, assume that a consumer asserts a billing error with respect to a $100 transaction and that the creditor posts a $100 credit to the consumer's account to correct that error during the time period set forth in <ref href="/us/cfr/t12/s226.13/c/2">§ 226.13(c)(2)</ref>. However, following that time period, a merchant or other person honoring the credit card issues a $100 credit to the consumer to correct the same error. In these circumstances, <ref href="/us/cfr/t12/s226.13/c/2">§ 226.13(c)(2)</ref> does not prohibit the creditor from reversing its $100 credit once the $100 credit from the merchant or other person has posted to the consumer's account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(d) Rules pending resolution.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disputed amount.</inline> Disputed amount is the dollar amount alleged by the consumer to be in error. When the allegation concerns the description or identification of the transaction (such as the date or the seller's name) rather than a dollar amount, the disputed amount is the amount of the transaction or charge that corresponds to the disputed transaction identification. If the consumer alleges a failure to send a periodic statement under <ref href="/us/cfr/t12/s226.13/a/7">§ 226.13(a)(7)</ref>, the disputed amount is the entire balance owing.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(d)(1) Consumer's right to withhold disputed amount; collection action prohibited.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibited collection actions.</inline> During the error resolution period, the creditor is prohibited from trying to collect the disputed amount from the consumer. Prohibited collection actions include, for example, instituting court action, taking a lien, or instituting attachment proceedings.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Right to withhold payment.</inline> If the creditor reflects any disputed amount or related finance or other charges on the periodic statement, and is therefore required to make the disclosure under <ref href="/us/cfr/t12/s226.13/d/4">§ 226.13(d)(4)</ref>, the creditor may comply with that disclosure requirement by indicating that payment of any disputed amount is not required pending resolution. Making a disclosure that only refers to the disputed amount would, of course, in no way affect the consumer's right under <ref href="/us/cfr/t12/s226.13/d/1">§ 226.13(d)(1)</ref> to withhold related finance and other charges. The disclosure under <ref href="/us/cfr/t12/s226.13/d/4">§ 226.13(d)(4)</ref> need not appear in any specific place on the periodic statement, need not state the specific amount that the consumer may withhold, and may be preprinted on the periodic statement.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Imposition of additional charges on undisputed amounts.</inline> The consumer's withholding of a disputed amount from the total bill cannot subject undisputed balances (including new purchases or cash advances made during the present or subsequent cycles) to the imposition of finance or other charges. For example, if on an account with a grace period (that is, an account in which paying the new balance in full allows the consumer to avoid the imposition of additional finance charges), a consumer disputes a $2 item out of a total bill of $300 and pays $298 within the grace period, the consumer would not lose the grace period as to any undisputed amounts, even if the creditor determines later that no billing error occurred. Furthermore, finance or other charges may not be imposed on any new purchases or advances that, absent the unpaid disputed balance, would not have finance or other charges imposed on them. Finance or other charges that would have been incurred even if the consumer had paid the disputed amount would not be affected.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automatic payment plans—coverage.</inline> The coverage of this provision is limited to the card issuer's automatic payment plans, whether or not the consumer's asset account is held by the card issuer or by another financial institution. It does not apply to automatic or bill-payment plans offered by financial institutions other than the credit card issuer.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automatic payment plans—time of notice.</inline> While the card issuer does not have to restore or prevent the debiting of a disputed amount if the billing error notice arrives after the three-business-day cut-off, the card issuer must, however, prevent the automatic debit of any part of the disputed amount that is still outstanding and unresolved at the time of the next scheduled debit date.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(d)(2) Adverse credit reports prohibited.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Report of dispute.</inline> Although the creditor must not issue an adverse credit report because the consumer fails to pay the disputed <?page num="629"?>amount or any related charges, the creditor may report that the amount or the account is in dispute. Also, the creditor may report the account as delinquent if undisputed amounts remain unpaid.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person.</inline> During the error resolution period, the creditor is prohibited from making an adverse credit report about the disputed amount to any person—including employers, insurance companies, other creditors, and credit bureaus.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor's agent.</inline> Whether an agency relationship exists between a creditor and an issuer of an adverse credit report is determined by State or other applicable law.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(e) Procedures if billing error occurred as asserted.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Correction of error.</inline> The phrase as applicable means that the necessary corrections vary with the type of billing error that occurred. For example, a misidentified transaction (or a transaction that is identified by one of the alternative methods in <ref href="/us/cfr/t12/s226.8">§ 226.8</ref>) is cured by properly identifying the transaction and crediting related finance and any other charges imposed. The creditor is not required to cancel the amount of the underlying obligation incurred by the consumer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of correction notice.</inline> The written correction notice may take a variety of forms. It may be sent separately, or it may be included on or with a periodic statement that is mailed within the time for resolution. If the periodic statement is used, the amount of the billing error must be specifically identified. If a separate billing error correction notice is provided, the accompanying or subsequent periodic statement reflecting the corrected amount may simply identify it as credit.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discovery of information after investigation period. See</inline> comment 13(c)(2)–2.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(f) Procedures if different billing error or no billing error occurred.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Different billing error.</inline> Examples of a different billing error include:</p>
<p style="-uslm-sgm:P">i. Differences in the amount of an error (for example, the customer asserts a $55.00 error but the error was only $53.00).</p>
<p style="-uslm-sgm:P">ii. Differences in other particulars asserted by the consumer (such as when a consumer asserts that a particular transaction never occurred, but the creditor determines that only the seller's name was disclosed incorrectly).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of creditor's explanation.</inline> The written explanation (which also may notify the consumer of corrections to the account) may take a variety of forms. It may be sent separately, or it may be included on or with a periodic statement that is mailed within the time for resolution. If the creditor uses the periodic statement for the explanation and correction(s), the corrections must be specifically identified. If a separate explanation, including the correction notice, is provided, the enclosed or subsequent periodic statement reflecting the corrected amount may simply identify it as a credit. The explanation may be combined with the creditor's notice to the consumer of amounts still owing, which is required under <ref href="/us/cfr/t12/s226.13/g/1">§ 226.13(g)(1)</ref>, provided it is sent within the time limit for resolution. (See commentary to <ref href="/us/cfr/t12/s226.13/e">§ 226.13(e)</ref>.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable investigation.</inline> A creditor must conduct a reasonable investigation before it determines that no billing error occurred or that a different billing error occurred from that asserted. In conducting its investigation of an allegation of a billing error, the creditor may reasonably request the consumer's cooperation. The creditor may not automatically deny a claim based solely on the consumer's failure or refusal to comply with a particular request, including providing an affidavit or filing a police report. However, if the creditor otherwise has no knowledge of facts confirming the billing error, the lack of information resulting from the consumer's failure or refusal to comply with a particular request may lead the creditor reasonably to terminate the investigation. The procedures involved in investigating alleged billing errors may differ depending on the billing error type.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unauthorized transaction.</inline> In conducting an investigation of a notice of billing error alleging an unauthorized transaction under <ref href="/us/cfr/t12/s226.13/a/1">§ 226.13(a)(1)</ref>, actions such as the following represent steps that a creditor may take, as appropriate, in conducting a reasonable investigation:</p>
<p style="-uslm-sgm:P">A. Reviewing the types or amounts of purchases made in relation to the consumer's previous purchasing pattern.</p>
<p style="-uslm-sgm:P">B. Reviewing where the purchases were delivered in relation to the consumer's residence or place of business.</p>
<p style="-uslm-sgm:P">C. Reviewing where the purchases were made in relation to where the consumer resides or has normally shopped.</p>
<p style="-uslm-sgm:P">D. Comparing any signature on credit slips for the purchases to the signature of the consumer (or an authorized user in the case of a credit card account) in the creditor's records, including other credit slips.</p>
<p style="-uslm-sgm:P">E. Requesting documentation to assist in the verification of the claim.</p>
<p style="-uslm-sgm:P">F. Requiring a written, signed statement from the consumer (or authorized user, in the case of a credit card account). For example, the creditor may include a signature line on a billing rights form that the consumer may send in to provide notice of the claim. However, a creditor may not require the consumer to provide an affidavit or signed statement under penalty of perjury as a part of a reasonable investigation.</p>
<p style="-uslm-sgm:P">G. Requesting a copy of a police report, if one was filed.</p>
<p style="-uslm-sgm:P">H. Requesting information regarding the consumer's knowledge of the person who allegedly obtained an extension of credit on <?page num="630"?>the account or of that person's authority to do so.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nondelivery of property or services.</inline> In conducting an investigation of a billing error notice alleging the nondelivery of property or services under <ref href="/us/cfr/t12/s226.13/a/3">§ 226.13(a)(3)</ref>, the creditor shall not deny the assertion unless it conducts a reasonable investigation and determines that the property or services were actually delivered, mailed, or sent as agreed.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Incorrect information.</inline> In conducting an investigation of a billing error notice alleging that information appearing on a periodic statement is incorrect because a person honoring the consumer's credit card or otherwise accepting an access device for an open-end plan has made an incorrect report to the creditor, the creditor shall not deny the assertion unless it conducts a reasonable investigation and determines that the information was correct.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(g) Creditor's rights and duties after resolution.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(g)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts owed by consumer.</inline> Amounts the consumer still owes may include both minimum periodic payments and related finance and other charges that accrued during the resolution period. As explained in the commentary to <ref href="/us/cfr/t12/s226.13/d/1">§ 226.13(d)(1)</ref>, even if the creditor later determines that no billing error occurred, the creditor may not include finance or other charges that are imposed on undisputed balances solely as a result of a consumer's withholding payment of a disputed amount.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Time of notice.</inline> The creditor need not send the notice of amount owed within the time period for resolution, although it is under a duty to send the notice promptly after resolution of the alleged error. If the creditor combines the notice of the amount owed with the explanation required under <ref href="/us/cfr/t12/s226.13/f/1">§ 226.13(f)(1)</ref>, the combined notice must be provided within the time limit for resolution.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(g)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Grace period if no error occurred.</inline> If the creditor determines, after a reasonable investigation, that a billing error did not occur as asserted, and the consumer was entitled to a grace period at the time the consumer provided the billing error notice, the consumer must be given a period of time equal to the grace period disclosed under <ref href="/us/cfr/t12/s226.6/a/1">§ 226.6(a)(1)</ref> or (b)(2) and <ref href="/us/cfr/t12/s226.7/a/8">§ 226.7(a)(8)</ref> or (b)(8) to pay any disputed amounts due without incurring additional finance or other charges. However, the creditor need not allow a grace period disclosed under the above-mentioned sections to pay the amount due under <ref href="/us/cfr/t12/s226.13/g/1">§ 226.13(g)(1)</ref> if no error occurred and the consumer was not entitled to a grace period at the time the consumer asserted the error. For example, assume that a creditor provides a consumer a grace period of 20 days to pay a new balance to avoid finance charges, and that the consumer did not carry an outstanding balance from the prior month. If the consumer subsequently asserts a billing error for the current statement period within the 20-day grace period, and the creditor determines that no billing error in fact occurred, the consumer must be given at least 20 days (i.e., the full disclosed grace period) to pay the amount due without incurring additional finance charges. Conversely, if the consumer was not entitled to a grace period at the time the consumer asserted the billing error, for example, if the consumer did not pay the previous monthly balance of undisputed charges in full, the creditor may assess finance charges on the disputed balance for the entire period the item was in dispute.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(g)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Time for payment.</inline> The consumer has a minimum of 10 days to pay (measured from the time the consumer could reasonably be expected to have received notice of the amount owed) before the creditor may issue an adverse credit report; if an initially disclosed grace period allows the consumer a longer time in which to pay, the consumer has the benefit of that longer period.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 13(g)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit reporting.</inline> Under <ref href="/us/cfr/t12/s226.13/g/4/i">§ 226.13(g)(4)(i)</ref> and (iii) the creditor's additional credit reporting responsibilities must be accomplished promptly. The creditor need not establish costly procedures to fulfill this requirement. For example, a creditor that reports to a credit bureau on scheduled updates need not transmit corrective information by an unscheduled computer or magnetic tape; it may provide the credit bureau with the correct information by letter or other commercially reasonable means when using the scheduled update would not be “prompt.” The creditor is not responsible for ensuring that the credit bureau corrects its information immediately.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adverse report to credit bureau.</inline> If a creditor made an adverse report to a credit bureau that disseminated the information to other creditors, the creditor fulfills its <ref href="/us/cfr/t12/s226.13/g/4/ii">§ 226.13(g)(4)(ii)</ref> obligations by providing the consumer with the name and address of the credit bureau.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">13(i) Relation to Electronic Fund Transfer Act and Regulation E.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> Credit extended directly from a non-overdraft credit line is governed solely by Regulation Z, even though a combined credit card/access device is used to obtain the extension.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Incidental credit under agreement.</inline> Credit extended incident to an electronic fund transfer under an agreement between the consumer and the financial institution is governed by <ref href="/us/cfr/t12/s226.13/i">§ 226.13(i)</ref>, which provides that certain error resolution procedures in both this regulation and Regulation E apply. Incidental credit that is not extended under an <?page num="631"?>agreement between the consumer and the financial institution is governed solely by the error resolution procedures in Regulation E. For example, credit inadvertently extended incident to an electronic fund-transfer, such as under an overdraft service not subject to Regulation Z, is governed solely by the Regulation E error resolution procedures, if the bank and the consumer do not have an agreement to extend credit when the consumer's account is overdrawn.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application to debit/credit transactions-examples.</inline> If a consumer withdraws money at an automated teller machine and activates an overdraft credit feature on the checking account:</p>
<p style="-uslm-sgm:P">i. An error asserted with respect to the transaction is subject, for error resolution purposes, to the applicable Regulation E provisions (such as timing and notice) for the entire transaction.</p>
<p style="-uslm-sgm:P">ii. The creditor need not provisionally credit the consumer's account, under <ref href="/us/cfr/t12/s205.11/c/2/i">§ 205.11(c)(2)(i)</ref> of Regulation E, for any portion of the unpaid extension of credit.</p>
<p style="-uslm-sgm:P">iii. The creditor must credit the consumer's account under <ref href="/us/cfr/t12/s205.11/c">§ 205.11(c)</ref> with any finance or other charges incurred as a result of the alleged error.</p>
<p style="-uslm-sgm:P">iv. The provisions of <ref href="/us/cfr/t12/s226.13/d">§§ 226.13(d)</ref> and (g) apply only to the credit portion of the transaction.</p>
<heading style="-uslm-sgm:HD2">Section 226.14—Determination of Annual Percentage Rate</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14(a) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tolerance.</inline> The tolerance of <inline role="fraction" style="-uslm-sgm:FR">1/8</inline>th of 1 percentage point above or below the annual percentage rate applies to any required disclosure of the annual percentage rate. The disclosure of the annual percentage rate is required in <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref>, 226.5b, 226.6, 226.7, 226.9, 226.15, 226.16, 226.26, 226.55, and 226.56.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rounding.</inline> The regulation does not require that the annual percentage rate be calculated to any particular number of decimal places; rounding is permissible within the <inline role="fraction" style="-uslm-sgm:FR">1/8</inline>th of 1 percent tolerance. For example, an exact annual percentage rate of 14.33333% may be stated as 14.33% or as 14.3%, or even as 14<inline role="fraction" style="-uslm-sgm:FR">1/4</inline>%; but it could not be stated as 14.2% or 14%, since each varies by more than the permitted tolerance.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic rates.</inline> No explicit tolerance exists for any periodic rate as such; a disclosed periodic rate may vary from precise accuracy (for example, due to rounding) only to the extent that its annualized equivalent is within the tolerance permitted by <ref href="/us/cfr/t12/s226.14/a">§ 226.14(a)</ref>. Further, a periodic rate need not be calculated to any particular number of decimal places.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance charges.</inline> The regulation does not prohibit creditors from assessing finance charges on balances that include prior, unpaid finance charges; state or other applicable law may do so, however.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith reliance on faulty calculation tools.</inline> The regulation relieves a creditor of liability for an error in the annual percentage rate or finance charge that resulted from a corresponding error in a calculation tool used in good faith by the creditor. Whether or not the creditor's use of the tool was in good faith must be determined on a case-by-case basis, but the creditor must in any case have taken reasonable steps to verify the accuracy of the tool, including any instructions, before using it. Generally, the safe harbor from liability is available only for errors directly attributable to the calculation tool itself, including software programs; it is not intended to absolve a creditor of liability for its own errors, or for errors arising from improper use of the tool, from incorrect data entry, or from misapplication of the law.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of leap year.</inline> Any variance in the annual percentage rate that occurs solely by reason of the addition of February 29 in a leap year, may be disregarded, and such a rate may be disclosed without regard to such variance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14(b) Annual percentage rate—in general.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Corresponding annual percentage rate computation.</inline> For purposes of <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref>, 226.5b, 226.6, 226.7(a)(4) or (b)(4), 226.9, 226.15, 226.16, 226.26, 226.55, and 226.56, the annual percentage rate is determined by multiplying the periodic rate by the number of periods in the year. This computation reflects the fact that, in such disclosures, the rate (known as the corresponding annual percentage rate) is prospective and does not involve any particular finance charge or periodic balance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14(c) Optional effective annual percentage rate for periodic statements for creditors offering open-end plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> The periodic statement may reflect (under <ref href="/us/cfr/t12/s226.7/a/7">§ 226.7(a)(7)</ref>) the annualized equivalent of the rate actually applied during a particular cycle; this rate may differ from the corresponding annual percentage rate because of the inclusion of, for example, fixed, minimum, or transaction charges. Sections 226.14(c)(1) through (c)(4) state the computation rules for the effective rate.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges related to opening, renewing, or continuing an account.</inline> Sections 226.14(c)(2) and (c)(3) exclude from the calculation of the effective annual percentage rate finance charges that are imposed during the billing cycle such as a loan fee, points, or similar charge that relates to opening, renewing, or continuing an account. The charges involved here do not relate to a specific transaction or to specific activity on the account, but relate solely to the opening, renewing, or continuing of the account. For example, an annual fee to renew an open-end credit account that is a percentage of the credit limit on the account, or that is charged only to consumers that have not used their credit card for a certain dollar amount in transactions <?page num="632"?>during the preceding year, would not be included in the calculation of the annual percentage rate, even though the fee may not be excluded from the finance charge under <ref href="/us/cfr/t12/s226.4/c/4">§ 226.4(c)(4)</ref>. (See comment 4(c)(4)–2.) This rule applies even if the loan fee, points, or similar charges are billed on a subsequent periodic statement or withheld from the proceeds of the first advance on the account.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Classification of charges.</inline> If the finance charge includes a charge not due to the application of a periodic rate, the creditor must use the annual percentage rate computation method that corresponds to the type of charge imposed. If the charge is tied to a specific transaction (for example, 3 percent of the amount of each transaction), then the method in <ref href="/us/cfr/t12/s226.14/c/3">§ 226.14(c)(3)</ref> must be used. If a fixed or minimum charge is applied, that is, one not tied to any specific transaction, then the formula in <ref href="/us/cfr/t12/s226.14/c/2">§ 226.14(c)(2)</ref> is appropriate.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Small finance charges.</inline> Section 226.14(c)(4) gives the creditor an alternative to <ref href="/us/cfr/t12/s226.14/c/2">§ 226.14(c)(2)</ref> and (c)(3) if small finance charges (50 cents or less) are involved; that is, if the finance charge includes minimum or fixed fees not due to the application of a periodic rate and the total finance charge for the cycle does not exceed 50 cents. For example, while a monthly activity fee of 50 cents on a balance of $20 would produce an annual percentage rate of 30 percent under the rule in <ref href="/us/cfr/t12/s226.14/c/2">§ 226.14(c)(2)</ref>, the creditor may disclose an annual percentage rate of 18 percent if the periodic rate generally applicable to all balances is 1<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent per month.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prior-cycle adjustments.</inline> i. The annual percentage rate reflects the finance charges imposed during the billing cycle. However, finance charges imposed during the billing cycle may relate to activity in a prior cycle. Examples of circumstances when this may occur are:</p>
<p style="-uslm-sgm:P">A. A cash advance occurs on the last day of a billing cycle on an account that uses the transaction date to figure finance charges, and it is impracticable to post the transaction until the following cycle.</p>
<p style="-uslm-sgm:P">B. An adjustment to the finance charge is made following the resolution of a billing error dispute.</p>
<p style="-uslm-sgm:P">C. A consumer fails to pay the purchase balance under a deferred payment feature by the payment due date, and finance charges are imposed from the date of purchase.</p>
<p style="-uslm-sgm:P">ii. Finance charges relating to activity in prior cycles should be reflected on the periodic statement as follows:</p>
<p style="-uslm-sgm:P">A. If a finance charge imposed in the current billing cycle is attributable to periodic rates applicable to prior billing cycles (such as when a deferred payment balance was not paid in full by the payment due date and finance charges from the date of purchase are now being debited to the account, or when a cash advance occurs on the last day of a billing cycle on an account that uses the transaction date to figure finance charges and it is impracticable to post the transaction until the following cycle), and the creditor uses the quotient method to calculate the annual percentage rate, the numerator would include the amount of any transaction charges plus any other finance charges posted during the billing cycle. At the creditor's option, balances relating to the finance charge adjustment may be included in the denominator if permitted by the legal obligation, if it was impracticable to post the transaction in the previous cycle because of timing, or if the adjustment is covered by comment 14(c)–5.ii.B.</p>
<p style="-uslm-sgm:P">B. If a finance charge that is posted to the account relates to activity for which a finance charge was debited or credited to the account in a previous billing cycle (for example, if the finance charge relates to an adjustment such as the resolution of a billing error dispute, or an unintentional posting error, or a payment by check that was later returned unpaid for insufficient funds or other reasons), the creditor shall at its option:</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1.</inline> Calculate the annual percentage rate in accordance with ii.A. of this paragraph, or</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2.</inline> Disclose the finance charge adjustment on the periodic statement and calculate the annual percentage rate for the current billing cycle without including the finance charge adjustment in the numerator and balances associated with the finance charge adjustment in the denominator.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14(c)(1) Solely periodic rates imposed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic rates.</inline> Section 226.14(c)(1) applies if the only finance charge imposed is due to the application of a periodic rate to a balance. The creditor may compute the annual percentage rate either:</p>
<p style="-uslm-sgm:P">i. By multiplying each periodic rate by the number of periods in the year; or</p>
<p style="-uslm-sgm:P">ii. By the “quotient” method. This method refers to a composite annual percentage rate when different periodic rates apply to different balances. For example, a particular plan may involve a periodic rate of <inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent on balances up to $500, and 1 percent on balances over $500. If, in a given cycle, the consumer has a balance of $800, the finance charge would consist of $7.50 (500 × .015) plus $3.00 (300 × .01), for a total finance charge of $10.50. The annual percentage rate for this period may be disclosed either as 18% on $500 and 12 percent on $300, or as 15.75 percent on a balance of $800 (the quotient of $10.50 divided by $800, multiplied by 12).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14(c)(2) Minimum or fixed charge, but not transaction charge, imposed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Certain charges not based on periodic rates.</inline> Section 226.14(c)(2) specifies use of the quotient method to determine the annual percentage rate if the finance charge imposed includes a certain charge not due to the application of a periodic rate (other than <?page num="633"?>a charge relating to a specific transaction). For example, if the creditor imposes a minimum $1 finance charge on all balances below $50, and the consumer's balance was $40 in a particular cycle, the creditor would disclose an annual percentage rate of 30 percent (1/40 × 12).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No balance.</inline> If there is no balance to which the finance charge is applicable, an annual percentage rate cannot be determined under <ref href="/us/cfr/t12/s226.14/c/2">§ 226.14(c)(2)</ref>. This could occur not only when minimum charges are imposed on an account with no balance, but also when a periodic rate is applied to advances from the date of the transaction. For example, if on May 19 the consumer pays the new balance in full from a statement dated May 1, and has no further transactions reflected on the June 1 statement, that statement would reflect a finance charge with no account balance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14(c)(3) Transaction charge imposed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transaction charges.</inline> i. Section 226.14(c)(3) transaction charges include, for example:</p>
<p style="-uslm-sgm:P">A. A loan fee of $10 imposed on a particular advance.</p>
<p style="-uslm-sgm:P">B. A charge of 3 percent of the amount of each transaction.</p>
<p style="-uslm-sgm:P">ii. The reference to avoiding duplication in the computation requires that the amounts of transactions on which transaction charges were imposed not be included both in the amount of total balances and in the “other amounts on which a finance charge was imposed” figure. In a multifeatured plan, creditors may consider each bona fide feature separately in the calculation of the denominator. A creditor has considerable flexibility in defining features for open-end plans, as long as the creditor has a reasonable basis for the distinctions. For further explanation and examples of how to determine the components of this formula, see appendix F to part 226.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Daily rate with specific transaction charge.</inline> Section 226.14(c)(3) sets forth an acceptable method for calculating the annual percentage rate if the finance charge results from a charge relating to a specific transaction and the application of a daily periodic rate. This section includes the requirement that the creditor follow the rules in appendix F to part 226 in calculating the annual percentage rate, especially the provision in the introductory section of appendix F which addresses the daily rate/transaction charge situation by providing that the “average of daily balances” shall be used instead of the “sum of the balances.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14(d) Calculations where daily periodic rate applied.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Quotient method.</inline> Section 226.14(d) addresses use of a daily periodic rate(s) to determine some or all of the finance charge and use of the quotient method to determine the annual percentage rate. Since the quotient formula in <ref href="/us/cfr/t12/s226.14/c/1/ii">§ 226.14(c)(1)(ii)</ref> and (c)(2) cannot be used when a daily rate is being applied to a series of daily balances, <ref href="/us/cfr/t12/s226.14/d">§ 226.14(d)</ref> provides two alternative ways to calculate the annual percentage rate—either of which satisfies the provisions of <ref href="/us/cfr/t12/s226.7/a/7">§ 226.7(a)(7)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Daily rate with specific transaction charge.</inline> If the finance charge results from a charge relating to a specific transaction and the application of a daily periodic rate, see comment 14(c)(3)–2 for guidance on an appropriate calculation method.</p>
<heading style="-uslm-sgm:HD2">Section 226.15—Right of Rescission</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transactions not covered.</inline> Credit extensions that are not subject to the regulation are not covered by <ref href="/us/cfr/t12/s226.15">§ 226.15</ref> even if the customer's principal dwelling is the collateral securing the credit. For this purpose, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">credit extensions</inline> also would include the occurrences listed in Comment 15(a)(1)–1. For example, the right of rescission does not apply to the opening of a business-purpose credit line, even though the loan is secured by the customer's principal dwelling.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">15(a) Consumer's right to rescind.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15(a)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Occurrences subject to right.</inline> Under an open-end credit plan secured by the consumer's principal dwelling, the right of rescission generally arises with each of the following occurrences:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Opening the account.</p>
<p style="-uslm-sgm:P">• Each credit extension.</p>
<p style="-uslm-sgm:P">• Increasing the credit limit.</p>
<p style="-uslm-sgm:P">• Adding to an existing account a security interest in the consumer's principal dwelling.</p>
<p style="-uslm-sgm:P">• Increasing the dollar amount of the security interest taken in the dwelling to secure the plan. For example, a consumer may open an account with a $10,000 credit limit, $5,000 of which is initially secured by the consumer's principal dwelling. The consumer has the right to rescind at that time and (except as noted in <ref href="/us/cfr/t12/s226.15/a/1/ii">§ 226.15(a)(1)(ii)</ref>) with each extension on the account. Later, if the creditor decides that it wants the credit line fully secured, and increases the amount of its interest in the consumer's dwelling, the consumer has the right to rescind the increase.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions.</inline> Although the consumer generally has the right to rescind with each transaction on the account, section 125(e) of the Act provides an exception: the creditor need not provide the right to rescind at the time of each credit extension made under an open-end credit plan secured by the consumer's principal dwelling to the extent that the credit extended is in accordance with a previously established credit limit for the plan. This limited rescission option is available whether or not the plan existed prior to the effective date of the Act.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security interest arising from transaction.</inline> In order for the right of rescission to apply, <?page num="634"?>the security interest must be retained as part of the credit transaction. For example:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A security interest that is acquired by a contractor who is also extending the credit in the transaction.</p>
<p style="-uslm-sgm:P">• A mechanic's or materialman's lien that is retained by a subcontractor or supplier of a contractor-creditor, even when the latter has waived its own security interest in the consumer's home.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">The security interest is not part of the credit transaction, and therefore the transaction is not subject to the right of rescission when, for example:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A mechanic's or materialman's lien is obtained by a contractor who is not a party to the credit transaction but merely is paid with the proceeds of the consumer's cash advance.</p>
<p style="-uslm-sgm:P">• All security interests that may arise in connection with the credit transaction are validly waived.</p>
<p style="-uslm-sgm:P">• The creditor obtains a lien and completion bond that in effect satisfies all liens against the consumer's principal dwelling as a result of the credit transaction.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Although liens arising by operation of law are not considered security interests for purposes of disclosure under <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, that section specifically includes them in the definition for purposes of the right of rescission. Thus, even though an interest in the consumer's principal dwelling is not a required disclosure under <ref href="/us/cfr/t12/s226.6/c">§ 226.6(c)</ref>, it may still give rise to the right of rescission.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer.</inline> To be a consumer within the meaning of <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, that person must at least have an ownership interest in the dwelling that is encumbered by the creditor's security interest, although that person need not be a signatory to the credit agreement. For example, if only one spouse enters into a secured plan, the other spouse is a consumer if the ownership interest of that spouse is subject to the security interest.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal dwelling.</inline> A consumer can only have one principal dwelling at a time. (But see comment 15(a)(1)–6.) A vacation or other second home would not be a principal dwelling. A transaction secured by a second home (such as a vacation home) that is not currently being used as the consumer's principal dwelling is not rescindable, even if the consumer intends to reside there in the future. When a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within one year or upon completion of construction, the new dwelling is considered the principal dwelling if it secures the open-end credit line. In that case, the transaction secured by the new dwelling is a residential mortgage transaction and is not rescindable. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, an advance on an open-end line to finance B and secured by B is a residential mortgage transaction. Dwelling, as defined in <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, includes structures that are classified as personalty under state law. For example, a transaction secured by a mobile home, trailer, or houseboat used as the consumer's principal dwelling may be rescindable.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special rule for principal dwelling.</inline> Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, a credit plan or extension that is subject to Regulation Z and is secured by the equity in the consumer's current principal dwelling is subject to the right of rescission regardless of the purpose of that loan (for example, an advance to be used as a bridge loan). For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a loan to finance B and secured by A is subject to the right of rescission. Moreover, a loan secured by both A and B is, likewise, rescindable.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer's exercise of right.</inline> The consumer must exercise the right of rescission in writing but not necessarily on the notice supplied under <ref href="/us/cfr/t12/s226.15/b">§ 226.15(b)</ref>. Whatever the means of sending the notification of rescission—mail, telegram or other written means—the time period for the creditor's performance under <ref href="/us/cfr/t12/s226.15/d/2">§ 226.15(d)(2)</ref> does not begin to run until the notification has been received. The creditor may designate an agent to receive the notification so long as the agent's name and address appear on the notice provided to the consumer under <ref href="/us/cfr/t12/s226.15/b">§ 226.15(b)</ref>. Where the creditor fails to provide the consumer with a designated address for sending the notification of rescission, delivery of the notification to the person or address to which the consumer has been directed to send payments constitutes delivery to the creditor or assignee. State law determines whether delivery of the notification to a third party other than the person to whom payments are made is delivery to the creditor or assignee, in the case where the creditor fails to designate an address for sending the notification of rescission. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15 (a)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rescission period.</inline> the period within which the consumer may exercise the right to rescind runs for 3 business days from the last of 3 events:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• The occurrence that gives rise to the right of rescission.</p>
<p style="-uslm-sgm:P">• Delivery of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">all</inline> material disclosures that are relevant to the plan.</p>
<p style="-uslm-sgm:P">• Delivery to the consumer of the required rescission notice.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">For example, an account is opened on Friday, June 1, and the disclosures and notice of <?page num="635"?>the right to rescind were given on Thursday, May 31; the rescission period will expire at midnight of the third business day after June 1—that is, Tuesday June 5. In another example, if the disclosures are given and the account is opened on Friday, June 1, and the rescission notice is given on Monday, June 4, the rescission period expires at midnight of the third business day after June 4—that is Thursday, June 7. The consumer must place the rescission notice in the mail, file it for telegraphic transmission, or deliver it to the creditor's place of business within that period in order to exercise the right.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Material disclosures.</inline> Footnote 36 sets forth the material disclosures that must be provided before the rescission period can begin to run. The creditor must provide sufficient information to satisfy the requirements of <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> for these disclosures. A creditor may satisfy this requirement by giving an initial disclosure statement that complies with the regulation. Failure to give the other required initial disclosures (such as the billing rights statement) or the information required under section 226.5b. does not prevent the running of the rescission period, although that failure may result in civil liability or administrative sanctions. The payment terms set forth in footnote 36 apply to any repayment phase set forth in the agreement. Thus, the payment terms described in <ref href="/us/cfr/t12/s226.6/e/2">§ 226.6(e)(2)</ref> for any repayment phase as well as for the draw period are “material disclosures.” </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Material disclosures—variable rate program.</inline> For a variable rate program, the material disclosures also include the disclosures listed in footnote 12 to <ref href="/us/cfr/t12/s226.6/a/2">§ 226.6(a)(2)</ref>: the circumstances under which the rate may increase; the limitations on the increase; and the effect of an increase. The disclosures listed in footnote 12 to section 226.6(a)(2) for any repayment phase also are material disclosures for variable-rate programs.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unexpired right of rescission.</inline> When the creditor has failed to take the action necessary to start the three-day rescission period running the right to rescind automatically lapses on the occurrence of the earliest of the following three events:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• The expiration of three years after the occurrence giving rise to the right of rescission.</p>
<p style="-uslm-sgm:P">• Transfer of all the consumer's interest in the property.</p>
<p style="-uslm-sgm:P">• Sale of the consumer's interest in the property, including a transaction in which the consumer sells the dwelling and takes back a purchase money note and mortgage or retains legal title through a device such as an installment sale contract.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Transfer of all the consumer's interest includes such transfers as bequests and gifts. A sale or transfer of the property need not be voluntary to terminate the right to rescind. For example, a foreclosure sale would terminate an unexpired right to rescind. As provided in section 125 of the act, the three-year limit may be extended by an administrative proceeding to enforce the provisions of <ref href="/us/cfr/t12/s226.15">§ 226.15</ref>. A partial transfer of the consumer's interest, such as a transfer bestowing co-ownership on a spouse, does not terminate the right of rescission. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15(a)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Joint owners.</inline> When more than one consumer has the right to rescind a transaction, any one of them may exercise that right and cancel the transaction on behalf of all. For example, if both a husband and wife have the right to rescind a transaction, either spouse acting alone may exercise the right and both are bound by the rescission.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">15(b) Notice of right to rescind.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Who receives notice.</inline> Each consumer entitled to rescind must be given:</p>
<p style="-uslm-sgm:P">• Two copies of the rescission notice.</p>
<p style="-uslm-sgm:P">• The material disclosures.</p>
<p style="-uslm-sgm:P">In a transaction involving joint owners, both of whom are entitled to rescind, both must receive the notice of the right to rescind and disclosures. For example, if both spouses are entitled to rescind a transaction, each must receive two copies of the rescission notice (one copy to each if the notice is provided in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act) and one copy of the disclosures.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> The rescission notice may be physically separated from the material disclosures or combined with the material disclosures, so long as the information required to be included on the notice is set forth in a clear and conspicuous manner. See the model notices in appendix G.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content.</inline> The notice must include all of the information outlined in <ref href="/us/cfr/t12/s226.15/b/1">§ 226.15(b)(1)</ref> through (5). The requirement in <ref href="/us/cfr/t12/s226.15/b">§ 226.15(b)</ref> that the transaction or occurrence be identified may be met by providing the date of the transaction or occurrence. The notice may include additional information related to the required information, such as:</p>
<p style="-uslm-sgm:P">• A description of the property subject to the security interest. </p>
<p style="-uslm-sgm:P">• A statement that joint owners may have the right to rescind and that a rescission by one is effective for all.</p>
<p style="-uslm-sgm:P">• The name and address of an agent of the creditor to receive notice of rescission.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Time of providing notice.</inline> The notice required by <ref href="/us/cfr/t12/s226.15/b">§ 226.15(b)</ref> need not be given before the occurrence giving rise to the right of rescission. The creditor may deliver the notice after the occurrence, but the rescission period will not begin to run until the notice is given. For example, if the creditor provides the notice on May 15, but disclosures were given and the credit limit was raised on May 10, the 3-business-day rescission period will run from May 15.
<?page num="636"?></p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">15(c) Delay of creditor's performance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Until the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded, the creditor must not, either directly or through a third party: </p>
<p style="-uslm-sgm:P">• Disburse advances to the consumer. </p>
<p style="-uslm-sgm:P">• Begin performing services for the consumer. </p>
<p style="-uslm-sgm:P">• Deliver materials to the consumer. </p>
<p style="-uslm-sgm:P">A creditor may, however, continue to allow transactions under an existing open-end credit plan during a rescission period that results solely from the addition of a security interest in the consumer's principal dwelling. (See comment 15(c)–3 for other actions that may be taken during the delay period.) </p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrow.</inline> The creditor may disburse advances during the rescission period in a valid escrow arrangement. The creditor may not, however, appoint the consumer as “trustee” or “escrow agent” and distribute funds to the consumer in that capacity during the delay period.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Actions during the delay period.</inline> Section 226.15(c) does not prevent the creditor from taking other steps during the delay, short of beginning actual performance. Unless otherwise prohibited, such as by state law, the creditor may, for example: </p>
<p style="-uslm-sgm:P">• Prepare the cash advance check. </p>
<p style="-uslm-sgm:P">• Perfect the security interest. </p>
<p style="-uslm-sgm:P">• Accrue finance charges during the delay period. </p>
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<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Performance by third party.</inline> The creditor is relieved from liability for failure to delay performance if a third party with no knowledge that the rescission right has been activated provides materials or services, as long as any debt incurred for materials or services obtained by the consumer during the rescission period is not secured by the security interest in the consumer's dwelling. For example, if a consumer uses a bank credit card to purchase materials from a merchant in an amount below the floor limit, the merchant might not contact the card issuer for authorization and therefore would not know that materials should not be provided.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Delay beyond rescission period.</inline> The creditor must wait until it is reasonably satisfied that the consumer has not rescinded. For example, the creditor may satisfy itself by doing one of the following:</p>
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<p style="-uslm-sgm:P">• Waiting a reasonable time after expiration of the rescission period to allow for delivery of a mailed notice.</p>
<p style="-uslm-sgm:P">• Obtaining a written statement from the consumer that the right has not been exercised.</p>
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<p style="-uslm-sgm:P">When more than one consumer has the right to rescind, the creditor cannot reasonably rely on the assurance of only one consumer, because other consumers may exercise the right.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">15(d) Effects of rescission.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15(d)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Termination of security interest.</inline> Any security interest giving rise to the right of rescission becomes void when the consumer exercises the right of rescission. The security interest is automatically negated, regardless of its status and whether or not it was recorded or perfected. Under <ref href="/us/cfr/t12/s226.15/d/2">§ 226.15(d)(2)</ref>, however, the creditor must take any action necessary to reflect the fact that the security interest no longer exists.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Extent of termination.</inline> The creditor's security interest is void to the extent that it is related to the occurrence giving rise to the right of rescission. For example, upon rescission:</p>
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<p style="-uslm-sgm:P">• If the consumer's right to rescind is activated by the opening of a plan, any security interest in the principal dwelling is void.</p>
<p style="-uslm-sgm:P">• If the right arises due to an increase in the credit limit, the security interest is void as to the amount of credit extensions over the prior limit, but the security interest in amounts up to the original credit limit is unaffected.</p>
<p style="-uslm-sgm:P">• If the right arises with each individual credit extension, then the interest is void as to that extension, and other extensions are unaffected.</p>
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<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15(d)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Refunds to consumer.</inline> The consumer cannot be required to pay any amount in the form of money or property either to the creditor or to a third party as part of the occurrence subject to the right of rescission. Any amounts of this nature already paid by the consumer must be refunded. “Any amount” includes finance charges already accrued, as well as other charges such as broker fees, application and commitment fees, or fees for a title search or appraisal, whether paid to the creditor, paid by the consumer directly to a third party, or passed on from the creditor to the third party. It is irrelevant that these amounts may not represent profit to the creditor. For example:</p>
<p style="-uslm-sgm:P">• If the occurrence is the opening of the plan, the creditor must return any membership or application fee paid.</p>
<p style="-uslm-sgm:P">• If the occurrence is the increase in a credit limit or the addition of a security interest, the creditor must return any fee imposed for a new credit report or filing fees.</p>
<p style="-uslm-sgm:P">• If the occurrence is a credit extension, the creditors must return fees such as application, title, and appraisal or survey fees, as well as any finance charges related to the credit extension.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts not refundable to consumer.</inline> Creditors need not return any money given by the consumer to a third party outside of the occurrence, such as costs incurred for a building permit or for a zoning variance. Similarly, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any amount</inline> does not apply to money or property given by the creditor to the consumer; those amounts <?page num="637"?>must be tendered by the consumer to the creditor under <ref href="/us/cfr/t12/s226.15/d/3">§ 226.15(d)(3)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reflection of security interest termination.</inline> The creditor must take whatever steps are necessary to indicate that the security interest is terminated. Those steps include the cancellation of documents creating the security interest, and the filing of release or termination statements in the public record. In a transaction involving subcontractors or suppliers that also hold security interests related to the occurrence rescinded by the consumer, the creditor must insure that the termination of their security interests is also reflected. The 20-day period for the creditor's action refers to the time within which the creditor must begin the process. It does not require all necessary steps to have been completed within that time, but the creditor is responsible for seeing the process through to completion.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15(d)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Property exchange.</inline> Once the creditor has fulfilled its obligation under <ref href="/us/cfr/t12/s226.15/d/2">§ 226.15(d)(2)</ref>, the consumer must tender to the creditor any property or money the creditor has already delivered to the consumer. At the consumer's option, property may be tendered at the location of the property. For example, if fixtures or furniture have been delivered to the consumer's home, the consumer may tender them to the creditor by making them available for pick-up at the home, rather than physically returning them to the creditor's premises. Money already given to the consumer <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">must</inline> be tendered at the creditor's place of business. For purpose of property exchange, the following additional rules apply:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A cash advance is considered money for purposes of this section even if the creditor knows what the consumer intends to purchase with the money.</p>
<p style="-uslm-sgm:P">• In a 3-party open-end credit plan (that is, if the creditor and seller are not the same or related persons), extensions by the creditor that are used by the consumer for purchases from third-party sellers are considered to be the same as cash advances for purposes of tendering value to the creditor, even though the transaction is a purchase for other purposes under the regulation. For example, if a consumer exercises the unexpired right to rescind after using a 3-party credit card for one year, the consumer would tender the amount of the purchase price for the items charged to the account, rather than tendering the items themselves to the creditor.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable value.</inline> If returning the property would be extremely burdensome to the consumer, the consumer may offer the creditor its reasonable value rather than returning the property itself. For example, if building materials have already been incorporated into the consumer's dwelling, the consumer may pay their reasonable value.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 15(d)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Modifications.</inline> The procedures outlined in <ref href="/us/cfr/t12/s226.15/d/2">§ 226.15(d)(2)</ref> and (3) may be modified by a court. For example, when a consumer is in bankruptcy proceedings and prohibited from returning anything to the creditor, or when the equities dictate, a modification might be made. The sequence of procedures under <ref href="/us/cfr/t12/s226.15/d/2">§ 226.15(d)(2)</ref> and (3), or a court's modification of those procedures under <ref href="/us/cfr/t12/s226.15/d/4">§ 226.15(d)(4)</ref>, does not affect a consumer's substantive right to rescind and to have the loan amount adjusted accordingly. Where the consumer's right to rescind is contested by the creditor, a court would normally determine whether the consumer has a right to rescind and determine the amounts owed before establishing the procedures for the parties to tender any money or property. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">15(e) Consumer's waiver of right to rescind.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Need for waiver.</inline> To waive the right to rescind, the consumer must have a bona fide personal financial emergency that must be met before the end of the rescission period. The existence of the consumer's waiver will not, of itself, automatically insulate the creditor from liability for failing to provide the right of rescission.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Procedure.</inline> To waive or modify the right to rescind, the consumer must give a written statement that specifically waives or modifies the right, and also includes a brief description of the emergency. Each consumer entitled to rescind must sign the waiver statement. In a transaction involving multiple consumers, such as a husband and wife using their home as collateral, the waiver must bear the signatures of both spouses.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">15(f) Exempt transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Residential mortgage transaction.</inline> Although residential mortgage transactions would seldom be made on bona fide open-end credit plans (under which repeated transactions must be reasonably contemplated), an advance on an open-end plan could be for a downpayment for the purchase of a dwelling that would then secure the remainder of the line. In such a case, only the particular advance for the downpayment would be exempt from the rescission right.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State creditors.</inline> Cities and other political subdivisions of states acting as creditors are not exempt from <ref href="/us/cfr/t12/s226.15">§ 226.15</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Spreader clause.</inline> When the creditor holds a mortgage or deed of trust on the consumer's principal dwelling and that mortgage or deed of trust contains a “spreader clause” (also known as a “dragnet” or cross-collateralization clause), subsequent occurrences such as the opening of a plan or individual credit extensions are subject to the right of rescission to the same degree as if the security interest were taken directly to secure the open-end plan, unless the creditor effectively waives its security interest under the spreader clause with respect to the subsequent open-end credit extensions.
<?page num="638"?></p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 113, 125, 130, and the Housing and Community Development Technical Amendments Act of 1984, Sec. 205 (<ref href="/us/pl/98/479">Pub. L. 98–479</ref>).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.2 and appendix G.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.9.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 Changes:</inline> Section 226.15 reflects the statutory amendments of 1980, providing for a limited right of rescission when individual credit extensions are made in accordance with a previously established credit limit for an open-end credit plan. The 1980 amendments provided that this limited rescission right be available for a three-year trial period. However, <ref href="/us/pl/98/479">Pub. L. 98–479</ref> now permanently exempts such individual credit extensions from the right of rescission.</p>
<p style="-uslm-sgm:P">The right to rescind applies not only to real property used as the consumer's principal dwelling, but to personal property as well. The regulation provides no specific text or format for the rescission notice.</p>
<p style="-uslm-sgm:P">When a consumer exercises the right to rescind, the creditor now has 20 days to return a consumer's money or property and take the necessary action to terminate the security interest. The creditor has 20 days to take possession of the money or property after the consumer's tender before the consumer may keep it without further obligation.</p>
<p style="-uslm-sgm:P">Under the revised regulation, the waiver provision has been relaxed. The lien status of the mortgage is irrelevant for purposes of the residential mortgage transaction exemption. The exemption for agricultural loans from the right to rescind has been deleted.</p>
<heading style="-uslm-sgm:HD2">Section 226.16—Advertising</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—general.</inline> Section 226.16 is subject to the general “clear and conspicuous” standard for subpart B (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> <ref href="/us/cfr/t12/s226.5/a/1">§ 226.5(a)(1)</ref>) but prescribes no specific rules for the format of the necessary disclosures, other than the format requirements related to the disclosure of a promotional rate or payment under <ref href="/us/cfr/t12/s226.16/d/6">§ 226.16(d)(6)</ref>, a promotional rate or promotional fee under <ref href="/us/cfr/t12/s226.16/g">§ 226.16(g)</ref>, or a deferred interest or similar offer under <ref href="/us/cfr/t12/s226.16/h">§ 226.16(h)</ref>. Other than the disclosure of certain terms described in <ref href="/us/cfr/t12/s226.16/d/6">§§ 226.16(d)(6)</ref>, (g), or (h), the credit terms need not be printed in a certain type size nor need they appear in any particular place in the advertisement.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—promotional rates or payments; deferred interest or similar offers.</inline> i. For purposes of <ref href="/us/cfr/t12/s226.16/d/6">§ 226.16(d)(6)</ref>, a clear and conspicuous disclosure means that the required information in <ref href="/us/cfr/t12/s226.16/d/6/ii/A">§ 226.16(d)(6)(ii)(A)</ref>–(C) is disclosed with equal prominence and in close proximity to the promotional rate or payment to which it applies. If the information in <ref href="/us/cfr/t12/s226.16/d/6/ii/A">§ 226.16(d)(6)(ii)(A)</ref>–(C) is the same type size and is located immediately next to or directly above or below the promotional rate or payment to which it applies, without any intervening text or graphical displays, the disclosures would be deemed to be equally prominent and in close proximity. Notwithstanding the above, for electronic advertisements that disclose promotional rates or payments, compliance with the requirements of <ref href="/us/cfr/t12/s226.16/c">§ 226.16(c)</ref> is deemed to satisfy the clear and conspicuous standard.</p>
<p style="-uslm-sgm:P">ii. For purposes of <ref href="/us/cfr/t12/s226.16/g/4">§ 226.16(g)(4)</ref> as it applies to written or electronic advertisements only, a clear and conspicuous disclosure means the required information in <ref href="/us/cfr/t12/s226.16/g/4/i">§ 226.16(g)(4)(i)</ref> and, as applicable, (g)(4)(ii) and (g)(4)(iii) must be equally prominent to the promotional rate or promotional fee to which it applies. If the information in <ref href="/us/cfr/t12/s226.16/g/4/i">§ 226.16(g)(4)(i)</ref> and, as applicable, (g)(4)(ii) and (g)(4)(iii) is the same type size as the promotional rate or promotional fee to which it applies, the disclosures would be deemed to be equally prominent. For purposes of <ref href="/us/cfr/t12/s226.16/h/3">§ 226.16(h)(3)</ref> as it applies to written or electronic advertisements only, a clear and conspicuous disclosure means the required information in <ref href="/us/cfr/t12/s226.16/h/3">§ 226.16(h)(3)</ref> must be equally prominent to each statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period. If the information required to be disclosed under <ref href="/us/cfr/t12/s226.16/h/3">§ 226.16(h)(3)</ref> is the same type size as the statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period, the disclosure would be deemed to be equally prominent.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—Internet advertisements for home-equity plans.</inline> For purposes of this section, a clear and conspicuous disclosure for visual text advertisements on the Internet for home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> means that the required disclosures are not obscured by techniques such as graphical displays, shading, coloration, or other devices and comply with all other requirements for clear and conspicuous disclosures under <ref href="/us/cfr/t12/s226.16/d">§ 226.16(d)</ref>. (See also comment 16(c)(1)–2.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—televised advertisements for home-equity plans.</inline> For purposes of this section, including alternative disclosures as provided for by <ref href="/us/cfr/t12/s226.16/e">§ 226.16(e)</ref>, a clear and conspicuous disclosure in the context of visual text advertisements on television for home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> means that the required disclosures are not obscured by techniques such as graphical displays, shading, coloration, or other devices, are displayed in a manner that allows for a consumer to read the information required to be disclosed, and comply with all other requirements for clear and conspicuous disclosures under <ref href="/us/cfr/t12/s226.16/d">§ 226.16(d)</ref>. For example, very fine print in a television <?page num="639"?>advertisement would not meet the clear and conspicuous standard if consumers cannot see and read the information required to be disclosed.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—oral advertisements for home-equity plans.</inline> For purposes of this section, including alternative disclosures as provided for by <ref href="/us/cfr/t12/s226.16/e">§ 226.16(e)</ref>, a clear and conspicuous disclosure in the context of an oral advertisement for home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, whether by radio, television, the Internet, or other medium, means that the required disclosures are given at a speed and volume sufficient for a consumer to hear and comprehend them. For example, information stated very rapidly at a low volume in a radio or television advertisement would not meet the clear and conspicuous standard if consumers cannot hear and comprehend the information required to be disclosed.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Expressing the annual percentage rate in abbreviated form.</inline> Whenever the annual percentage rate is used in an advertisement for open-end credit, it may be expressed using a readily understandable abbreviation such as APR.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective date.</inline> For guidance on the applicability of the Board's revisions to <ref href="/us/cfr/t12/s226.16">§ 226.16</ref> published on <date date="2008-07-30">July 30, 2008</date>, see comment 1(d)(5)–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">16(a) Actually available terms.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> To the extent that an advertisement mentions specific credit terms, it may state only those terms that the creditor is actually prepared to offer. For example, a creditor may not advertise a very low annual percentage rate that will not in fact be available at any time. Section 226.16(a) is not intended to inhibit the promotion of new credit programs, but to bar the advertising of terms that are not and will not be available. For example, a creditor may advertise terms that will be offered for only a limited period, or terms that will become available at a future date.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Specific credit terms. Specific credit terms</inline> is not limited to the disclosures required by the regulation but would include any specific components of a credit plan, such as the minimum periodic payment amount or seller's points in a plan secured by real estate.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">16(b) Advertisement of terms that require additional disclosures.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph (b)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Triggering terms.</inline> Negative as well as affirmative references trigger the requirement for additional information. For example, if a creditor states <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">no interest</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">no annual membership fee</inline> in an advertisement, additional information must be provided. Other examples of terms that trigger additional disclosures are:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Small monthly service charge on the remaining balance,</inline> which describes how the amount of a finance charge will be determined.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">12 percent Annual Percentage Rate</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">A $15 annual membership fee buys you $2,000 in credit,</inline> which describe required disclosures under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Implicit terms.</inline> Section 226.16(b) applies even if the triggering term is not stated explicitly, but may be readily determined from the advertisement.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Membership fees.</inline> A membership fee is not a triggering term nor need it be disclosed under <ref href="/us/cfr/t12/s226.16/b/1/iii">§ 226.16(b)(1)(iii)</ref> if it is required for participation in the plan whether or not an open-end credit feature is attached. (See comment 6(a)(2)–1 and <ref href="/us/cfr/t12/s226.6/b/3/iii/B">§ 226.6(b)(3)(iii)(B)</ref>.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred billing and deferred payment programs.</inline> Statements such as “Charge it—you won't be billed until May” or “You may skip your January payment” are not in themselves triggering terms, since the timing for initial billing or for monthly payments are not terms required to be disclosed under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>. However, a statement such as “No interest charges until May” or any other statement regarding when interest or finance charges begin to accrue is a triggering term, whether appearing alone or in conjunction with a description of a deferred billing or deferred payment program such as the examples above.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plans.</inline> In disclosing the annual percentage rate in an advertisement for a variable-rate plan, as required by <ref href="/us/cfr/t12/s226.16/b/1/ii">§ 226.16(b)(1)(ii)</ref>, the creditor may use an insert showing the current rate; or may give the rate as of a specified recent date. The additional requirement in <ref href="/us/cfr/t12/s226.16/b/1/ii">§ 226.16(b)(1)(ii)</ref> to disclose the variable-rate feature may be satisfied by disclosing that the annual percentage rate may vary or a similar statement, but the advertisement need not include the information required by <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref> or (b)(4)(ii).</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Membership fees for open-end (not home-secured) plans.</inline> For purposes of <ref href="/us/cfr/t12/s226.16/b/1/iii">§ 226.16(b)(1)(iii)</ref>, membership fees that may be imposed on open-end (not home-secured) plans shall have the same meaning as in <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph (b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumptions.</inline> In stating the total of payments and the time period to repay the obligation, assuming that the consumer pays only the periodic payment amounts advertised, as required under <ref href="/us/cfr/t12/s226.16/b/2">§ 226.16(b)(2)</ref>, the following additional assumptions may be made:</p>
<p style="-uslm-sgm:P">i. Payments are made timely so as not to be considered late by the creditor;</p>
<p style="-uslm-sgm:P">ii. Payments are made each period, and no debt cancellation or suspension agreement, or skip payment feature applies to the account;</p>
<p style="-uslm-sgm:P">iii. No interest rate changes will affect the account;</p>
<p style="-uslm-sgm:P">iv. No other balances are currently carried or will be carried on the account;</p>
<p style="-uslm-sgm:P">v. No taxes or ancillary charges are or will be added to the obligation;
<?page num="640"?></p>
<p style="-uslm-sgm:P">vi. Goods or services are delivered on a single date; and</p>
<p style="-uslm-sgm:P">vii. The consumer is not currently and will not become delinquent on the account.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Positive periodic payment amounts.</inline> Only positive periodic payment amounts trigger the additional disclosures under <ref href="/us/cfr/t12/s226.16/b/2">§ 226.16(b)(2)</ref>. Therefore, if the periodic payment amount advertised is not a positive amount (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> “No payments”), the advertisement need not state the total of payments and the time period to repay the obligation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">16(c) Catalogs or other multiple-page advertisements; electronic advertisements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> The multiple-page advertisements to which <ref href="/us/cfr/t12/s226.16/c">§ 226.16(c)</ref> refers are advertisements consisting of a series of sequentially numbered pages—for example, a supplement to a newspaper. A mailing consisting of several separate flyers or pieces of promotional material in a single envelope does not constitute a single multiple-page advertisement for purposes of <ref href="/us/cfr/t12/s226.16/c">§ 226.16(c)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 16(c)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.16(c)(1) permits creditors to put credit information together in one place in a catalog or other multiple-page advertisement or an electronic advertisement (such as an advertisement appearing on an Internet Web site). The rule applies only if the advertisement contains one or more of the triggering terms from <ref href="/us/cfr/t12/s226.16/b">§ 226.16(b)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic advertisement.</inline> If an electronic advertisement (such as an advertisement appearing on an Internet Web site) contains the table or schedule permitted under <ref href="/us/cfr/t12/s226.16/c/1">§ 226.16(c)(1)</ref>, any statement of terms set forth in <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> appearing anywhere else in the advertisement must clearly direct the consumer to the location where the table or schedule begins. For example, a term triggering additional disclosures may be accompanied by a link that directly takes the consumer to the additional information.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 16(c)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Table or schedule if credit terms depend on outstanding balance.</inline> If the credit terms of a plan vary depending on the amount of the balance outstanding, rather than the amount of any property purchased, a table or schedule complies with <ref href="/us/cfr/t12/s226.16/c/2">§ 226.16(c)(2)</ref> if it includes the required disclosures for representative balances. For example, a creditor would disclose that a periodic rate of 1.5% is applied to balances of $500 or less, and a 1% rate is applied to balances greater than $500.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">16(d) Additional requirements for home-equity plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Trigger terms.</inline> Negative as well as affirmative references trigger the requirement for additional information. For example, if a creditor states <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">no annual fee, no points,</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">we waive closing costs</inline> in an advertisement, additional information must be provided. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 16(d)–4 regarding the use of a phrase such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">no closing costs.</inline>) Inclusion of a statement such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">low fees,</inline> however, would not trigger the need to state additional information. References to payment terms include references to the draw period or any repayment period, to the length of the plan, to how the minimum payments are determined and to the timing of such payments.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees to open the plan.</inline> Section 226.16(d)(1)(i) requires a disclosure of any fees imposed by the creditor or a third party to open the plan. In providing the fee information required under this paragraph, the corresponding rules for disclosure of this information apply. For example, fees to open the plan may be stated as a range. Similarly, if property insurance is required to open the plan, a creditor either may estimate the cost of the insurance or provide a statement that such insurance is required. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.5b/d/7">§ 226.5b(d)(7)</ref> and (d)(8).)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statements of tax deductibility.</inline> An advertisement that refers to deductibility for tax purposes is not misleading if it includes a statement such as “consult a tax advisor regarding the deductibility of interest.” An advertisement distributed in paper form or through the Internet (rather than by radio or television) that states that the advertised extension of credit may exceed the fair market value of the consumer's dwelling is not misleading if it clearly and conspicuously states the required information in <ref href="/us/cfr/t12/s226.16/d/4/i">§§ 226.16(d)(4)(i)</ref> and (d)(4)(ii).</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Misleading terms prohibited.</inline> Under <ref href="/us/cfr/t12/s226.16/d/5">§ 226.16(d)(5)</ref>, advertisements may not refer to home-equity plans as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">free money</inline> or use other misleading terms. For example, an advertisement could not state “no closing costs” or “we waive closing costs” if consumers may be required to pay any closing costs, such as recordation fees. In the case of property insurance, however, a creditor may state, for example, “no closing costs” even if property insurance may be required, as long as the creditor also provides a statement that such insurance may be required. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to this section regarding fees to open a plan.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotional rates and payments in advertisements for home-equity plans.</inline> Section 226.16(d)(6) requires additional disclosures for promotional rates or payments.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate plans.</inline> In advertisements for variable-rate plans, if the advertised annual percentage rate is based on (or the advertised payment is derived from) the index and margin that will be used to make rate (or payment) adjustments over the term of the loan, then there is no promotional rate or promotional payment. If, however, the advertised annual percentage rate is not based on (or the advertised payment is not derived from) the index and margin that will be used to make rate (or payment) adjustments, and a reasonably current application of the index and margin would result in a higher annual <?page num="641"?>percentage rate (or, given an assumed balance, a higher payment) then there is a promotional rate or promotional payment.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Equal prominence, close proximity.</inline> Information required to be disclosed in <ref href="/us/cfr/t12/s226.16/d/6/ii">§ 226.16(d)(6)(ii)</ref> that is immediately next to or directly above or below the promotional rate or payment (but not in a footnote) is deemed to be closely proximate to the listing. Information required to be disclosed in <ref href="/us/cfr/t12/s226.16/d/6/ii">§ 226.16(d)(6)(ii)</ref> that is in the same type size as the promotional rate or payment is deemed to be equally prominent.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts and time periods of payments.</inline> Section 226.16(d)(6)(ii)(C) requires disclosure of the amount and time periods of any payments that will apply under the plan. This section may require disclosure of several payment amounts, including any balloon payment. For example, if an advertisement for a home-equity plan offers a $100,000 five-year line of credit and assumes that the entire line is drawn resulting in a minimum payment of $800 per month for the first six months, increasing to $1,000 per month after month six, followed by a $50,000 balloon payment after five years, the advertisement must disclose the amount and time period of each of the two monthly payment streams, as well as the amount and timing of the balloon payment, with equal prominence and in close proximity to the promotional payment. However, if the final payment could not be more than twice the amount of other minimum payments, the final payment need not be disclosed.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Plans other than variable-rate plans.</inline> For a plan other than a variable-rate plan, if an advertised payment is calculated in the same way as other payments based on an assumed balance, the fact that the minimum payment could increase solely if the consumer made an additional draw does not make the payment a promotional payment. For example, if a payment of $500 results from an assumed $10,000 draw, and the payment would increase to $1,000 if the consumer made an additional $10,000 draw, the payment is not a promotional payment.</p>
<p style="-uslm-sgm:P">v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Conversion option.</inline> Some home-equity plans permit the consumer to repay all or part of the balance during the draw period at a fixed rate (rather than a variable rate) and over a specified time period. The fixed-rate conversion option does not, by itself, make the rate or payment that would apply if the consumer exercised the fixed-rate conversion option a promotional rate or payment.</p>
<p style="-uslm-sgm:P">vi. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preferred-rate provisions.</inline> Some home-equity plans contain a preferred-rate provision, where the rate will increase upon the occurrence of some event, such as the consumer-employee leaving the creditor's employ, the consumer closing an existing deposit account with the creditor, or the consumer revoking an election to make automated payments. A preferred-rate provision does not, by itself, make the rate or payment under the preferred-rate provision a promotional rate or payment.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonably current index and margin.</inline> For the purposes of this section, an index and margin is considered reasonably current if:</p>
<p style="-uslm-sgm:P">i. For direct mail advertisements, it was in effect within 60 days before mailing;</p>
<p style="-uslm-sgm:P">ii. For advertisements in electronic form it was in effect within 30 days before the advertisement is sent to a consumer's e-mail address, or in the case of an advertisement made on an Internet Web site, when viewed by the public; or</p>
<p style="-uslm-sgm:P">iii. For printed advertisements made available to the general public, including ones contained in a catalog, magazine, or other generally available publication, it was in effect within 30 days before printing.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to other sections.</inline> Advertisements for home-equity plans must comply with all provisions in <ref href="/us/cfr/t12/s226.16">§ 226.16</ref>, not solely the rules in <ref href="/us/cfr/t12/s226.16/d">§ 226.16(d)</ref>. If an advertisement contains information (such as the payment terms) that triggers the duty under <ref href="/us/cfr/t12/s226.16/d">§ 226.16(d)</ref> to state the annual percentage rate, the additional disclosures in <ref href="/us/cfr/t12/s226.16/b">§ 226.16(b)</ref> must be provided in the advertisement. While <ref href="/us/cfr/t12/s226.16/d">§ 226.16(d)</ref> does not require a statement of fees to use or maintain the plan (such as membership fees and transaction charges), such fees must be disclosed under <ref href="/us/cfr/t12/s226.16/b/1/i">§ 226.16(b)(1)(i)</ref> and (b)(1)(iii).</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inapplicability of closed-end rules.</inline> Advertisements for home-equity plans are governed solely by the requirements in <ref href="/us/cfr/t12/s226.16">§ 226.16</ref>, except <ref href="/us/cfr/t12/s226.16/g">§ 226.16(g)</ref>, and not by the closed-end advertising rules in <ref href="/us/cfr/t12/s226.24">§ 226.24</ref>. Thus, if a creditor states payment information about the repayment phase, this will trigger the duty to provide additional information under <ref href="/us/cfr/t12/s226.16">§ 226.16</ref>, but not under <ref href="/us/cfr/t12/s226.24">§ 226.24</ref>.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balloon payment. See</inline> comment 5b(d)(5)(ii)–3 for information not required to be stated in advertisements, and on situations in which the balloon payment requirement does not apply.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">16(e) Alternative disclosures—television or radio advertisements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multi-purpose telephone number.</inline> When an advertised telephone number provides a recording, disclosures must be provided early in the sequence to ensure that the consumer receives the required disclosures. For example, in providing several options—such as providing directions to the advertiser's place of business—the option allowing the consumer to request disclosures should be provided early in the telephone message to ensure that the option to request disclosures is not obscured by other information.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statement accompanying toll free number.</inline> Language must accompany a telephone number indicating that disclosures are available by calling the telephone number, such as “call 1–800–000–0000 for details about credit costs and terms.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">16(g) Promotional rates.</inline>
<?page num="642"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate in effect at the end of the promotional period.</inline> If the annual percentage rate that will be in effect at the end of the promotional period (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the post-promotional rate) is a variable rate, the post-promotional rate for purposes of <ref href="/us/cfr/t12/s226.16/g/2/i">§ 226.16(g)(2)(i)</ref> is the rate that would have applied at the time the promotional rate was advertised if the promotional rate was not offered, consistent with the accuracy requirements in <ref href="/us/cfr/t12/s226.5a/c/2">§ 226.5a(c)(2)</ref> and (e)(4), as applicable.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Immediate proximity.</inline> For written or electronic advertisements, including the term “introductory” or “intro” in the same phrase as the listing of the introductory rate or introductory fee is deemed to be in immediate proximity of the listing.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prominent location closely proximate.</inline> For written or electronic advertisements, information required to be disclosed in <ref href="/us/cfr/t12/s226.16/g/4/i">§ 226.16(g)(4)(i)</ref> and, as applicable, (g)(4)(ii) and (g)(4)(iii) that is in the same paragraph as the first listing of the promotional rate or promotional fee is deemed to be in a prominent location closely proximate to the listing. Information disclosed in a footnote will not be considered in a prominent location closely proximate to the listing.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">First listing.</inline> For purposes of <ref href="/us/cfr/t12/s226.16/g/4">§ 226.16(g)(4)</ref> as it applies to written or electronic advertisements, the first listing of the promotional rate or promotional fee is the most prominent listing of the rate or fee on the front side of the first page of the principal promotional document. The principal promotional document is the document designed to be seen first by the consumer in a mailing, such as a cover letter or solicitation letter. If the promotional rate or promotional fee does not appear on the front side of the first page of the principal promotional document, then the first listing of the promotional rate or promotional fee is the most prominent listing of the rate or fee on the subsequent pages of the principal promotional document. If the promotional rate or promotional fee is not listed on the principal promotional document or there is no principal promotional document, the first listing is the most prominent listing of the rate or fee on the front side of the first page of each document listing the promotional rate or promotional fee. If the promotional rate or promotional fee does not appear on the front side of the first page of a document, then the first listing of the promotional rate or promotional fee is the most prominent listing of the rate or fee on the subsequent pages of the document. If the listing of the promotional rate or promotional fee with the largest type size on the front side of the first page (or subsequent pages if the promotional rate or promotional fee is not listed on the front side of the first page) of the principal promotional document (or each document listing the promotional rate or promotional fee if the promotional rate or promotional fee is not listed on the principal promotional document or there is no principal promotional document) is used as the most prominent listing, it will be deemed to be the first listing. Consistent with comment 16(c)–1, a catalog or multiple-page advertisement is considered one document for purposes of <ref href="/us/cfr/t12/s226.16/g/4">§ 226.16(g)(4)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Post-promotional rate depends on consumer's creditworthiness.</inline> For purposes of disclosing the rate that may apply after the end of the promotional rate period, at the advertiser's option, the advertisement may disclose the rates that may apply as either specific rates, or a range of rates. For example, if there are three rates that may apply (9.99%, 12.99% or 17.99%), an issuer may disclose these three rates as specific rates (9.99%, 12.99% or 17.99%) or as a range of rates (9.99%–17.99%).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">16(h) Deferred interest or similar offers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest or similar offers clarified.</inline> Deferred interest or similar offers do not include offers that allow a consumer to skip payments during a specified period of time, and under which the consumer is not obligated under any circumstances for any interest or other finance charges that could be attributable to that period. Deferred interest or similar offers also do not include 0% annual percentage rate offers where a consumer is not obligated under any circumstances for interest attributable to the time period the 0% annual percentage rate was in effect, though such offers may be considered promotional rates under <ref href="/us/cfr/t12/s226.16/g/2/i">§ 226.16(g)(2)(i)</ref>. Deferred interest or similar offers also do not include skip payment programs that have no required minimum payment for one or more billing cycles but where interest continues to accrue and is imposed during that period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest period clarified.</inline> Although the terms of an advertised deferred interest or similar offer may provide that a creditor may charge the accrued interest if the balance is not paid in full by a certain date, creditors sometimes have an informal policy or practice that delays charging the accrued interest for payment received a brief period of time after the date upon which a creditor has the contractual right to charge the accrued interest. The advertisement need not include the end of an informal “courtesy period” in disclosing the deferred interest period under <ref href="/us/cfr/t12/s226.16/h/3">§ 226.16(h)(3)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Immediate proximity.</inline> For written or electronic advertisements, including the deferred interest period in the same phrase as the statement of “no interest,” “no payments,” “deferred interest,” or “same as cash” or similar term regarding interest or payments during the deferred interest period is deemed to be in immediate proximity of the statement.
<?page num="643"?></p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prominent location closely proximate.</inline> For written or electronic advertisements, information required to be disclosed in <ref href="/us/cfr/t12/s226.16/h/4/i">§ 226.16(h)(4)(i)</ref> and (ii) that is in the same paragraph as the first statement of “no interest,” “no payments,” “deferred interest,” or “same as cash” or similar term regarding interest or payments during the deferred interest period is deemed to be in a prominent location closely proximate to the statement. Information disclosed in a footnote is not considered in a prominent location closely proximate to the statement.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">First listing.</inline> For purposes of <ref href="/us/cfr/t12/s226.16/h/4">§ 226.16(h)(4)</ref> as it applies to written or electronic advertisements, the first statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period is the most prominent listing of one of these statements on the front side of the first page of the principal promotional document. The principal promotional document is the document designed to be seen first by the consumer in a mailing, such as a cover letter or solicitation letter. If one of the statements does not appear on the front side of the first page of the principal promotional document, then the first listing of one of these statements is the most prominent listing of a statement on the subsequent pages of the principal promotional document. If one of the statements is not listed on the principal promotional document or there is no principal promotional document, the first listing of one of these statements is the most prominent listing of the statement on the front side of the first page of each document containing one of these statements. If one of the statements does not appear on the front side of the first page of a document, then the first listing of one of these statements is the most prominent listing of a statement on the subsequent pages of the document. If the listing of one of these statements with the largest type size on the front side of the first page (or subsequent pages if one of these statements is not listed on the front side of the first page) of the principal promotional document (or each document listing one of these statements if a statement is not listed on the principal promotional document or there is no principal promotional document) is used as the most prominent listing, it will be deemed to be the first listing. Consistent with comment 16(c)–1, a catalog or multiple-page advertisement is considered one document for purposes of <ref href="/us/cfr/t12/s226.16/h/4">§ 226.16(h)(4)</ref>.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Additional information.</inline> Consistent with comment 5(a)–2, the information required under <ref href="/us/cfr/t12/s226.16/h/4">§ 226.16(h)(4)</ref> need not be segregated from other information regarding the deferred interest or similar offer. Advertisements may also be required to provide additional information pursuant to <ref href="/us/cfr/t12/s226.16/b">§ 226.16(b)</ref> though such information need not be integrated with the information required under <ref href="/us/cfr/t12/s226.16/h/4">§ 226.16(h)(4)</ref>.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> Examples of disclosures that could be used to comply with the requirements of <ref href="/us/cfr/t12/s226.16/h/3">§ 226.16(h)(3)</ref> include: “no interest if paid in full within 6 months” and “no interest if paid in full by <date date="2010-12-31">December 31, 2010</date>.”</p>
<heading style="-uslm-sgm:HD1">Subpart C—Closed-End Credit</heading>
<heading style="-uslm-sgm:HD2">Section 226.17—General Disclosure Requirements</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(a) Form of disclosures.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(a)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous.</inline> This standard requires that disclosures be in a reasonably understandable form. For example, while the regulation requires no mathematical progression or format, the disclosures must be presented in a way that does not obscure the relationship of the terms to each other. In addition, although no minimum type size is mandated (except for the interest rate and payment summary for mortgage transactions required by <ref href="/us/cfr/t12/s228.18/s">§ 228.18(s)</ref>), the disclosures must be legible, whether typewritten, handwritten, or printed by computer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Segregation of disclosures.</inline> The disclosures may be grouped together and segregated from other information in a variety of ways. For example, the disclosures may appear on a separate sheet of paper or may be set off from other information on the contract or other documents: </p>
<p style="-uslm-sgm:P">• By outlining them in a box </p>
<p style="-uslm-sgm:P">• By bold print dividing lines </p>
<p style="-uslm-sgm:P">• By a different color background </p>
<p style="-uslm-sgm:P">• By a different type style</p>
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<p style="-uslm-sgm:FP">(The general segregation requirement described in this subparagraph does not apply to the disclosures required under <ref href="/us/cfr/t12/s226.19/b">§§ 226.19(b)</ref> and 226.20(c) although the disclosures must be clear and conspicuous.) </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Location.</inline> The regulation imposes no specific location requirements on the segregated disclosures. For example:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• They may appear on a disclosure statement separate from all other material.</p>
<p style="-uslm-sgm:P">• They may be placed on the same document with the credit contract or other information, so long as they are segregated from that information.</p>
<p style="-uslm-sgm:P">• They may be shown on the front or back of a document.</p>
<p style="-uslm-sgm:P">• They need not begin at the top of a page.</p>
<p style="-uslm-sgm:P">• They may be continued from one page to another.</p>
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<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content of segregated disclosures.</inline> Footnotes 37 and 38 contain exceptions to the requirement that the disclosures under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> be segregated from material that is not directly related to those disclosures. Footnote 37 lists the items that may be added to the segregated disclosures, even though not directly related to those disclosures. Footnote 38 lists the items required under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> that <?page num="644"?>may be deleted from the segregated disclosures and appear elsewhere. Any one or more of these additions or deletions may be combined and appear either together with or separate from the segregated disclosures. The itemization of the amount financed under <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>, however, must be separate from the other segregated disclosures under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>, except for private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>. If a creditor chooses to include the security interest charges required to be itemized under <ref href="/us/cfr/t12/s226.4/e">§ 226.4(e)</ref> and <ref href="/us/cfr/t12/s226.18/o">§ 226.18(o)</ref> in the amount financed itemization, it need not list these charges elsewhere. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Directly related.</inline> The segregated disclosures may, at the creditor's option, include any information that is directly related to those disclosures. The following is directly related information: </p>
<p style="-uslm-sgm:P">i. A description of a grace period after which a late payment charge will be imposed. For example, the disclosure given under <ref href="/us/cfr/t12/s226.18/l">§ 226.18(l)</ref> may state that a late charge will apply to “any payment received more than 15 days after the due date.” </p>
<p style="-uslm-sgm:P">ii. A statement that the transaction is not secured. For example, the creditor may add a category labelled “unsecured” or “not secured” to the security interest disclosures given under <ref href="/us/cfr/t12/s226.18/m">§ 226.18(m)</ref>. </p>
<p style="-uslm-sgm:P">iii. The basis for any estimates used in making disclosures. For example, if the maturity date of a loan depends solely on the occurrence of a future event, the creditor may indicate that the disclosures assume that event will occur at a certain time. </p>
<p style="-uslm-sgm:P">iv. The conditions under which a demand feature may be exercised. For example, in a loan subject to demand after five years, the disclosures may state that the loan will become payable on demand in five years. </p>
<p style="-uslm-sgm:P">v. An explanation of the use of pronouns or other references to the parties to the transaction. For example, the disclosures may state, “‘You’ refers to the customer and ‘we’ refers to the creditor.” </p>
<p style="-uslm-sgm:P">vi. Instructions to the creditor or its employees on the use of a multiple-purpose form. For example, the disclosures may state, “Check box if applicable.” </p>
<p style="-uslm-sgm:P">vii. A statement that the borrower may pay a minimum finance charge upon prepayment in a simple-interest transaction. For example, when state law prohibits penalties, but would allow a minimum finance charge in the event of prepayment, the creditor may make the <ref href="/us/cfr/t12/s226.18/k/1">§ 226.18(k)(1)</ref> disclosure by stating, “You may be charged a minimum finance charge.” </p>
<p style="-uslm-sgm:P">viii. A brief reference to negative amortization in variable-rate transactions. For example, in the variable-rate disclosure, the creditor may include a short statement such as “Unpaid interest will be added to principal.” (See the commentary to <ref href="/us/cfr/t12/s226.18/f/1/iii">§ 226.18(f)(1)(iii)</ref>.) </p>
<p style="-uslm-sgm:P">ix. A brief caption identifying the disclosures. For example, the disclosures may bear a general title such as “Federal Truth in Lending Disclosures” or a descriptive title such as “Real Estate Loan Disclosures.” </p>
<p style="-uslm-sgm:P">x. A statement that a due-on-sale clause or other conditions on assumption are contained in the loan document. For example, the disclosure given under <ref href="/us/cfr/t12/s226.18/q">§ 226.18(q)</ref> may state, “Someone buying your home may, subject to conditions in the due-on-sale clause contained in the loan document, assume the remainder of the mortgage on the original terms.” </p>
<p style="-uslm-sgm:P">xi. If a state or Federal law prohibits prepayment penalties and excludes the charging of interest after prepayment from coverage as a penalty, a statement that the borrower may have to pay interest for some period after prepayment in full. The disclosure given under <ref href="/us/cfr/t12/s226.18/k">§ 226.18(k)</ref> may state, for example, “If you prepay your loan on other than the regular installment date, you may be assessed interest charges until the end of the month.” </p>
<p style="-uslm-sgm:P">xii. More than one hypothetical example under <ref href="/us/cfr/t12/s226.18/f/1/iv">§ 226.18(f)(1)(iv)</ref> in transactions with more than one variable-rate feature. For example, in a variable-rate transaction with an option permitting consumers to convert to a fixed-rate transaction, the disclosures may include an example illustrating the effects on the payment terms of an increase resulting from conversion in addition to the example illustrating an increase resulting from changes in the index. </p>
<p style="-uslm-sgm:P">xiii. The disclosures set forth under <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref> for variable-rate transactions subject to <ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref>. </p>
<p style="-uslm-sgm:P">xiv. A statement whether or not a subsequent purchaser of the property securing an obligation may be permitted to assume the remaining obligation on its original terms. </p>
<p style="-uslm-sgm:P">xv. A late-payment fee disclosure under <ref href="/us/cfr/t12/s226.18/l">§ 226.18(l)</ref> on a single payment loan.</p>
<p style="-uslm-sgm:P">xvi. The notice set forth in <ref href="/us/cfr/t12/s226.19/a/4">§ 226.19(a)(4)</ref>, in a closed-end transaction not subject to <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref>. In a mortgage transaction subject to <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref>, the creditor must disclose the notice contained in <ref href="/us/cfr/t12/s226.19/a/4">§ 226.19(a)(4)</ref> grouped together with the disclosures made under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 19(a)(4)–1.</p>
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<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple-purpose forms.</inline> The creditor may design a disclosure statement that can be used for more than one type of transaction, so long as the required disclosures for individual transactions are clear and conspicuous. (See the Commentary to appendices G and H for a discussion of the treatment of disclosures that do not apply to specific transactions.) Any disclosure listed in <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> (except the itemization of the amount financed under <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref> for transactions other than private education loans) may be included on a standard disclosure statement <?page num="645"?>even though not all of the creditor's transactions include those features. For example, the statement may include:</p>
<p style="-uslm-sgm:P">• The variable rate disclosure under <ref href="/us/cfr/t12/s226.18/f">§ 226.18(f)</ref>.</p>
<p style="-uslm-sgm:P">• The demand feature disclosure under <ref href="/us/cfr/t12/s226.18/i">§ 226.18(i)</ref>.</p>
<p style="-uslm-sgm:P">• A reference to the possibility of a security interest arising from a spreader clause, under <ref href="/us/cfr/t12/s226.18/m">§ 226.18(m)</ref>.</p>
<p style="-uslm-sgm:P">• The assumption policy disclosure under <ref href="/us/cfr/t12/s226.18/q">§ 226.18(q)</ref>.</p>
<p style="-uslm-sgm:P">• The required deposit disclosure under <ref href="/us/cfr/t12/s226.18/r">§ 226.18(r)</ref>.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balloon payment financing with leasing characteristics.</inline> In certain credit sale or loan transactions, a consumer may reduce the dollar amount of the payments to be made during the course of the transaction by agreeing to make, at the end of the loan term, a large final payment based on the expected residual value of the property. The consumer may have a number of options with respect to the final payment, including, among other things, retaining the property and making the final payment, refinancing the final payment, or transferring the property to the creditor in lieu of the final payment. Such transactions may have some of the characteristics of lease transactions subject to Regulation M, but are considered credit transactions where the consumer assumes the indicia of ownership, including the risks, burdens and benefits of ownership upon consummation. These transactions are governed by the disclosure requirements of this regulation instead of Regulation M. Creditors should not include in the segregated Truth in Lending disclosures additional information. Thus, disclosures should show the large final payment in the payment schedule and should not, for example, reflect the other options available to the consumer at maturity. </p>
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<heading style="-uslm-sgm:HD2">Paragraph 17(a)(2)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When disclosures must be more conspicuous.</inline> The following rules apply to the requirement that the terms “annual percentage rate” (except for private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>) and “finance charge” be shown more conspicuously:</p>
<p style="-uslm-sgm:P">• The terms must be more conspicuous only in relation to the other required disclosures under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>. For example, when the disclosures are included on the contract document, those two terms need not be more conspicuous as compared to the heading on the contract document or information required by state law.</p>
<p style="-uslm-sgm:P">• The terms need not be more conspicuous except as part of the finance charge and annual percentage rate disclosures under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> (d) and (e), although they may, at the creditor's option, be highlighted wherever used in the required disclosures. For example, the terms may, but need not, be highlighted when used in disclosing a prepayment penalty under <ref href="/us/cfr/t12/s226.18/k">§ 226.18(k)</ref> or a required deposit under <ref href="/us/cfr/t12/s226.18/r">§ 226.18(r)</ref>.</p>
<p style="-uslm-sgm:P">• The creditor's identity under <ref href="/us/cfr/t12/s226.18/a">§ 226.18(a)</ref> may, but need not, be more prominently displayed than the finance charge and annual percentage rate.</p>
<p style="-uslm-sgm:P">• The terms need not be more conspicuous than figures (including, for example, numbers, percentages, and dollar signs).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Making disclosures more conspicuous.</inline> The terms “finance charge” and (except for private education loan disclosures made in compliance with <ref href="/us/cfr/t12/s226.47">§ 226.47</ref>) “annual percentage rate” may be made more conspicuous in any way that highlights them in relation to the other required disclosures. For example, they may be:</p>
<p style="-uslm-sgm:P">• Capitalized when other disclosures are printed in capital and lower case.</p>
<p style="-uslm-sgm:P">• Printed in larger type, bold print or different type face.</p>
<p style="-uslm-sgm:P">• Printed in a contrasting color.</p>
<p style="-uslm-sgm:P">• Underlined.</p>
<p style="-uslm-sgm:P">• Set off with asterisks.</p>
<heading style="-uslm-sgm:HD2">17(b) Time of Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consummation.</inline> As a general rule, disclosures must be made before “consummation” of the transaction. The disclosures need not be given by any particular time before consummation, except in certain mortgage transactions and variable-rate transactions secured by the consumer's principal dwelling with a term greater than one year under <ref href="/us/cfr/t12/s226.19">§ 226.19</ref>, and in private education loan transactions disclosed in compliance with <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref> and 226.47. (See the commentary to <ref href="/us/cfr/t12/s226.2/a/13">§ 226.2(a)(13)</ref> regarding the definition of consummation.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Converting open-end to closed-end credit.</inline> Except for home equity plans subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> in which the agreement provides for a repayment phase, if an open-end credit account is converted to a closed-end transaction under a written agreement with the consumer, the creditor must provide a set of closed-end credit disclosures before consummation of the closed-end transaction. (See the commentary to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> for the timing rules for additional disclosures required upon the conversion to a variable-rate transaction secured by a consumer's principal dwelling with a term greater than one year.) If consummation of the closed-end transaction occurs at the same time as the consumer enters into the open-end agreement, the closed-end credit disclosures may be given at the time of conversion. If disclosures are delayed until conversion and the closed-end transaction has a variable-rate feature, disclosures should be based on the rate in effect at the time of conversion. (See the commentary to <ref href="/us/cfr/t12/s226.5">§ 226.5</ref> regarding conversion of closed-end to open-end credit.)
<?page num="646"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures provided on credit contracts.</inline> Creditors must give the required disclosures to the consumer in writing, in a form that the consumer may keep, before consummation of the transaction. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref> and (b). Sometimes the disclosures are placed on the same document with the credit contract. Creditors are not required to give the consumer two separate copies of the document before consummation, one for the consumer to keep and a second copy for the consumer to execute. The disclosure requirement is satisfied if the creditor gives a copy of the document containing the unexecuted credit contract and disclosures to the consumer to read and sign; and the consumer receives a copy to keep at the time the consumer becomes obligated. It is not sufficient for the creditor merely to show the consumer the document containing the disclosures before the consumer signs and becomes obligated. The consumer must be free to take possession of and review the document in its entirety before signing. </p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> To illustrate: </p>
<p style="-uslm-sgm:P">A. A creditor gives a consumer a multiple-copy form containing a credit agreement and TILA disclosures. The consumer reviews and signs the form and returns it to the creditor, who separates the copies and gives one copy to the consumer to keep. The creditor has satisfied the disclosure requirement. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(c) Basis of disclosures and use of estimates.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(c)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Legal obligation.</inline> The disclosures shall reflect the credit terms to which the parties are legally bound as of the outset of the transaction. In the case of disclosures required under <ref href="/us/cfr/t12/s226.20/c">§ 226.20(c)</ref>, the disclosures shall reflect the credit terms to which the parties are legally bound when the disclosures are provided. The legal obligation is determined by applicable state law or other law. (Certain transactions are specifically addressed in this commentary. See, for example, the discussion of buydown transactions elsewhere in the commentary to <ref href="/us/cfr/t12/s226.17/c">§ 226.17(c)</ref>.)</p>
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<p style="-uslm-sgm:P">• The fact that a term or contract may later be deemed unenforceable by a court on the basis of equity or other grounds does not, by itself, mean that disclosures based on that term or contract did not reflect the legal obligation.</p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Modification of obligation.</inline> The legal obligation normally is presumed to be contained in the note or contract that evidences the agreement. But this presumption is rebutted if another agreement between the parties legally modifies that note or contract. If the parties informally agree to a modification of the legal obligation, the modification should not be reflected in the disclosures unless it rises to the level of a change in the terms of the legal obligation. For example:</p>
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<p style="-uslm-sgm:P">• If the creditor offers a preferential rate, such as an employee preferred rate, the disclosures should reflect the terms of the legal obligation. (See the commentary to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> for an example of a preferred-rate transaction that is a variable-rate transaction.)</p>
<p style="-uslm-sgm:P">• If the contract provides for a certain monthly payment schedule but payments are made on a voluntary payroll deduction plan or an informal principal-reduction agreement, the disclosures should reflect the schedule in the contract.</p>
<p style="-uslm-sgm:P">• If the contract provides for regular monthly payments but the creditor informally permits the consumer to defer payments from time to time, for instance, to take account of holiday seasons or seasonal employment, the disclosures should reflect the regular monthly payments.</p>
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<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Third-party buydowns.</inline> In certain transactions, a seller or other third party may pay an amount, either to the creditor or to the consumer, in order to reduce the consumer's payments or buy down the interest rate for all or a portion of the credit term. For example, a consumer and a bank agree to a mortgage with an interest rate of 15% and level payments over 25 years. By a separate agreement, the seller of the property agrees to subsidize the consumer's payments for the first 2 years of the mortgage, giving the consumer an effective rate of 12% for that period.</p>
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<p style="-uslm-sgm:P">• If the lower rate is reflected in the credit contract between the consumer and the bank, the disclosures must take the buydown into account. For example, the annual percentage rate must be a composite rate that takes account of both the lower initial rate and the higher subsequent rate, and the payment schedule disclosures must reflect the 2 payment levels. However, the amount paid by the seller would not be specifically reflected in the disclosures given by the bank, since that amount constitutes seller's points and thus is not part of the finance charge.</p>
<p style="-uslm-sgm:P">• If the lower rate is not reflected in the credit contract between the consumer and the bank and the consumer is legally bound to the 15% rate from the outset, the disclosures given by the bank must not reflect the seller buydown in any way. For example, the annual percentage rate and payment schedule would not take into account the reduction in the interest rate and payment level for the first 2 years resulting from the buydown.</p>
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<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer buydowns.</inline> In certain transactions, the consumer may pay an amount to the creditor to reduce the payments or obtain a lower interest rate on the transaction. Consumer buydowns must be reflected in the disclosures given for that transaction. To illustrate, in a mortgage transaction, the creditor and consumer agree to a note specifying a 14 percent interest rate. However, in a separate document, the consumer agrees to <?page num="647"?>pay an amount to the creditor at consummation in return for a reduction in the interest rate to 12 percent for a portion of the mortgage term. The amount paid by the consumer may be deposited in an escrow account or may be retained by the creditor. Depending upon the buydown plan, the consumer's prepayment of the obligation may or may not result in a portion of the amount being credited or refunded to the consumer. In the disclosures given for the mortgage, the creditor must reflect the terms of the buydown agreement. For example:</p>
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<p style="-uslm-sgm:P">• The amount paid by the consumer is a prepaid finance charge (even if deposited in an escrow account).</p>
<p style="-uslm-sgm:P">• A composite annual percentage rate must be calculated, taking into account both interest rates, as well as the effect of the prepaid finance charge.</p>
<p style="-uslm-sgm:P">• The payment schedule must reflect the multiple payment levels resulting from the buydown.</p>
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<p style="-uslm-sgm:P">The rules regarding consumer buydowns do not apply to transactions known as “lender buydowns,” In lender buydowns. a creditor pays an amount (either into an account or to the party to whom the obligation is sold) to reduce the consumer's payments or interest rate for all or a portion of the credit term. Typically, these transactions are structured as a buydown of the interest rate during an initial period of the transaction with a higher than usual rate for the remainder of the term. The disclosures for lender buydowns should be based on the terms of the legal obligation between the consumer and the creditor. (See comment 17(c)(1)–3 for the analogous rules concerning third-party buydowns.) </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Split buydowns.</inline> In certain transactions, a third party (such as a seller) and a consumer both pay an amount to the creditor to reduce the interest rate. The creditor must include the portion paid by the consumer in the finance charge and disclose the corresponding multiple payment levels and composite annual percentage rate. The portion paid by the third party and the corresponding reduction in interest rate, however, should not be reflected in the disclosures unless the lower rate is reflected in the credit contract. (See the discussion on third-party and consumer buydown transactions elsewhere in the commentary to <ref href="/us/cfr/t12/s226.17/c">§ 226.17(c)</ref>.)</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wrap-around financing.</inline> Wrap-around transactions, usually loans, involve the creditor's wrapping the outstanding balance on an existing loan and advancing additional funds to the consumer. The pre-existing loan, which is wrapped, may be to the same consumer or to a different consumer. In either case, the consumer makes a single payment to the new creditor, who makes the payments on the pre-existing loan to the original creditor. Wrap-around loans or sales are considered new single-advance transactions, with an amount financed equalling the sum of the new funds advanced by the wrap creditor and the remaining principal owed to the original creditor on the pre-existing loan. In disclosing the itemization of the amount financed, the creditor may use a label such as “the amount that will be paid to creditor X” to describe the remaining principal balance on the pre-existing loan. This approach to Truth in Lending calculations has no effect on calculations required by other statutes, such as state usury laws.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wrap-around financing with balloon payments.</inline> For wrap-around transactions involving a large final payment of the new funds before the maturity of the pre-existing loan, the amount financed is the sum of the new funds and the remaining principal on the pre-existing loan. The disclosures should be based on the shorter term of the wrap loan, with a large final payment of both the new funds and the total remaining principal on the pre-existing loan (although only the wrap loan will actually be paid off at that time).</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis of disclosures in variable-rate transactions.</inline> The disclosures for a variable-rate transaction must be given for the full term of the transaction and must be based on the terms in effect at the time of consummation. Creditors should base the disclosures only on the initial rate and should not assume that this rate will increase. For example, in a loan with an initial rate of 10 percent and a 5 percentage points rate cap, creditors should base the disclosures on the initial rate and should not assume that this rate will increase 5 percentage points. However, in a variable-rate transaction with a seller buydown that is reflected in the credit contract, a consumer buydown, or a discounted or premium rate, disclosures should not be based solely on the initial terms. In those transactions, the disclosed annual percentage rate should be a composite rate based on the rate in effect during the initial period and the rate that is the basis of the variable-rate feature for the remainder of the term. (See the commentary to <ref href="/us/cfr/t12/s226.17/c">§ 226.17(c)</ref> for a discussion of buydown, discounted, and premium transactions and the commentary to <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref> for a discussion of the redisclosure in certain mortgage transactions with a variable-rate feature.)</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of estimates in variable-rate transactions.</inline> The variable-rate feature does not, by itself, make the disclosures estimates.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounted and premium variable-rate transactions.</inline> In some variable-rate transactions, creditors may set an initial interest rate that is not determined by the index or formula used to make later interest rate adjustments. Typically, this initial rate charged to consumers is lower than the rate would be if it were calculated using the index <?page num="648"?>or formula. However, in some cases the initial rate may be higher. In a discounted transaction, for example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the Treasury bill rate at consummation is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent. </p>
<p style="-uslm-sgm:P">i. When creditors use an initial interest rate that is not calculated using the index or formula for later rate adjustments, the disclosures should reflect a composite annual percentage rate based on the initial rate for as long as it is charged and, for the remainder of the term, the rate that would have been applied using the index or formula at the time of consummation. The rate at consummation need not be used if a contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 day period before consummation in calculating a composite annual percentage rate. </p>
<p style="-uslm-sgm:P">ii. The effect of the multiple rates must also be reflected in the calculation and disclosure of the finance charge, total of payments, and payment schedule. </p>
<p style="-uslm-sgm:P">iii. If a loan contains a rate or payment cap that would prevent the initial rate or payment, at the time of the first adjustment, from changing to the rate determined by the index or formula at consummation, the effect of that rate or payment cap should be reflected in the disclosures. </p>
<p style="-uslm-sgm:P">iv. Because these transactions involve irregular payment amounts, an annual percentage rate tolerance of <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percent applies, in accordance with <ref href="/us/cfr/t12/s226.22/a/3">§ 226.22(a)(3)</ref>. </p>
<p style="-uslm-sgm:P">v. Examples of discounted variable-rate transactions include: </p>
<p style="-uslm-sgm:P">A. A 30-year loan for $100,000 with no prepaid finance charges and rates determined by the Treasury bill rate plus 2 percent. Rate and payment adjustments are made annually. Although the Treasury bill rate at the time of consummation is 10 percent, the creditor sets the interest rate for one year at 9 percent, instead of 12 percent according to the formula. The disclosures should reflect a composite annual percentage rate of 11.63 percent based on 9 percent for one year and 12 percent for 29 years. Reflecting those two rate levels, the payment schedule should show 12 payments of $804.62 and 348 payments of $1,025.31. The finance charge should be $266,463.32 and the total of payments $366,463.32. </p>
<p style="-uslm-sgm:P">B. Same loan as above, except with a 2 percent rate cap on periodic adjustments. The disclosures should reflect a composite annual percentage rate of 11.53 percent based on 9 percent for the first year, 11 percent for the second year, and 12 percent for the remaining 28 years. Reflecting those three rate levels, the payment schedule should show 12 payments of $804.62, 12 payments of $950.09, and 336 payments of $1,024.34. The finance charge should be $265,234.76 and the total of payments $365,234.76. </p>
<p style="-uslm-sgm:P">C. Same loan as above, except with a 7<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent cap on payment adjustments. The disclosures should reflect a composite annual percentage rate of 11.64 percent, based on 9 percent for one year and 12 percent for 29 years. Because of the payment cap, five levels of payments should be reflected. The payment schedule should show 12 payments of $804.62, 12 payments of $864.97, 12 payments of $929.84, 12 payments of $999.58, and 312 payments of $1,070.04. The finance charge should be $277,040.60, and the total of payments $377,040.60. </p>
<p style="-uslm-sgm:P">vi. A loan in which the initial interest rate is set according to the index or formula used for later adjustments but is not set at the value of the index or formula at consummation is not a discounted variable-rate loan. For example, if a creditor commits to an initial rate based on the formula on a date prior to consummation, but the index has moved during the period between that time and consummation, a creditor should base its disclosures on the initial rate. </p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of variable-rate transactions.</inline> Variable-rate transactions include:</p>
<p style="-uslm-sgm:P">• Renewable balloon-payment instruments where the creditor is both unconditionally obligated to renew the balloon-payment loan at the consumer's option (or is obligated to renew subject to conditions within the consumer's control) and has the option of increasing the interest rate at the time of renewal. Disclosures must be based on the payment amortization (unless the specified term of the obligation with renewals is shorter) and on the rate in effect at the time of consummation of the transaction. (Examples of conditions within a consumer's control include requirements that a consumer be current in payments or continue to reside in the mortgaged property. In contrast, setting a limit on the rate at which the creditor would be obligated to renew or reserving the right to change the credit standards at the time of renewal are examples of conditions outside a consumer's control.) If, however, a creditor is not obligated to renew as described above, disclosures must be based on the term of the balloon-payment loan. Disclosures also must be based on the term of the balloon-payment loan in balloon-payment instruments in which the legal obligation provides that the loan will be renewed by a “refinancing” of the obligation, as that term is defined by <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref>. If it cannot be determined from the legal obligation that the loan will be renewed by a “refinancing,” disclosures must be based either on the term of the balloon-<?page num="649"?>payment loan or on the payment amortization, depending on whether the creditor is unconditionally obligated to renew the loan as described above. (This discussion does not apply to construction loans subject to <ref href="/us/cfr/t12/s226.17/c/6">§ 226.17(c)(6)</ref>.) </p>
<p style="-uslm-sgm:P">• “Shared-equity” or “shared-appreciation” mortgages that have a fixed rate of interest and an appreciation share based on the consumer's equity in the mortgaged property. The appreciation share is payable in a lump sum at a specified time. Disclosures must be based on the fixed interest rate. (As discussed in the commentary to <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, other types of shared-equity arrangements are not considered “credit” and are not subject to Regulation Z.)</p>
<p style="-uslm-sgm:P">• Preferred-rate loans where the terms of the legal obligation provide that the initial underlying rate is fixed but will increase upon the occurrence of some event, such as an employee leaving the employ of the creditor, and the note reflects the preferred rate. The disclosures are to be based on the preferred rate. </p>
<p style="-uslm-sgm:P">• Graduated-payment mortgages and step-rate transactions without a variable-rate feature are not considered variable-rate transactions.</p>
<p style="-uslm-sgm:P">• “Price level adjusted mortgages” or other indexed mortgages that have a fixed rate of interest but provide for periodic adjustments to payments and the loan balance to reflect changes in an index measuring prices or inflation. Disclosures are to be based on the fixed interest rate. </p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Graduated payment adjustable rate mortgages.</inline> These mortgages involve both a variable interest rate and scheduled variations in payment amounts during the loan term. For example, under these plans, a series of graduated payments may be scheduled before rate adjustments affect payment amounts, or the initial scheduled payment may remain constant for a set period before rate adjustments affect the payment amount. In any case, the initial payment amount may be insufficient to cover the scheduled interest, causing negative amortization from the outset of the transaction. In these transactions, the disclosures should treat these features as follows:</p>
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<p style="-uslm-sgm:P">• The finance charge includes the amount of negative amortization based on the assumption that the rate in effect at consummation remains unchanged.</p>
<p style="-uslm-sgm:P">• The amount financed does not include the amount of negative amortization.</p>
<p style="-uslm-sgm:P">• As in any variable-rate transaction, the annual percentage rate is based on the terms in effect at consummation.</p>
<p style="-uslm-sgm:P">• The schedule of payments discloses the amount of any scheduled initial payments followed by an adjusted level of payments based on the initial interest rate. Since some mortgage plans contain limits on the amount of the payment adjustment, the payment schedule may require several different levels of payments, even with the assumption that the original interest rate does not increase.</p>
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<p style="-uslm-sgm:P">13. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Growth-equity mortgages.</inline> Also referred to as payment-escalated mortgages, these mortgage plans involve scheduled payment increases to prematurely amortize the loan. The initial payment amount is determined as for a long-term loan with a fixed interest rate. Payment increases are scheduled periodically, based on changes in an index. The larger payments result in accelerated amortization of the loan. In disclosing these mortgage plans, creditors may either:</p>
<p style="-uslm-sgm:P">• Estimate the amount of payment increases, based on the best information reasonably available; or</p>
<p style="-uslm-sgm:P">• Disclose by analogy to the variable-rate disclosures in 226.18(f)(1).</p>
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<p style="-uslm-sgm:FP">(This discussion does not apply to growth-equity mortgages in which the amount of payment increases can be accurately determined at the time of disclosure. For these mortgages, as for graduated-payment mortgages, disclosures should reflect the scheduled increases in payments.)</p>
<p style="-uslm-sgm:P">14. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reverse mortgages.</inline> Reverse mortgages, also known as reverse annuity or home equity conversion mortgages, typically involve the disbursement of monthly advances to the consumer for a fixed period or until the occurrence of an event such as the consumer's death. Repayment of the loan (generally a single payment of principal and accrued interest) may be required to be made at the end of the disbursements or, for example, upon the death of the consumer. In disclosing these transactions, creditors must apply the following rules, as applicable:</p>
<p style="-uslm-sgm:P">• If the reverse mortgage has a specified period for disbursements but repayment is due only upon the occurrence of a future event such as the death of the consumer, the creditor must assume that disbursements will be made until they are scheduled to end. The creditor must assume repayment will occur when disbursements end (or within a period following the final disbursement which is not longer than the regular interval between disbursements). This assumption should be used even though repayment may occur before or after the disbursements are scheduled to end. In such cases, the creditor may include a statement such as “The disclosures assume that you will repay the loan at the time our payments to you end. As provided in your agreement, your repayment may be required at a different time.”</p>
<p style="-uslm-sgm:P">• If the reverse mortgage has neither a specified period for disbursements nor a specified repayment date and these terms will be determined solely by reference to future events including the consumer's death, the creditor may assume that the disbursements will end upon the consumer's death <?page num="650"?>(estimated by using actuarial tables, for example) and that repayment will be required at the same time (or within a period following the date of the final disbursement which is not longer than the regular interval for disbursements). Alternatively, the creditor may base the disclosures upon another future event it estimates will be most likely to occur first. (If terms will be determined by reference to future events which do not include the consumer's death, the creditor must base the disclosures upon the occurance of the event estimated to be most likely to occur first.) </p>
<p style="-uslm-sgm:P">• In making the disclosures, the creditor must assume that all disbursements and accrued interest will be paid by the consumer. For example, if the note has a nonrecourse provision providing that the consumer is not obligated for an amount greater than the value of the house, the creditor must nonetheless assume that the full amount to be disbursed will be repaid. In this case, however, the creditor may include a statement such as “The disclosures assume full repayment of the amount advanced plus accrued interest, although the amount you may be required to pay is limited by your agreement.”</p>
<p style="-uslm-sgm:P">• Some reverse mortgages provide that some or all of the appreciation in the value of the property will be shared between the consumer and the creditor. Such loans are considered variable-rate mortgages, as described in comment 17(c)(1)–11, and the appreciation feature must be disclosed in accordance with <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref>. If the reverse mortgage has a variable interest rate, is written for a term greater than one year, and is secured by the consumer's principal dwelling, the shared appreciation feature must be described under <ref href="/us/cfr/t12/s226.19/b/2/vii">§ 226.19(b)(2)(vii)</ref>.</p>
<p style="-uslm-sgm:P">15. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Morris Plan transactions.</inline> When a deposit account is created for the sole purpose of accumulating payments and then is applied to satisfy entirely the consumer's obligation in the transaction, each deposit made into the account is considered the same as a payment on a loan for purposes of making disclosures.</p>
<p style="-uslm-sgm:P">16. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Number of transactions.</inline> Creditors have flexibility in handling credit extensions that may be viewed as multiple transactions. For example:</p>
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<p style="-uslm-sgm:P">• When a creditor finances the credit sale of a radio and a television on the same day, the creditor may disclose the sales as either 1 or 2 credit sale transactions.</p>
<p style="-uslm-sgm:P">• When a creditor finances a loan along with a credit sale of health insurance, the creditor may disclose in one of several ways: a single credit sale transaction, a single loan transaction, or a loan and a credit sale transaction.</p>
<p style="-uslm-sgm:P">• The separate financing of a downpayment in a credit sale transaction may, but need not, be disclosed as 2 transactions (a credit sale and a separate transaction for the financing of the downpayment).</p>
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<p style="-uslm-sgm:P">17. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special rules for tax refund anticipation loans.</inline> Tax refund loans, also known as refund anticipation loans (RALs), are transactions in which a creditor will lend up to the amount of a consumer's expected tax refund. RAL agreements typically require repayment upon demand, but also may provide that repayment is required when the refund is made. The agreements also typically provide that if the amount of the refund is less than the payment due, the consumer must pay the difference. Repayment often is made by a preauthorized offset to a consumer's account held with the creditor when the refund has been deposited by electronic transfer. Creditors may charge fees for RALs in addition to fees for filing the consumer's tax return electronically. In RAL transactions subject to the regulation the following special rules apply: </p>
<p style="-uslm-sgm:P">• If, under the terms of the legal obligation, repayment of the loan is required when the refund is received by the consumer (such as by deposit into the consumer's account), the disclosures should be based on the creditor's estimate of the time the refund will be delivered even if the loan also contains a demand clause. The practice of a creditor to demand repayment upon delivery of refunds does not determine whether the legal obligation requires that repayment be made at that time; this determination must be made according to applicable state or other law. (See comment 17(c)(5)–1 for the rules regarding disclosures if the loan is payable solely on demand or is payable either on demand or on an alternate maturity date.) </p>
<p style="-uslm-sgm:P">• If the consumer is required to repay more than the amount borrowed, the difference is a finance charge unless excluded under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>. In addition, to the extent that any fees charged in connection with the loan (such as for filing the tax return electronically) exceed those fees for a comparable cash transaction (that is, filing the tax return electronically without a loan), the difference must be included in the finance charge.</p>
<p style="-uslm-sgm:P">18. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pawn Transactions.</inline> When, in connection with an extension of credit, a consumer pledges or sells an item to a pawnbroker creditor in return for a sum of money and retains the right to redeem the item for a greater sum (the redemption price) within a specified period of time, disclosures are required. In addition to other disclosure requirements that may be applicable under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>, for purposes of pawn transactions: </p>
<p style="-uslm-sgm:P">i. The amount financed is the initial sum paid to the consumer. The pawnbroker creditor need not provide a separate itemization of the amount financed if that entire amount is paid directly to the consumer and the disclosed description of the amount financed is <?page num="651"?>“the amount of cash given directly to you” or a similar phrase. </p>
<p style="-uslm-sgm:P">ii. The finance charge is the difference between the initial sum paid to the consumer and the redemption price plus any other finance charges paid in connection with the transaction. (See <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>.) </p>
<p style="-uslm-sgm:P">iii. The term of the transaction, for calculating the annual percentage rate, is the period of time agreed to by the pawnbroker creditor and the consumer. The term of the transaction does not include a grace period (including any statutory grace period) after the agreed redemption date. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(c)(2)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis for estimates.</inline> Disclosures may be estimated when the exact information is unknown at the time disclosures are made. Information is unknown if it is not reasonably available to the creditor at the time the disclosures are made. The “reasonably available” standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. For example, the creditor must at a minimum utilize generally accepted calculation tools, but need not invest in the most sophisticated computer program to make a particular type of calculation. The creditor normally may rely on the representations of other parties in obtaining information. For example, the creditor might look to the consumer for the time of consummation, to insurance companies for the cost of insurance, or to realtors for taxes and escrow fees. The creditor may utilize estimates in making disclosures even though the creditor knows that more precise information will be available by the point of consummation. However, new disclosures may be required under <ref href="/us/cfr/t12/s226.17/f">§ 226.17(f)</ref> or <ref href="/us/cfr/t12/s226.19">§ 226.19</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Labelling estimates.</inline> Estimates must be designated as such in the segregated disclosures. Even though other disclosures are based on the same assumption on which a specific estimated disclosure was based, the creditor has some flexibility in labelling the estimates. Generally, only the particular disclosure for which the exact information is unknown is labelled as an estimate. However, when several disclosures are affected because of the unknown information, the creditor has the option of labelling either every affected disclosure or only the disclosure primarily affected. For example, when the finance charge is unknown because the date of consummation is unknown, the creditor must label the finance charge as an estimate and may also label as estimates the total of payments and the payment schedule. When many disclosures are estimates, the creditor may use a general statement, such as “all numerical disclosures except the late payment disclosure are estimates,” as a method to label those disclosures as estimates.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Simple-interest transactions.</inline> If consumers do not make timely payments in a simple-interest transaction, some of the amounts calculated for Truth in Lending disclosures will differ from amounts that consumers will actually pay over the term of the transaction. Creditors may label disclosures as estimates in these transactions. For example, because the finance charge and total of payments may be larger than disclosed if consumers make late payments, creditors may label the finance charge and total of payments as estimates. On the other hand, creditors may choose not to label disclosures as estimates and may base all disclosures on the assumption that payments will be made on time, disregarding any possible inaccuracies resulting from consumers' payment patterns.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(c)(2)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Per-diem interest.</inline> This paragraph applies to any numerical amount (such as the finance charge, annual percentage rate, or payment amount) that is affected by the amount of the per-diem interest charge that will be collected at consummation. If the amount of per-diem interest used in preparing the disclosures for consummation is based on the information known to the creditor at the time the disclosure document is prepared, the disclosures are considered accurate under this rule, and affected disclosures are also considered accurate, even if the disclosures are not labeled as estimates. For example, if the amount of per-diem interest used to prepare disclosures is less than the amount of per-diem interest charged at consummation, and as a result the finance charge is understated by $200, the disclosed finance charge is considered accurate even though the understatement is not within the $100 tolerance of <ref href="/us/cfr/t12/s226.18/d/1">§ 226.18(d)(1)</ref>, and the finance charge was not labeled as an estimate. In this example, if in addition to the understatement related to the per-diem interest, a $90 fee is incorrectly omitted from the finance charge, causing it to be understated by a total of $290, the finance charge is considered accurate because the $90 fee is within the tolerance in <ref href="/us/cfr/t12/s226.18/d/1">§ 226.18(d)(1)</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(c)(3)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minor variations.</inline> Section 226.17(c)(3) allows creditors to disregard certain factors in calculating and making disclosures. For example:</p>
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<p style="-uslm-sgm:P">• Creditors may ignore the effects of collecting payments in whole cents. Because payments cannot be collected in fractional cents, it is often difficult to amortize exactly an obligation with equal payments; the amount of the last payment may require adjustment to account for the rounding of the other payments to whole cents.</p>
<p style="-uslm-sgm:P">• Creditors may base their disclosures on calculation tools that assume that all months have an equal number of days, even if their practice is to take account of the variations in months for purposes of collecting interest. For example, a creditor may use a calculation tool based on a 360-day <?page num="652"?>year, when it in fact collects interest by applying a factor of <inline role="fraction" style="-uslm-sgm:FR">1/365</inline> of the annual rate to 365 days. This rule does not, however, authorize creditors to ignore, for disclosure purposes, the effects of applying <inline role="fraction" style="-uslm-sgm:FR">1/360</inline> of an annual rate to 365 days.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of special rules.</inline> A creditor may utilize the special rules in <ref href="/us/cfr/t12/s226.17/c/3">§ 226.17(c)(3)</ref> for purposes of calculating and making all disclosures for a transaction or may, at its option, use the special rules for some disclosures and not others.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(c)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment schedule irregularities.</inline> When one or more payments in a transaction differ from the others because of a long or short first period, the variations may be ignored in disclosing the payment schedule, finance charge, annual percentage rate, and other terms. For example:</p>
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<p style="-uslm-sgm:P">• A 36-month auto loan might be consummated on June 8 with payments due on July 1 and the first of each succeeding month. The creditor may base its calculations on a payment schedule that assumes 36 equal intervals and 36 equal installment payments, even though a precise computation would produce slightly different amounts because of the shorter first period. </p>
<p style="-uslm-sgm:P">• By contrast, in the same example, if the first payment were not scheduled until August 1, the irregular first period would exceed the limits in <ref href="/us/cfr/t12/s226.17/c/4">§ 226.17(c)(4)</ref>; the creditor could not use the special rule and could not ignore the extra days in the first period in calculating its disclosures.</p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Measuring odd periods.</inline> In determining whether a transaction may take advantage of the rule in <ref href="/us/cfr/t12/s226.17/c/4">§ 226.17(c)(4)</ref>, the creditor must measure the variation against a regular period. For purposes of that rule:</p>
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<p style="-uslm-sgm:P">• The first period is the period from the date on which the finance charge begins to be earned to the date of the first payment.</p>
<p style="-uslm-sgm:P">• The term is the period from the date on which the finance charge begins to be earned to the date of the final payment.</p>
<p style="-uslm-sgm:P">• The regular period is the most common interval between payments in the transaction.</p>
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<p style="-uslm-sgm:P">In transactions involving regular periods that are monthly, semimonthly or multiples of a month, the length of the irregular and regular periods may be calculated on the basis of either the actual number of days or an assumed 30-day month. In other transactions, the length of the periods is based on the actual number of days.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of special rules.</inline> A creditor may utilize the special rules in <ref href="/us/cfr/t12/s226.17/c/4">§ 226.17(c)(4)</ref> for purposes of calculating and making some disclosures but may elect not to do so for all of the disclosures. For example, the variations may be ignored in calculating and disclosing the annual percentage rate but taken into account in calculating and disclosing the finance charge and payment schedule.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to prepaid finance charges.</inline> Prepaid finance charges, including “odd-days” or “per-diem” interest, paid prior to or at closing may not be treated as the first payment on a loan. Thus, creditors may not disregard an irregularity in disclosing such finance charges.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(c)(5).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Demand disclosures.</inline> Disclosures for demand obligations are based on an assumed 1-year term, unless an alternate maturity date is stated in the legal obligation. Whether an alternate maturity date is stated in the legal obligation is determined by applicable law. An alternate maturity date is not inferred from an informal principal reduction agreement or a similar understanding between the parties. However, when the note itself specifies a principal reduction schedule (for example, “payable on demand or $2,000 plus interest quarterly”), an alternate maturity is stated and the disclosures must reflect that date.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Future event as maturity date.</inline> An obligation whose maturity date is determined solely by a future event, as for example, a loan payable only on the sale of property, is not a demand obligation. Because no demand feature is contained in the obligation, demand disclosures under <ref href="/us/cfr/t12/s226.18/i">§ 226.18(i)</ref> are inapplicable. The disclosures should be based on the creditor's estimate of the time at which the specified event will occur, and may indicate the basis for the creditor's estimate, as noted in the commentary to <ref href="/us/cfr/t12/s226.17/a">§ 226.17(a)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Demand after stated period.</inline> Most demand transactions contain a demand feature that may be exercised at any point during the term, but certain transactions convert to demand status only after a fixed period. For example, in States prohibiting due-on-sale clauses, the Federal National Mortgage Association (FNMA) requires mortgages that it purchases to include a call option rider that may be exercised after 7 years. These mortgages are generally written as long-term obligations, but contain a demand feature that may be exercised only within a 30-day period at 7 years. The disclosures for these transactions should be based upon the legally agreed-upon maturity date. Thus, if a mortgage containing the 7-year FNMA call option is written as a 20-year obligation, the disclosures should be based on the 20-year term, with the demand feature disclosed under <ref href="/us/cfr/t12/s226.18/i">§ 226.18(i)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balloon mortgages.</inline> Balloon payment mortgages, with payments based on a long-term amortization schedule and a large final payment due after a shorter term, are not demand obligations unless a demand feature is specifically contained in the contract. For example, a mortgage with a term of 5 years and a payment schedule based on 20 years would not be treated as a mortgage with a <?page num="653"?>demand feature, in the absence of any contractual demand provisions. In this type of mortgage, disclosures should be based on the 5-year term.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(c)(6).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Series of advances.</inline> Section 226.17(c)(6)(i) deals with a series of advances under an agreement to extend credit up to a certain amount. A creditor may treat all of the advances as a single transaction or disclose each advance as a separate transaction. If these advances are treated as 1 transaction and the timing and amounts of advances are unknown, creditors must make disclosures based on estimates, as provided in <ref href="/us/cfr/t12/s226.17/c/2">§ 226.17(c)(2)</ref>. If the advances are disclosed separately, disclosures must be provided before each advance occurs, with the disclosures for the first advance provided by consummation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Construction loans.</inline> Section 226.17(c)(6)(ii) provides a flexible rule for disclosure of construction loans that may be permanently financed. These transactions have 2 distinct phases, similar to 2 separate transactions. The construction loan may be for initial construction or subsequent construction, such as rehabilitation or remodelling. The construction period usually involves several disbursements of funds at times and in amounts that are unknown at the beginning of that period, with the consumer paying only accrued interest until construction is completed. Unless the obligation is paid at that time, the loan then converts to permanent financing in which the loan amount is amortized just as in a standard mortgage transaction. Section 226.17(c)(6)(ii) permits the creditor to give either one combined disclosure for both the construction financing and the permanent financing, or a separate set of disclosures for the 2 phases. This rule is available whether the consumer is initially obligated to accept construction financing only or is obligated to accept both construction and permanent financing from the outset. If the consumer is obligated on both phases and the creditor chooses to give 2 sets of disclosures, both sets must be given to the consumer initially, because both transactions would be consummated at that time. (appendix D provides a method of calculating the annual percentage rate and other disclosures for construction loans, which may be used, at the creditor's option, in disclosing construction financing.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple-advance construction loans.</inline> Section 226.17(c)(6)(i) and (ii) are not mutually exclusive. For example, in a transaction that finances the construction of a dwelling that may be permanently financed by the same creditor, the construction phase may consist of a series of advances under an agreement to extend credit up to a certain amount. In these cases, the creditor may disclose the construction phase as either 1 or more than 1 transaction and also disclose the permanent financing as a separate transaction.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Residential mortgage transaction.</inline> See the commentary to <ref href="/us/cfr/t12/s226.2/a/24">§ 226.2(a)(24)</ref> for a discussion of the effect of <ref href="/us/cfr/t12/s226.17/c/6">§ 226.17(c)(6)</ref> on the definition of a residential mortgage transaction.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Allocation of points.</inline> When a creditor utilizes the special rule in <ref href="/us/cfr/t12/s226.17/c/6">§ 226.17(c)(6)</ref> to disclose credit extensions as multiple transactions, buyers points or similar amounts imposed on the consumer must be allocated for purposes of calculating disclosures. While such amounts should not be taken into account more than once in making calculations, they may be allocated between the transactions in any manner the creditor chooses. For example, if a construction-permanent loan is subject to 5 points imposed on the consumer and the creditor chooses to disclose the 2 phases separately, the 5 points may be allocated entirely to the construction loan, entirely to the permanent loan, or divided in any manner between the two. However, the entire 5 points may not be applied twice, that is, to both the construction and the permanent phases.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(d) Multiple creditors; multiple consumers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple creditors.</inline> If a credit transaction involves more than one creditor:</p>
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<p style="-uslm-sgm:FP-1">• The creditors must choose which of them will make the disclosures.</p>
<p style="-uslm-sgm:FP-1">• A single, complete set of disclosures must be provided, rather than partial disclosures from several creditors.</p>
<p style="-uslm-sgm:FP-1">• All disclosures for the transaction must be given, even if the disclosing creditor would not otherwise have been obligated to make a particular disclosure. For example, if one of the creditors is the seller, the total sale price disclosure under <ref href="/us/cfr/t12/s226.18/j">§ 226.18(j)</ref> must be made, even though the disclosing creditor is not the seller.</p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple consumers.</inline> When two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them. If one consumer is merely a surety or guarantor, the disclosures must be given to the principal debtor. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind under <ref href="/us/cfr/t12/s226.23">§ 226.23</ref>, although the disclosures required under <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> need only be provided to the consumer who expresses an interest in a variable-rate loan program.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(e) Effect of subsequent events.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Events causing inaccuracies.</inline> Inaccuracies in disclosures are not violations if attributable to events occurring after the disclosures are made. For example, when the consumer fails to fulfill a prior commitment to keep the collateral insured and the creditor then provides the coverage and charges the consumer for it, such a change does not make the original disclosures inaccurate. The creditor may, however, be required to <?page num="654"?>make new disclosures under <ref href="/us/cfr/t12/s226.17/f">§ 226.17(f)</ref> or <ref href="/us/cfr/t12/s226.19">§ 226.19</ref> if the events occurred between disclosure and consummation or under <ref href="/us/cfr/t12/s226.20">§ 226.20</ref> if the events occurred after consummation. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(f) Early disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in rate or other terms.</inline> Redisclosure is required for changes that occur between the time disclosures are made and consummation if the annual percentage rate in the consummated transaction exceeds the limits prescribed in this section, even if the initial disclosures would be considered accurate under the tolerances in <ref href="/us/cfr/t12/s226.18/d">§ 226.18(d)</ref> or 226.22(a). To illustrate: </p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A. If disclosures are made in a regular transaction on July 1, the transaction is consummated on July 15, and the actual annual percentage rate varies by more than <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> of 1 percentage point from the disclosed annual percentage rate, the creditor must either redisclose the changed terms or furnish a complete set of new disclosures before consummation. Redisclosure is required even if the disclosures made on July 1 are based on estimates and marked as such.</p>
<p style="-uslm-sgm:P">B. In a regular transaction, if early disclosures are marked as estimates and the disclosed annual percentage rate is within <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> of 1 percentage point of the rate at consummation, the creditor need not redisclose the changed terms (including the annual percentage rate). </p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonmortgage loan.</inline> If disclosures are made on July 1, the transaction is consummated on July 15, and the finance charge increased by $35 but the disclosed annual percentage rate is within the permitted tolerance, the creditor must at least redisclose the changed terms that were not marked as estimates. (See <ref href="/us/cfr/t12/s226.18/d/2">§ 226.18(d)(2)</ref> of this part.)</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage loan.</inline> At the time TILA disclosures are prepared in July, the loan closing is scheduled for July 31 and the creditor does not plan to collect per-diem interest at consummation. Consummation actually occurs on August 5, and per-diem interest for the remainder of August is collected as a prepaid finance charge. Assuming there were no other changes requiring redisclosure, the creditor may rely on the disclosures prepared in July that were accurate when they were prepared. However, if the creditor prepares new disclosures in August that will be provided at consummation, the new disclosures must take into account the amount of the per-diem interest known to the creditor at that time. </p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable rate.</inline> The addition of a variable rate feature to the credit terms, after early disclosures are given, requires new disclosures.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content of new disclosures.</inline> If redisclosure is required, the creditor has the option of either providing a complete set of new disclosures, or providing disclosures of only the terms that vary from those originally disclosed. (See the commentary to <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special rules.</inline> In mortgage transactions subject to <ref href="/us/cfr/t12/s226.19">§ 226.19</ref>, the creditor must redisclose if, between the delivery of the required early disclosures and consummation, the annual percentage rate changes by more than a stated tolerance. When subsequent events occur after consummation, new disclosures are required only if there is a refinancing or an assumption within the meaning of <ref href="/us/cfr/t12/s226.20">§ 226.20</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 17(f)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Irregular transactions.</inline> For purposes of this paragraph, a transaction is deemed to be “irregular” according to the definition in footnote 46 of <ref href="/us/cfr/t12/s226.22/a/3">§ 226.22(a)(3)</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(g) Mail or telephone orders—delay in disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Conditions for use.</inline> When the creditor receives a mail or telephone request for credit, the creditor may delay making the disclosures until the first payment is due if the following conditions are met:</p>
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<p style="-uslm-sgm:P">• The credit request is initiated without face-to-face or direct telephone solicitation. (Creditors may, however, use the special rule when credit requests are solicited by mail.)</p>
<p style="-uslm-sgm:P">• The creditor has supplied the specified credit information about its credit terms either to the individual consumer or to the public generally. That information may be distributed through advertisements, catalogs, brochures, special mailers, or similar means.</p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insurance.</inline> The location requirements for the insurance disclosures under <ref href="/us/cfr/t12/s226.18/n">§ 226.18(n)</ref> permit them to appear apart from the other disclosures. Therefore, a creditor may mail an insurance authorization to the consumer and then prepare the other disclosures to reflect whether or not the authorization is completed by the consumer. Creditors may also disclose the insurance cost on a unit-cost basis, if the transaction meets the requirements of <ref href="/us/cfr/t12/s226.17/g">§ 226.17(g)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(h) Series of sales—delay in disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> The creditor may delay the disclosures for individual credit sales in a series of such sales until the first payment is due on the current sale, assuming the 2 conditions in this paragraph are met. If those conditions are not met, the general timing rules in <ref href="/us/cfr/t12/s266.17/b">§ 266.17(b)</ref> apply.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis of disclosures.</inline> Creditors structuring disclosures for a series of sales under <ref href="/us/cfr/t12/s226.17/h">§ 226.17(h)</ref> may compute the total sale price as either:</p>
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<p style="-uslm-sgm:FP-1">• The cash price for the sale plus that portion of the finance charge and other charges applicable to that sale; or</p>
<p style="-uslm-sgm:FP-1">• The cash price for the sale, other charges applicable to the sale, and the total finance charge and outstanding principal.</p>
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<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">17(i) Interim student credit extensions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> Student credit plans involve extensions of credit for education purposes <?page num="655"?>where the repayment amount and schedule are not known at the time credit is advanced. These plans include loans made under any student credit plan, whether government or private, where the repayment period does not begin immediately. (Certain student credit plans that meet this definition are exempt from Regulation Z. See <ref href="/us/cfr/t12/s226.3/f">§ 226.3(f)</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to other sections.</inline> For disclosures made before the mandatory compliance date of the disclosures required under <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref>, 47, and 48, paragraph 17(i) permitted creditors to omit from the disclosures the terms set forth in that paragraph at the time the credit was actually extended. However, creditors were required to make complete disclosures at the time the creditor and consumer agreed upon the repayment schedule for the total obligation. At that time, a new set of disclosures of all applicable items under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> was required. Most student credit plans are subject to the requirements in <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref>, 47, and 48. Consequently, for applications for student credit plans received on or after the mandatory compliance date of <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref>, 47, and 48, the creditor may not omit from the disclosures the terms set forth in paragraph 17(i). Instead, the creditor must comply with <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref>, 47, and 48, if applicable, or with <ref href="/us/cfr/t12/s226.17">§§ 226.17</ref> and 226.18.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis of disclosures.</inline> The disclosures given at the time of execution of the interim note should reflect two annual percentage rates, one for the interim period and one for the repayment period. The use of <ref href="/us/cfr/t12/s226.17/i">§ 226.17(i)</ref> in making disclosures does not, by itself, make those disclosures estimates. Any portion of the finance charge, such as statutory interest, that is attributable to the interim period and is paid by the student (either as a prepaid finance charge, periodically during the interim period, in one payment at the end of the interim period, or capitalized at the beginning of the repayment period) must be reflected in the interim annual percentage rate. Interest subsidies, such as payments made by either a state or the Federal government on an interim loan, must be excluded in computing the annual percentage rate on the interim obligation, when the consumer has no contingent liability for payment of those amounts. Any finance charges that are paid separately by the student at the outset or withheld from the proceeds of the loan are prepaid finance charges. An example of this type of charge is the loan guarantee fee. The sum of the prepaid finance charges is deducted from the loan proceeds to determine the amount financed and included in the calculation of the finance charge. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consolidation.</inline> Consolidation of the interim student credit extensions through a renewal note with a set repayment schedule is treated as a new transaction with disclosures made as they would be for a refinancing. Any unearned portion of the finance charge must be reflected in the new finance charge and annual percentage rate, and is not added to the new amount financed. In itemizing the amount financed under <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>, the creditor may combine the principal balances remaining on the interim extensions at the time of consolidation and categorize them as the amount paid on the consumer's account.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Approved student credit forms.</inline> See the commentary to appendix H regarding disclosure forms approved for use in certain student credit programs for which applications were received prior to the mandatory compliance date of <ref href="/us/cfr/t12/s226.46">§§ 226.46</ref>, 47, and 48.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 121, 122, 124, and 128, and the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1071">20 U.S.C. 1071</ref>) as amended by <ref href="/us/pl/97/35">Pub. L. 97–35</ref>, <date date="1981-08-13">August 13, 1981</date>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.2 and appendix H.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Sections 226.6 and 226.8.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> With few exceptions, the disclosures must now appear apart from all other information, and may not be interspersed with that information. The disclosures must be based on the legal obligation between the parties, rather than any side agreement.</p>
<p style="-uslm-sgm:P">The assumed maturity period for demand loans has been increased from 6 months to 1 year. Any alternate maturity date must be stated in the legal obligation rather than inferred from the documents, in order to form a basis for disclosures.</p>
<p style="-uslm-sgm:P">In multiple-advance transactions, a series of advances up to a certain amount and construction loans that may be permanently financed may be disclosed, at the creditor's option, as either a single transaction or several transactions. Appendix D is applicable only to multiple advances for the construction of a dwelling, whereas its predecessor, Interpretation <ref href="/us/cfr/t12/s226.813">§ 226.813</ref>, could be used for all multiple-advance transactions.</p>
<p style="-uslm-sgm:P">If disclosures are made before the date of consummation, the creditor need not provide updated disclosures at consummation unless the annual percentage rate has changed beyond certain limits or a variable rate feature has been added.</p>
<heading style="-uslm-sgm:HD2">Section 226.18—Content of Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">As applicable.</inline> The disclosures required by this section need be made only as applicable. Any disclosure not relevant to a particular transaction may be eliminated entirely. For example:</p>
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<p style="-uslm-sgm:P">• In a loan transaction, the creditor may delete disclosure of the total sale price.</p>
<p style="-uslm-sgm:P">• In a credit sale requiring disclosure of the total sale price under <ref href="/us/cfr/t12/s226.18/j">§ 226.18(j)</ref>, the creditor may delete any reference to a downpayment where no downpayment is involved.</p>
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<?page num="656"?>
<p style="-uslm-sgm:P">Where the amounts of several numerical disclosures are the same, the “as applicable” language also permits creditors to combine the terms, so long as it is done in a clear and conspicuous manner. For example:</p>
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<p style="-uslm-sgm:P">• In a transaction in which the amount financed equals the total of payments, the creditor may disclose “amount financed/total of payments,” together with descriptive language, followed by a single amount.</p>
<p style="-uslm-sgm:P">• However, if the terms are separated on the disclosure statement and separate space is provided for each amount, both disclosures must be completed, even though the same amount is entered in each space.</p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> See the commentary to <ref href="/us/cfr/t12/s226.17">§ 226.17</ref> and appendix H for a discussion of the format to be used in making these disclosures, as well as acceptable modifications.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(a) Creditor.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification of creditor.</inline> The creditor making the disclosures must be identified. This disclosure may, at the creditor's option, appear apart from the other disclosures. Use of the creditor's name is sufficient, but the creditor may also include an address and/or telephone number. In transactions with multiple creditors, any one of them may make the disclosures; the one doing so must be identified.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(b) Amount financed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> The net amount of credit extended must be disclosed using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount financed</inline> and a descriptive explanation similar to the phrase in the regulation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rebates and loan premiums.</inline> In a loan transaction, the creditor may offer a premium in the form of cash or merchandise to prospective borrowers. Similarly, in a credit sale transaction, a seller's or manufacturer's rebate may be offered to prospective purchasers of the creditor's goods or services. At the creditor's option, these amounts may be either reflected in the Truth in Lending disclosures or disregarded in the disclosures. If the creditor chooses to reflect them in the <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> disclosures, rather than disregard them, they may be taken into account in any manner as part of those disclosures.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(b)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Downpayments.</inline> A downpayment is defined in <ref href="/us/cfr/t12/s226.2/a/18">§ 226.2(a)(18)</ref> to include, at the creditor's option, certain deferred downpayments or pick-up payments. A deferred downpayment that meets the criteria set forth in the definition may be treated as part of the downpayment, at the creditor's option.</p>
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<p style="-uslm-sgm:P">• Deferred downpayments that are not treated as part of the downpayment (either because they do not meet the definition or because the creditor simply chooses not to treat them as downpayments) are included in the amount financed.</p>
<p style="-uslm-sgm:P">• Deferred downpayments that are treated as part of the downpayment are not part of the amount financed under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref>.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adding other amounts.</inline> Fees or other charges that are not part of the finance charge and that are financed rather than paid separately at consummation of the transaction are included in the amount financed. Typical examples are real estate settlement charges and premiums for voluntary credit life and disability insurance excluded from the finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>. This paragraph does not include any amounts already accounted for under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref>, such as taxes, tag and title fees, or the costs of accessories or service policies that the creditor includes in the cash price.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(b)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prepaid finance charges.</inline> Prepaid finance charges that are paid separately in cash or by check should be deducted under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref> in calculating the amount financed. To illustrate:</p>
<p style="-uslm-sgm:P">• A consumer applies for a loan of $2,500 with a $40 loan fee. The face amount of the note is $2,500 and the consumer pays the loan fee separately by cash or check at closing. The principal loan amount for purposes of <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> is $2,500 and $40 should be deducted under <ref href="/us/cfr/t12/s226.18/b(3">§ 226.18(b(3)</ref>, thereby yielding an amount financed of $2,460.</p>
<p style="-uslm-sgm:P">In some instances, as when loan fees are financed by the creditor, finance charges are incorporated in the face amount of the note. Creditors have the option, when the charges are not add-on or discount charges, of determining a principal loan amount under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> that either includes or does not include the amount of the finance charges. (Thus the principal loan amount may, but need not, be determined to equal the face amount of the note.) When the finance charges are included in the principal loan amount, they should be deducted as prepaid finance charges under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>. When the finance charges are not included in the principal loan amount, they should not be deducted under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>. The following examples illustrate the application of <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref> to this type of transaction. Each example assumes a loan request of $2,500 with a loan fee of $40; the creditor assesses the loan fee by increasing the face amount of the note to $2,540. </p>
<p style="-uslm-sgm:P">• If the creditor determines the principal loan amount under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> to be $2,540, it has included the loan fee in the principal loan amount and should deduct $40 as a prepaid finance charge under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>, thereby obtaining an amount financed of $2,500.</p>
<p style="-uslm-sgm:P">• If the creditor determines the principal loan amount under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> to be $2,500, it has not included the loan fee in the principal loan amount and should not deduct any amount under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>, thereby obtaining an amount financed of $2,500.
<?page num="657"?></p>
<p style="-uslm-sgm:FP">The same rules apply when the creditor does not increase the face amount of the note by the amount of the charge but collects the charge by withholding it from the amount advanced to the consumer. To illustrate, the following examples assume a loan request of $2,500 with a loan fee of $40; the creditor prepares a note for $2,500 and advances $2,460 to the consumer.</p>
<p style="-uslm-sgm:P">• If the creditor determines the principal loan amount under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> to be $2,500, it has included the loan fee in the principal loan amount and should deduct $40 as a prepaid finance charge under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>, thereby obtaining an amount financed of $2,460.</p>
<p style="-uslm-sgm:P">• If the creditor determines the principal loan amount under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> to be $2,460, it has not included the loan fee in the principal loan amount and should not deduct any amount under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>, thereby obtaining an amount financed of $2,460.</p>
<p style="-uslm-sgm:FP">Thus in the examples where the creditor derives the net amount of credit by determining a principal loan amount that does not include the amount of the finance charge, no subtraction is appropriate. Creditors should note, however, that although the charges are not subtracted as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">prepaid</inline> finance charges in those examples, they are nonetheless finance charges and must be treated as such.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Add-on or discount charges.</inline> All finance charges must be deducted from the amount of credit in calculating the amount financed. If the principal loan amount reflects finance charges that meet the definition of a prepaid finance charge in <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, those charges are included in the <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> amount and deducted under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>. However, if the principal loan amount includes finance charges that do not meet the definition of a prepaid finance charge, the <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> amount must exclude those finance charges. The following examples illustrate the application of <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref> to these types of transactions. Each example assumes a loan request of $1000 for 1 year, subject to a 6 percent precomputed interest rate, with a $10 loan fee paid separately at consummation.</p>
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<p style="-uslm-sgm:P">• The creditor assesses add-on interest of $60 which is added to the $1000 in loan proceeds for an obligation with a face amount of $1060. The principal for purposes of <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> is $1000, no amounts are added under <ref href="/us/cfr/t12/s226.18/b/2">§ 226.18(b)(2)</ref>, and the $10 loan fee is a prepaid finance charge to be deducted under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>. The amount financed is $990.</p>
<p style="-uslm-sgm:P">• The creditor assesses discount interest of $60 and distributes $940 to the consumer, who is liable for an obligation with a face amount of $1000. The principal under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> is $940, which results in an amount financed of $930, after deduction of the $10 prepaid finance charge under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">• The creditor assesses $60 in discount interest by increasing the face amount of the obligation to $1060, with the consumer receiving $1000. The principal under <ref href="/us/cfr/t12/s226.18/b/1">§ 226.18(b)(1)</ref> is thus $1000 and the amount financed $990, after deducting the $10 prepaid finance charge under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref>.</p>
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<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(c) Itemization of amount financed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> The creditor has 2 alternatives in complying with <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>:</p>
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<p style="-uslm-sgm:P">• The creditor may inform the consumer, on the segregated disclosures, that a written itemization of the amount financed will be provided on request, furnishing the itemization only if the customer in fact requests it.</p>
<p style="-uslm-sgm:P">• The creditor may provide an itemization as a matter of course, without notifying the consumer of the right to receive it or waiting for a request.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Whether given as a matter of course or only on request, the itemization must be provided at the same time as the other disclosures required by <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>, although separate from those disclosures.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Additional information.</inline> Section 226.18(c) establishes only a minimum standard for the material to be included in the itemization of the amount financed. Creditors have considerable flexibility in revising or supplementing the information listed in <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref> and shown in model form H–3, although no changes are required. The creditor may, for example, do one or more of the following:</p>
<p style="-uslm-sgm:P">i. Include amounts that reflect payments not part of the amount financed. For example, escrow items and certain insurance premiums may be included, as discussed in the commentary to <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>.</p>
<p style="-uslm-sgm:P">ii. Organize the categories in any order. For example, the creditor may rearrange the terms in a mathematical progression that depicts the arithmetic relationship of the terms.</p>
<p style="-uslm-sgm:P">iii. Add categories. For example, in a credit sale, the creditor may include the cash price and the downpayment. If the credit sale involves a trade-in of the consumer's car and an existing lien on that car exceeds the value of the trade-in amount, the creditor may disclose the consumer's trade-in value, the creditor's payoff of the existing lien, and the resulting additional amount financed.</p>
<p style="-uslm-sgm:P">iv. Further itemize each category. For example, the amount paid directly to the consumer may be subdivided into the amount given by check and the amount credited to the consumer's savings account.</p>
<p style="-uslm-sgm:P">v. Label categories with different language from that shown in <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>. For example, an amount paid on the consumer's account may be revised to specifically identify the account as “your auto loan with us.”</p>
<p style="-uslm-sgm:P">vi. Delete, leave blank, mark “N/A” or otherwise not inapplicable categories in the itemization. For example, in a credit sale with no prepaid finance charges or amounts paid to others, the amount financed may <?page num="658"?>consist of only the cash price less downpayment. In this case, the itemization may be composed of only a single category and all other categories may be eliminated.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts appropriate to more than one category.</inline> When an amount may appropriately be placed in any of several categories and the creditor does not wish to revise the categories shown in <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>, the creditor has considerable flexibility in determining where to show the amount. For example:</p>
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<p style="-uslm-sgm:P">• In a credit sale, the portion of the purchase price being financed by the creditor may be viewed as either an amount paid to the consumer or an amount paid on the consumer's account.</p>
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<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">RESPA transactions.</inline> The Real Estate Settlement Procedures Act (RESPA) requires creditors to provide a good faith estimate of closing costs and a settlement statement listing the amounts paid by the consumer. Transactions subject to RESPA are exempt from the requirements of <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref> if the creditor complies with RESPA's requirements for a good faith estimate and settlement statement. The itemization of the amount financed need not be given, even though the content and timing of the good faith estimate and settlement statement under RESPA differ from the requirements of <ref href="/us/cfr/t12/s226.18/c">§§ 226.18(c)</ref> and 226.19(a)(2). If a creditor chooses to substitute RESPA's settlement statement for the itemization when redisclosure is required under <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>, the statement must be delivered to the consumer at or prior to consummation. The disclosures required by <ref href="/us/cfr/t12/s226.18/c">§§ 226.18(c)</ref> and 226.19(a)(2) may appear on the same page or on the same document as the good faith estimate or the settlement statement, so long as the requirements of <ref href="/us/cfr/t12/s226.17/a">§ 226.17(a)</ref> are met. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(c)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts paid to consumer.</inline> This encompasses funds given to the consumer in the form of cash or a check, including joint proceeds checks, as well as funds placed in an asset account. It may include money in an interest-bearing account even if that amount is considered a required deposit under <ref href="/us/cfr/t12/s226.18/r">§ 226.18(r)</ref>. For example, in a transaction with total loan proceeds of $500, the consumer receives a check for $300 and $200 is required by the creditor to be put into an interest-bearing account. Whether or not the $200 is a required deposit, it is part of the amount financed. At the creditor's option, it may be broken out and labeled in the itemization of the amount financed. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(c)(1)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts credited to consumer's account.</inline> The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">consumer's account</inline> refers to an account in the nature of a debt with that creditor. It may include, for example, an unpaid balance on a prior loan, a credit sale balance or other amounts owing to that creditor. It does not include asset accounts of the consumer such as savings or checking accounts. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(c)(1)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts paid to others.</inline> This includes, for example, tag and title fees; amounts paid to insurance companies for insurance premiums; security interest fees, and amounts paid to credit bureaus, appraisers or public officials. When several types of insurance premiums are financed, they may, at the creditor's option, be combined and listed in one sum, labeled “insurance” or similar term. This includes, but is not limited to, different types of insurance premiums paid to one company and different types of insurance premiums paid to different companies. Except for insurance companies and other categories noted in footnote 41, third parties must be identified by name. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Charges added to amounts paid to others.</inline> A sum is sometimes added to the amount of a fee charged to a consumer for a service provided by a third party (such as for an extended warranty or a service contract) that is payable in the same amount in comparable cash and credit transactions. In the credit transaction, the amount is retained by the creditor. Given the flexibility permitted in meeting the requirements of the amount financed itemization (see the commentary to <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>), the creditor in such cases may reflect that the creditor has retained a portion of the amount paid to others. For example, the creditor could add to the category “amount paid to others” language such as “(we may be retaining a portion of this amount).” </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(c)(1)(iv).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prepaid finance charge.</inline> Prepaid finance charges that are deducted under <ref href="/us/cfr/t12/s226.18/b/3">§ 226.18(b)(3)</ref> must be disclosed under this section. The prepaid finance charges must be shown as a total amount but may, at the creditor's option, also be further itemized and described. All amounts must be reflected in this total, even if portions of the prepaid finance charge are also reflected elsewhere. For example, if at consummation the creditor collects interim interest of $30 and a credit report fee of $10, a total prepaid finance charge of $40 must be shown. At the creditor's option, the credit report fee paid to a third party may also be shown elsewhere as an amount included in <ref href="/us/cfr/t12/s226.18/c/1/iii">§ 226.18(c)(1)(iii)</ref>. The creditor may also further describe the 2 components of the prepaid finance charge, although no itemization of this element is required by <ref href="/us/cfr/t12/s226.18/c/1/iv">§ 226.18(c)(1)(iv)</ref>. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prepaid mortgage insurance premiums.</inline> RESPA requires creditors to give consumers a settlement statement disclosing the costs associated with mortgage loan transactions. Included on the settlement statement are mortgage insurance premiums collected at settlement, which are prepaid finance charges. In calculating the total amount of prepaid finance charges, creditors should use <?page num="659"?>the amount for mortgage insurance listed on the line for mortgage insurance on the settlement statement (line 1002 on HUD–1 or HUD 1–A), without adjustment, even if the actual amount collected at settlement may vary because of RESPA's escrow accounting rules. Figures for mortgage insurance disclosed in conformance with RESPA shall be deemed to be accurate for purposes of Regulation Z. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(d) Finance charge.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> The creditor must disclose the finance charge as a dollar amount, using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge,</inline> and must include a brief description similar to that in <ref href="/us/cfr/t12/s226.18/d">§ 226.18(d)</ref>. The creditor may, but need not, further modify the descriptor for variable rate transactions with a phrase such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">which is subject to change.</inline> The finance charge must be shown on the disclosures only as a total amount; the elements of the finance charge must not be itemized in the segregated disclosures, although the regulation does not prohibit their itemization elsewhere. </p>
<p style="-uslm-sgm:P" role="reserved">2. [Reserved]</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(d)(2) Other credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tolerance.</inline> When a finance charge error results in a misstatement of the amount financed, or some other dollar amount for which the regulation provides no specific tolerance, the misstated disclosure does not violate the act or the regulation if the finance charge error is within the permissible tolerance under this paragraph. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(e) Annual percentage rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> The creditor must disclose the cost of the credit as an annual rate, using the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate,</inline> plus a brief descriptive phrase comparable to that used in <ref href="/us/cfr/t12/s226.18/e">§ 226.18(e)</ref>. For variable rate transactions, the descriptor may be further modified with a phrase such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">which is subject to change.</inline> Under <ref href="/us/cfr/t12/s226.17/a">§ 226.17(a)</ref>, the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> must be more conspicuous than the other required disclosures. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exception.</inline> Footnote 42 provides an exception for certain transactions in which no annual percentage rate disclosure is required. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(f) Variable rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> The requirements of <ref href="/us/cfr/t12/s226.18/f">§ 226.18(f)</ref> apply to all transactions in which the terms of the legal obligation allow the creditor to increase the rate originally disclosed to the consumer. It includes not only increases in the interest rate but also increases in other components, such as the rate of required credit life insurance. The provisions, however, do not apply to increases resulting from delinquency (including late payment), default, assumption, acceleration or transfer of the collateral. Section 226.18(f)(1) applies to variable-rate transactions that are not secured by the consumer's principal dwelling and to those that are secured by the principal dwelling but have a term of one year or less. Section 226.18(f)(2) applies to variable-rate transactions that are secured by the consumer's principal dwelling and have a term greater than one year. Moreover, transactions subject to <ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref> are subject to the special early disclosure requirements of <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>. (However, “shared-equity” or “shared-appreciation” mortgages are subject to the disclosure requirements of <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref> and not to the requirements of <ref href="/us/cfr/t12/s226.18/f/2">§§ 226.18(f)(2)</ref> and 226.19(b) regardless of the general coverage of those sections.) Creditors are permitted under footnote 43 to substitute in any variable-rate transaction the disclosures required under <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> for those disclosures ordinarily required under 226.18(f)(1). Creditors who provide variable-rate disclosures under <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> must comply with all of the requirements of that section, including the timing of disclosures, and must also provide the disclosures required under <ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref>. Creditors utilizing footnote 43 may, but need not, also provide disclosures pursuant to <ref href="/us/cfr/t12/s226.20/c">§ 226.20(c)</ref>. (Substitution of disclosures under <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref> in transactions subject to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> is not permitted under the footnote.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(f)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terms used in disclosure.</inline> In describing the variable rate feature, the creditor need not use any prescribed terminology. For example, limitations and hypothetical examples may be described in terms of interest rates rather than annual percentage rates. The model forms in appendix H provide examples of ways in which the variable rate disclosures may be made. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Conversion feature.</inline> In variable-rate transactions with an option permitting consumers to convert to a fixed-rate transaction, the conversion option is a variable-rate feature that must be disclosed. In making disclosures under <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref>, creditors should disclose the fact that the rate may increase upon conversion; identify the index or formula used to set the fixed rate; and state any limitations on and effects of an increase resulting from conversion that differ from other variable-rate features. Because <ref href="/us/cfr/t12/s226.18/f/1/iv">§ 226.18(f)(1)(iv)</ref> requires only one hypothetical example (such as an example of the effect on payments resulting from changes in the index), a second hypothetical example need not be given.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(f)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Circumstances.</inline> The circumstances under which the rate may increase include identification of any index to which the rate is tied, as well as any conditions or events on which the increase is contingent.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• When no specific index is used, any identifiable factors used to determine whether to increase the rate must be disclosed.</p>
<p style="-uslm-sgm:P">• When the increase in the rate is purely discretionary, the fact that any increase is within the creditor's discretion must be disclosed.
<?page num="660"?></p>
<p style="-uslm-sgm:P">• When the index is internally defined (for example, by that creditor's prime rate), the creditor may comply with this requirement by either a brief description of that index or a statement that any increase is in the discretion of the creditor. An externally defined index, however, must be identified.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(f)(1)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitations.</inline> This includes any maximum imposed on the amount of an increase in the rate at any time, as well as any maximum on the total increase over the life of the transaction. Except for private education loans disclosures, when there are no limitations, the creditor may, but need not, disclose that fact, and limitations do not include legal limits in the nature of usury or rate ceilings under State or Federal statutes or regulations. (See <ref href="/us/cfr/t12/s226.30">§ 226.30</ref> for the rule requiring that a maximum interest rate be included in certain variable-rate transactions.) For disclosures with respect to private education loan disclosures, see comment 47(b)(1)–2.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(f)(1)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effects.</inline> Disclosure of the effect of an increase refers to an increase in the number or amount of payments or an increase in the final payment. In addition, the creditor may make a brief reference to negative amortization that may result from a rate increase. (See the commentary to <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref> regarding directly related information.) If the effect cannot be determined, the creditor must provide a statement of the possible effects. For example, if the exercise of the variable-rate feature may result in either more or larger payments, both possibilities must be noted.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(f)(1)(iv).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Hypothetical example.</inline> The example may, at the creditor's option appear apart from the other disclosures. The creditor may provide either a standard example that illustrates the terms and conditions of that type of credit offered by that creditor or an example that directly reflects the terms and conditions of the particular transaction. In transactions with more than one variable-rate feature, only one hypothetical example need be provided. (See the commentary to section 226.17(a)(1) regarding disclosure of more than one hypothetical example as directly related information.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Hypothetical example not required.</inline> The creditor need not provide a hypothetical example in the following transactions with a variable-rate feature:</p>
<p style="-uslm-sgm:P">• Demand obligations with no alternate maturity date.</p>
<p style="-uslm-sgm:P">• Private education loans as defined in <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref>.</p>
<p style="-uslm-sgm:P">• Multiple-advance construction loans disclosed pursuant to appendix D, Part I.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(f)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> In variable-rate transactions that have a term greater than one year and are secured by the consumer's principal dwelling, the creditor must give special early disclosures under <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> in addition to the later disclosures required under <ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref>. The disclosures under <ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref> must state that the transaction has a variable-rate feature and that variable-rate disclosures have been provided earlier. (See the commentary to <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref> regarding the disclosure of certain directly related information in addition to the variable-rate disclosures required under <ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref>.)</p>
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<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(g) Payment schedule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts included in repayment schedule.</inline> The repayment schedule should reflect all components of the finance charge, not merely the portion attributable to interest. A prepaid finance charge, however, should not be shown in the repayment schedule as a separate payment. The payments may include amounts beyond the amount financed and finance charge. For example, the disclosed payments may, at the creditor's option, reflect certain insurance premiums where the premiums are not part of either the amount financed or the finance charge, as well as real estate escrow amounts such as taxes added to the payment in mortage transactions.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred downpayments.</inline> As discussed in the commentary to <ref href="/us/cfr/t12/s226.2/a/18">§ 226.2(a)(18)</ref>, deferred downpayments or pick-up payments that meet the conditions set forth in the definition of downpayment may be treated as part of the downpayment. Even if treated as a downpayment, that amount may nevertheless be disclosed as part of the payment schedule, at the creditor's option.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total number of payments.</inline> In disclosing the number of payments for transactions with more than one payment level, creditors may but need not disclose as a single figure the total number of payments for all levels. For example, in a transaction calling for 108 payments of $350, 240 payments of $335, and 12 payments of $330, the creditor need not state that there will be a total of 360 payments.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of payments.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Section 226.18(g) requires creditors to disclose the timing of payments. To meet this requirement, creditors may list all of the payment due dates. They also have the option of specifying the “period of payments” scheduled to repay the obligation. As a general rule, creditors that choose this option must disclose the payment intervals or frequency, such as “monthly”or “bi-weekly,” and the calendar date that the beginning payment is due. For example, a creditor may disclose that payments are due “monthly beginning on <date date="1998-07-01">July 1, 1998</date>.” This information, when combined with the number of payments, is necessary to define the repayment period and enable a consumer to determine all of the payment due dates.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exception.</inline> In a limited number of circumstances, the beginning-payment date is unknown and difficult to determine at the <?page num="661"?>time disclosures are made. For example, a consumer may become obligated on a credit contract that contemplates the delayed disbursement of funds based on a contingent event, such as the completion of home repairs. Disclosures may also accompany loan checks that are sent by mail, in which case the initial disbursement and repayment dates are solely within the consumer's control. In such cases, if the beginning-payment date is unknown the creditor may use an estimated date and label the disclosure as an estimate pursuant to <ref href="/us/cfr/t12/s226.17/c">§ 226.17(c)</ref>. Alternatively, the disclosure may refer to the occurrence of a particular event, for example, by disclosing that the beginning payment is due “30 days after the first loan disbursement.” This information also may be included with an estimated date to explain the basis for the creditor's estimate. See Comment 17(a)(1)–5(iii).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage insurance.</inline> The payment schedule should reflect the consumer's mortgage insurance payments until the date on which the creditor must automatically terminate coverage under applicable law, even though the consumer may have a right to request that the insurance be cancelled earlier. The payment schedule must reflect the legal obligation, as determined by applicable state or other law. For example, assume that under applicable law, mortgage insurance must terminate after the 130th scheduled monthly payment, and the creditor collects at closing and places in escrow two months of premiums. If, under the legal obligation, the creditor will include mortgage insurance premiums in 130 payments and refund the escrowed payments when the insurance is terminated, the payment schedule should reflect 130 premium payments. If, under the legal obligation, the creditor will apply the amount escrowed to the two final insurance payments, the payment schedule should reflect 128 monthly premium payments. (For assumptions in calculating a payment schedule that includes mortgage insurance that must be automatically terminated, see comments 17(c)(1)–8 and 17(c)(1)–10.)</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage transactions.</inline> Section 226.18(g) applies only to closed-end transactions other than transactions that are subject to <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>. Section 226.18(s) applies to closed-end transactions secured by real property or a dwelling. Thus, if a closed-end consumer credit transaction is secured by real property or a dwelling, the creditor discloses an interest rate and payment summary table in accordance with <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> and does not observe the requirements of <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>. On the other hand, if a closed-end consumer credit transaction is not secured by real property or a dwelling, the creditor discloses a payment schedule in accordance with <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref> and does not observe the requirements of <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(g)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Demand obligations.</inline> In demand obligations with no alternate maturity date, the creditor has the option of disclosing only the due dates or periods of scheduled interest payments in the first year (for example, “interest payable quarterly” or “interest due the first of each month”). The amounts of the interest payments need not be shown.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(g)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Abbreviated disclosure.</inline> The creditor may disclose an abbreviated payment schedule when the amount of each regularly scheduled payment (other than the first or last payment) includes an equal amount to be applied on principal and a finance charge computed by application of a rate to the decreasing unpaid balance. This option is also available when mortgage-guarantee insurance premiums, paid either monthly or annually, cause variations in the amount of the scheduled payments, reflecting the continual decrease or increase in the premium due. In addition, in transactions where payments vary because interest and principal are paid at different intervals, the two series of payments may be disclosed separately and the abbreviated payment schedule may be used for the interest payments. For example, in transactions with fixed quarterly principal payments and monthly interest payments based on the outstanding principal balance, the amount of the interest payments will change quarterly as principal declines. In such cases the creditor may treat the interest and principal payments as two separate series of payments, separately disclosing the number, amount, and due dates of principal payments, and, using the abbreviated payment schedule, the number, amount, and due dates of interest payments. This option may be used when interest and principal are scheduled to be paid on the same date of the month as well as on different dates of the month. The creditor using this alternative must disclose the dollar amount of the highest and lowest payments and make reference to the variation in payments. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combined payment schedule disclosures.</inline> Creditors may combine the option in this paragraph with the general payment schedule requirements in transactions where only a portion of the payment schedule meets the conditions of <ref href="/us/cfr/t12/s226.18/g/2">§ 226.18(g)(2)</ref>. For example, in a graduated payment mortgage where payments rise sharply for 5 years and then decline over the next 25 years because of decreasing mortgage insurance premiums, the first 5 years would be disclosed under the general rule in <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref> and the next 25 years according to the abbreviated schedule in <ref href="/us/cfr/t12/s226.18/g/2">§ 226.18(g)(2)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect on other disclosures.</inline> Section 226.18(g)(2) applies only to the payment schedule disclosure. The actual amounts of payments must be taken into account in calculating and disclosing the finance charge and the annual percentage rate.
<?page num="662"?></p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(h) Total of payments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> The total of payments must be disclosed using that term, along with a descriptive phrase similar to the one in the regulation. The descriptive explanation may be revised to reflect a variable rate feature with a brief phrase such as “based on the current annual percentage rate which may change.”</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculation of total of payments.</inline> The total of payments is the sum of the payments disclosed under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>. For example, if the creditor disclosed a deferred portion of the downpayment as part of the payment schedule, that payment must be reflected in the total disclosed under this paragraph. To calculate the total of payments amount for transactions subject to <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>, creditors should use the rules in <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref> and associated commentary and, for adjustable-rate transactions, comments 17(c)(1)–8 and –10.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exception.</inline> Footnote 44 permits creditors to omit disclosure of the total of payments in single-payment transactions. This exception does not apply to a transaction calling for a single payment of principal combined with periodic payments of interest.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Demand obligations.</inline> In demand obligations with no alternate maturity date, the creditor may omit disclosure of payment amounts under <ref href="/us/cfr/t12/s226.18/g/1">§ 226.18(g)(1)</ref>. In those transactions, the creditor need not disclose the total of payments.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(i) Demand feature.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure requirements.</inline> The disclosure requirements of this provision apply not only to transactions payable on demand from the outset, but also to transactions that are not payable on demand at the time of consummation but convert to a demand status after a stated period. In demand obligations in which the disclosures are based on an assumed maturity of 1 year under <ref href="/us/cfr/t12/s226.17/c/5">§ 226.17(c)(5)</ref>, that fact must also be stated. Appendix H contains model clauses that may be used in making this disclosure.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Covered demand features.</inline> The type of demand feature triggering the disclosures required by <ref href="/us/cfr/t12/s226.18/i">§ 226.18(i)</ref> includes only those demand features contemplated by the parties as part of the legal obligation. For example, this provision does not apply to transactions that covert to a demand status as a result of the consumer's default. A due-on-sale clause is not considered a demand feature. A creditor may, but need not, treat its contractual right to demand payment of a loan made to its executive officers as a demand feature to the extent that the contractual right is required by Regulation O (<ref href="/us/cfr/t12/s215.5">12 CFR 215.5</ref>) or other federal law.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to payment schedule disclosures.</inline> As provided in <ref href="/us/cfr/t12/s226.18/g/1">§ 226.18(g)(1)</ref>, in demand obligations with no alternate maturity date, the creditor need only disclose the due dates or payment periods of any scheduled interest payments for the first year. If the demand obligation states an alternate maturity, however, the disclosed payment schedule must reflect that stated term; the special rule in <ref href="/us/cfr/t12/s226.18/g/1">§ 226.18(g)(1)</ref> is not available.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(j) Total sale price.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> In a credit sale transaction, the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total sale price</inline> must be disclosed using that term, along with a descriptive explanation similar to the one in the regulation. For variable rate transactions, the descriptive phrase may, at the creditor's option, be modified to reflect the variable rate feature. For example, the descriptor may read: “The total cost of your purchase on credit, which is subject to change, including your downpayment of * * *.” The reference to a downpayment may be eliminated in transactions calling for no downpayment.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculation of total sale price.</inline> The figure to be disclosed is the sum of the cash price, other charges added under <ref href="/us/cfr/t12/s226.18/b/2">§ 226.18(b)(2)</ref>, and the finance charge disclosed under <ref href="/us/cfr/t12/s226.18/d">§ 226.18(d)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of existing liens.</inline> When a credit sale transaction involves property that is being used as a trade-in (an automobile, for example) and that has a lien exceeding the value of the trade-in, the total sale price is affected by the amount of any cash provided. (See comment 2(a)(18)–3.) To illustrate, assume a consumer finances the purchase of an automobile with a cash price of $20,000. Another vehicle used as a trade-in has a value of $8,000 but has an existing lien of $10,000, leaving a $2,000 deficit that the consumer must finance.</p>
<p style="-uslm-sgm:P">i. If the consumer pays $1,500 in cash, the creditor may apply the cash first to the lien, leaving a $500 deficit, and reflect a downpayment of $0. The total sale price would include the $20,000 cash price, an additional $500 financed under <ref href="/us/cfr/t12/s226.18/b/2">§ 226.18(b)(2)</ref>, and the amount of the finance charge. Alternatively, the creditor may reflect a downpayment of $1,500 and finance the $2,000 deficit. In that case, the total sale price would include the sum of the $20,000 cash price, the $2,000 lien payoff amount as an additional amount financed, and the amount of the finance charge.</p>
<p style="-uslm-sgm:P">ii. If the consumer pays $3,000 in cash, the creditor may apply the cash first to extinguish the lien and reflect the remainder as a downpayment of $1,000. The total sale price would reflect the $20,000 cash price and the amount of the finance charge. (The cash payment extinguishes the trade-in deficit and no charges are added under <ref href="/us/cfr/t12/s226.18/b/2">§ 226.18(b)(2)</ref>.) Alternatively, the creditor may elect to reflect a downpayment of $3,000 and finance the $2,000 deficit. In that case, the total sale price would include the sum of the $20,000 cash price, the $2,000 lien payoff amount as an additional amount financed, and the amount of the finance charge.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(k) Prepayment.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> The creditor must give a definitive statement of whether or not <?page num="663"?>a penalty will be imposed or a rebate will be given.</p>
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<p style="-uslm-sgm:P">• The fact that no penalty will be imposed may not simply be inferred from the absence of a penalty disclosure; the creditor must indicate that prepayment will not result in a penalty.</p>
<p style="-uslm-sgm:P">• If a penalty or refund is possible for one type of prepayment, even though not for all, a positive disclosure is required. This applies to any type of prepayment, whether voluntary or involuntary as in the case of prepayments resulting from acceleration.</p>
<p style="-uslm-sgm:P">• Any difference in rebate or penalty policy, depending on whether prepayment is voluntary or not, must not be disclosed with the segregated disclosures.</p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rebate-penalty disclosure.</inline> A single transaction may involve both a precomputed finance charge and a finance charge computed by application of a rate to the unpaid balance (for example, mortgages with mortgage-guarantee insurance). In these cases, disclosures about both prepayment rebates and penalties are required. Sample form H–15 in appendix H illustrates a mortgage transaction in which both rebate and penalty disclosures are necessary.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prepaid finance charge.</inline> The existence of a prepaid finance charge in a transaction does not, by itself, require a disclosure under <ref href="/us/cfr/t12/s226.18/k">§ 226.18(k)</ref>. A prepaid finance charge is not considered a penalty under <ref href="/us/cfr/t12/s226.18/k/1">§ 226.18(k)(1)</ref>, nor does it require a disclosure under <ref href="/us/cfr/t12/s226.18/k/2">§ 226.18(k)(2)</ref>. At its option, however, a creditor may consider a prepaid finance charge to be under <ref href="/us/cfr/t12/s226.18/k/2">§ 226.18(k)(2)</ref>. If a disclosure is made under <ref href="/us/cfr/t12/s226.18/k/2">§ 226.18(k)(2)</ref> with respect to a prepaid finance charge or other finance charge, the creditor may further identify that finance charge. For example, the disclosure may state that the borrower “will not be entitled to a refund of the prepaid finance charge” or some other term that describes the finance charge. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(k)(1).</inline>
</p>
<heading style="-uslm-sgm:HD2">Paragraph 18(k)(1)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Penalty.</inline> This applies only to those transactions in which the interest calculation takes account of all scheduled reductions in principal, as well as transactions in which interest calculations are made daily. The term penalty as used here encompasses only those charges that are assessed strictly because of the prepayment in full of a simple-interest obligation, as an addition to all other amounts. Items which are penalties include, for example:</p>
<p style="-uslm-sgm:P">• Interest charges for any period after prepayment in full is made. (See the commentary to <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref> regarding disclosure of interest charges assessed for periods after prepayment in full as directly related information.)</p>
<p style="-uslm-sgm:P">• A minimum finance charge in a simple-interest transaction. (See the commentary to <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref> regarding the disclosure of a minimum finance charge as directly related information.) Items which are not penalties include, for example, loan guarantee fees.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(k)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rebate of finance charge.</inline> This applies to any finance charges that do not take account of each reduction in the principal balance of an obligation. This category includes, for example:</p>
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<p style="-uslm-sgm:FP-1">• Precomputed finance charges such as add-on charges.</p>
<p style="-uslm-sgm:FP-1">• Charges that take account of some but not all reductions in principal, such as mortgage guarantee insurance assessed on the basis of an annual declining balance, when the principal is reduced on a monthly basis.</p>
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<p style="-uslm-sgm:FP">No description of the method of computing earned or unearned finance charges is required or permitted as part of the segregated disclosures under this section. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(l) Late payment.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> This paragraph requires a disclosure only if charges are added to individual delinquent installments by a creditor who otherwise considers the transaction ongoing on its original terms. Late payment charges do not include:</p>
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<p style="-uslm-sgm:P">• The right of acceleration.</p>
<p style="-uslm-sgm:P">• Fees imposed for actual collection costs, such as repossession charges or attorney's fees.</p>
<p style="-uslm-sgm:P">• Deferral and extension charges.</p>
<p style="-uslm-sgm:P">• The continued accrual of simple interest at the contract rate after the payment due date. However, an increase in the interest rate is a late payment charge to the extent of the increase.</p>
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content of disclosure.</inline> Many state laws authorize the calculation of late charges on the basis of either a percentage or a specified dollar amount, and permit imposition of the lesser or greater of the 2 charges. The disclosure made under <ref href="/us/cfr/t12/s226.18/l">§ 226.18(l)</ref> may reflect this alternative. For example, stating that the charge in the event of a late payment is 5% of the late amount, not to exceed $5.00, is sufficient. Many creditors also permit a grace period during which no late charge will be assessed; this fact may be disclosed as directly related information. (See the commentary to <ref href="/us/cfr/t12/s226.17/a">§ 226.17(a)</ref>.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(m) Security interest.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Purchase money transactions.</inline> When the collateral is the item purchased as part of, or with the proceeds of, the credit transaction, section 226.18(m) requires only a general identification such as “the property purchased in this transaction.” However, the creditor may identify the property by item or type instead of identifying it more generally with a phrase such as “the property purchased in this transaction.” For example, <?page num="664"?>a creditor may identify collateral as “a motor vehicle,” or as “the property purchased in this transaction.” Any transaction in which the credit is being used to purchase the collateral is considered a purchase money transaction and the abbreviated identification may be used, whether the obligation is treated as a loan or a credit sale.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonpurchase money transactions.</inline> In nonpurchase money transactions, the property subject to the security interest must be identified by item or type. This disclosure is satisfied by a general disclosure of the category of property subject to the security interest, such as “motor vehicles,” “securities,” “certain household items,” or “household goods.” (Creditors should be aware, however, that the Federal credit practices rules, as well as some state laws, prohibit certain security interests in household goods.) At the creditor's option, however, a more precise identification of the property or goods may be provided. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mixed collateral.</inline> In some transactions in which the credit is used to purchase the collateral, the creditor may also take other property of the consumer as security. In those cases, a combined disclosure must be provided, consisting of an identification of the purchase money collateral consistent with comment 18(m)–1 and a specific identification of the other collateral consistent with comment 18(m)–2.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">After-acquired property.</inline> An after-acquired property clause is not a security interest to be disclosed under <ref href="/us/cfr/t12/s226.18/m">§ 226.18(m)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Spreader clause.</inline> The fact that collateral for pre-existing credit with the institution is being used to secure the present obligation constitutes a security interest and must be disclosed. (Such security interests may be known as “spreader” or “dragnet” clauses, or as “cross-collateralization” clauses.) A specific identification of that collateral is unnecessary but a reminder of the interest arising from the prior indebtedness is required. The disclosure may be made by using language such as “collateral securing other loans with us may also secure this loan.” At the creditor's option, a more specific description of the property involved may be given.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terms used in disclosure.</inline> No specified terminology is required in disclosing a security interest. Although the disclosure may, at the creditor's option, use the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">security interest,</inline> the creditor may designate its interest by using, for example, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">pledge, lien,</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">mortgage.</inline>
</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collateral from third party.</inline> In certain transactions, the consumer's obligation may be secured by collateral belonging to a third party. For example, a loan to a student may be secured by an interest in the property of the student's parents. In such cases, the security interest is taken in connection with the transaction and must be disclosed, even though the property encumbered is owned by someone other than the consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(n) Insurance and debt cancellation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Location.</inline> This disclosure may, at the creditor's option, appear apart from the other disclosures. It may appear with any other information, including the amount financed itemization, any information prescribed by state law, or other supplementary material. When this information is disclosed with the other segregated disclosures, however, no additional explanatory material may be included.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Debt cancellation.</inline> Creditors may use the model credit insurance disclosures only if the debt cancellation coverage constitutes insurance under state law. Otherwise, they may provide a parallel disclosure that refers to debt cancellation coverage. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(o) Certain security interest charges.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> No special format is required for these disclosures; under <ref href="/us/cfr/t12/s226.4/e">§ 226.4(e)</ref>, taxes and fees paid to government officials with respect to a security interest may be aggregated, or may be broken down by individual charge. For example, the disclosure could be labelled “filing fees and taxes” and all funds disbursed for such purposes may be aggregated in a single disclosure. This disclosure may appear, at the creditor's option, apart from the other required disclosures. The inclusion of this information on a statement required under the Real Estate Settlement Procedures Act is sufficient disclosure for purposes of Truth in Lending. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(p) Contract reference.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content.</inline> Creditors may substitute, for the phrase “appropriate contract document,” a reference to specific transaction documents in which the additional information is found, such as “promissory note” or “retail installment sale contract.” A creditor may, at its option, delete inapplicable items in the contract reference, as for example when the contract documents contain no information regarding the right of acceleration.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(q) Assumption policy.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Policy statement.</inline> In many mortgages, the creditor cannot determine, at the time disclosure must be made, whether a loan may be assumable at a future date on its original terms. For example, the assumption clause commonly used in mortgages sold to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation conditions an assumption on a variety of factors such as the creditworthiness of the subsequent borrower, the potential for impairment of the lender's security, and execution of an assumption agreement by the subsequent borrower. In cases where uncertainty exists as to the future assumability of a mortgage, the disclosure under <ref href="/us/cfr/t12/s226.18/q">§ 226.18(q)</ref> should reflect that fact. In making disclosures in such cases, the creditor may use <?page num="665"?>phrases such as “subject to conditions,” “under certain circumstances,” or “depending on future conditions.” The creditor may provide a brief reference to more specific criteria such as a due-on-sale clause, although a complete explanation of all conditions is not appropriate. For example, the disclosure may state, “Someone buying your home may be allowed to assume the mortgage on its original terms, subject to certain conditions, such as payment of an assumption fee.” See comment 17(a)(1)–5 for an example for a reference to a due-on-sale clause. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Original terms.</inline> The phrase <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">original terms</inline> for purposes of <ref href="/us/cfr/t12/s226.18/q">§ 226.18(q)</ref> does not preclude the imposition of an assumption fee, but a modification of the basic credit agreement, such as a change in the contract interest rate, represents different terms.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(r) Required deposit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure required.</inline> The creditor must inform the consumer of the existence of a required deposit. (appendix H provides a model clause that may be used in making that disclosure.) Footnote 45 describes 3 types of deposits that need not be considered required deposits. Use of the phrase “need not” permits creditors to include the disclosure even in cases where there is doubt as to whether the deposit constitutes a required deposit.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pledged account mortgages.</inline> In these transactions, a consumer pledges as collateral funds that the consumer deposits in an account held by the creditor. The creditor withdraws sums from that account to supplement the consumer's periodic payments. Creditors may treat these pledged accounts as required deposits or they may treat them as consumer buydowns in accordance with the commentary to <ref href="/us/cfr/t12/s226.17/c/1">§ 226.17(c)(1)</ref>. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrow accounts.</inline> The escrow exception in footnote 45 applies, for example, to accounts for such items as maintenance fees, repairs, or improvements, whether in a realty or a nonrealty transaction. (See the commentary to <ref href="/us/cfr/t12/s226.17/c/1">§ 226.17(c)(1)</ref> regarding the use of escrow accounts in consumer buydown transactions.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest-bearing accounts.</inline> When a deposit earns at least 5 percent interest per year, no disclosure is required under <ref href="/us/cfr/t12/s226.18/r">§ 226.18(r)</ref>. This exception applies whether the deposit is held by the creditor or by a third party. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Morris Plan transactions.</inline> A deposit under a Morris Plan, in which a deposit account is created for the sole purpose of accumulating payments and this is applied to satisfy entirely the consumer's obligation in the transaction, is not a required deposit.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of amounts excluded.</inline> The following are among the types of deposits that need not be treated as required deposits:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Requirement that a borrower be a customer or a member even if that involves a fee or a minimum balance.</p>
<p style="-uslm-sgm:P">• Required property insurance escrow on a mobile home transaction.</p>
<p style="-uslm-sgm:P">• Refund of interest when the obligation is paid in full.</p>
<p style="-uslm-sgm:P">• Deposits that are immediately available to the consumer.</p>
<p style="-uslm-sgm:P">• Funds deposited with the creditor to be disbursed (for example, for construction) before the loan proceeds are advanced.</p>
<p style="-uslm-sgm:P">• Escrow of condominium fees.</p>
<p style="-uslm-sgm:P">• Escrow of loan proceeds to be released when the repairs are completed.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Section 128, the Garn-St Germain Depository Institutions Act of 1982 (<ref href="/us/pl/97/320">Pub. L. 97–320</ref>) and the Real Estate Settlement Procedures Act (<ref href="/us/usc/t12/s2602">12 U.S.C. 2602</ref>).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Sections 226.2, 226.17, and appendix H.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other regulations:</inline> <ref href="/us/cfr/t12/s545.6">12 CFR 545.6</ref>–2(a) and <ref href="/us/cfr/t12/p29">12 CFR Part 29</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Sections 226.4 and 226.8.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> Five of the required disclosures must be explained to the consumer in a manner similar to the descriptive phrases shown in the regulation. A written itemization of the amount financed need not be provided unless the consumer requests it. The finance charge must be provided in all transactions, including real estate transactions, but must be shown only as a total amount. The disclosed finance charge is considered accurate if it is within a specified range.</p>
<p style="-uslm-sgm:P">The variable rate hypothetical is required in all variable rate transactions and may be either general or transaction-specific. The penalty and rebate disclosures in the event of prepayment have been modified and combined. The requirement of an explanation of how the rebates or penalties are computed has been eliminated. The late payment disclosure has also been narrowed to include only charges imposed before maturity for late payments.</p>
<p style="-uslm-sgm:P">The information required in the security interest disclosure has been decreased by the deletion of the type of security interest and a reduction in the property description requirement. The disclosure of the required deposit is limited to a statement that the annual percentage rate does not reflect the required deposit; the presence of a required deposit has no effect on the annual percentage rate.</p>
<p style="-uslm-sgm:P">Two disclosure requirements have been added: A reference to the contract documents for additional information and, in a residential mortgage transaction, a statement of the creditor's assumption policy.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s) Interest rate and payment summary for mortgage transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> Section 226.18(s) prescribes format and content for disclosure of interest rates and monthly (or other periodic) payments for mortgage loans. The information in <ref href="/us/cfr/t12/s226.18/s/2">§ 226.18(s)(2)</ref>–(4) is required to be in the form of a table, except as otherwise provided, <?page num="666"?>with headings and format substantially similar to Model Clause H–4(E), H–4(F), H–4(G), or H–4(H) in Appendix H to this part. A disclosure that does not include the shading shown in a model clause but otherwise follows the model clause's headings and format is substantially similar to that model clause. Where <ref href="/us/cfr/t12/s226.18/s/2">§ 226.18(s)(2)</ref>–(4) or the applicable model clause requires that a column or row of the table be labeled using the word “monthly” but the periodic payments are not due monthly, the creditor should use the appropriate term, such as “bi-weekly” or “quarterly.” In all cases, the table should have no more than five vertical columns corresponding to applicable interest rates at various times during the loan's term; corresponding payments would be shown in horizontal rows. Certain loan types and terms are defined for purposes of <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> in <ref href="/us/cfr/t12/s226.18/s/7">§ 226.18(s)(7)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amortizing loans.</inline> Loans described as amortizing in <ref href="/us/cfr/t12/s226.18/s/2/i">§§ 226.18(s)(2)(i)</ref> and 226.18(s)(3) include interest-only loans if they do not also permit negative amortization. (For rules relating to loans with balloon payments, see <ref href="/us/cfr/t12/s226.18/s/5">§ 226.18(s)(5)</ref>). If an amortizing loan is an adjustable-rate mortgage with an introductory rate (less than the fully-indexed rate), creditors must provide a special explanation of introductory rates. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.18/s/2/iii">§ 226.18(s)(2)(iii)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Negative amortization.</inline> For negative amortization loans, creditors must follow the rules in <ref href="/us/cfr/t12/s226.18/s/2/ii">§§ 226.18(s)(2)(ii)</ref> and 226.18(s)(4) in disclosing interest rates and monthly payments. Loans with negative amortization also require special explanatory disclosures about rates and payments. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.18/s/6">§ 226.18(s)(6)</ref>. Loans with negative amortization include “payment option” loans, in which the consumer is permitted to make minimum payments that will cover only some of the interest accruing each month. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 17(c)(1)–12, regarding graduated-payment adjustable-rate mortgages.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(2) Interest rates.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(2)(i) Amortizing loans.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(2)(i)(A).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fixed rate loans—payment increases.</inline> Although the interest rate will not change after consummation for a fixed-rate loan, some fixed-rate loans may have periodic payments that increase after consummation. For example, the terms of the legal obligation may permit the consumer to make interest-only payments for a specified period such as the first five years after consummation. In such cases, the creditor must include the increased payment under <ref href="/us/cfr/t12/s226.18/s/3/ii/B">§ 226.18(s)(3)(ii)(B)</ref> in the payment row, and must show the interest rate in the column for that payment, even though the rate has not changed since consummation. See also comment 17(c)(1)–13, regarding growth equity mortgages.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(2)(i)(B</inline>).</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjustable-rate mortgages and step-rate mortgages.</inline> Creditors must disclose more than one interest rate for adjustable-rate mortgages and step-rate mortgages, in accordance with <ref href="/us/cfr/t12/s226.18/s/2/i/B">§ 226.18(s)(2)(i)(B)</ref>. Creditors must assume that an adjustable-rate mortgage's interest rate will increase after consummation as rapidly as possible, taking into account the terms of the legal obligation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maximum interest rate during first five years—adjustable-rate mortgages and step-rate mortgages.</inline> The creditor must disclose the maximum rate that could apply during the first five years after consummation. If there are no interest rate caps other than the maximum rate required under <ref href="/us/cfr/t12/s226.30">§ 226.30</ref>, then the creditor should disclose only the rate at consummation and the maximum rate. Such a table would have only two columns.</p>
<p style="-uslm-sgm:P">i. For an adjustable-rate mortgage, the creditor must take into account any interest rate caps when disclosing the maximum interest rate during the first five years. The creditor must also disclose the earliest date on which that adjustment may occur.</p>
<p style="-uslm-sgm:P">ii. If the transaction is a step-rate mortgage, the creditor should disclose the rate that will apply after consummation. For example, the legal obligation may provide that the rate is 6 percent for the first two years following consummation, and then increases to 7 percent for at least the next three years. The creditor should disclose the maximum rate during the first five years as 7 percent and the date on which the rate is scheduled to increase to 7 percent.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maximum interest rate at any time.</inline> The creditor must disclose the maximum rate that could apply at any time during the term of the loan and the earliest date on which the maximum rate could apply.</p>
<p style="-uslm-sgm:P">i. For an adjustable-rate mortgage, the creditor must take into account any interest rate caps in disclosing the maximum interest rate. For example, if the legal obligation provides that at each annual adjustment the rate may increase by no more than 2 percentage points, the creditor must take this limit into account in determining the earliest date on which the maximum possible rate may be reached.</p>
<p style="-uslm-sgm:P">ii. For a step-rate mortgage, the creditor should disclose the highest rate that could apply under the terms of the legal obligation and the date on which that rate will first apply.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(2)(i)(C).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment increases.</inline> For some loans, the payment may increase following consummation for reasons unrelated to an interest rate adjustment. For example, an adjustable-rate mortgage may have an introductory fixed-rate for the first five years following consummation and permit the borrower to make interest-only payments for the first three years. The disclosure requirement of <ref href="/us/cfr/t12/s226.18/s/2/i/C">§ 226.18(s)(2)(i)(C)</ref> applies to all amortizing <?page num="667"?>loans, including interest-only loans, if the consumer's payment can increase in the manner described in <ref href="/us/cfr/t12/s226.18/s/3/i/B">§ 226.18(s)(3)(i)(B)</ref>, even if it is not the type of loan covered by <ref href="/us/cfr/t12/s226.18/s/3/i">§ 226.18(s)(3)(i)</ref>. Thus, <ref href="/us/cfr/t12/s226.18/s/2/i/C">§ 226.18(s)(2)(i)(C)</ref> requires that the creditor disclose the interest rate that corresponds to the first payment that includes principal as well as interest, even though the interest rate will not adjust at that time. In such cases, if the loan is an interest-only loan, the creditor also must disclose the corresponding periodic payment pursuant to <ref href="/us/cfr/t12/s226.18/s/3/ii">§ 226.18(s)(3)(ii)</ref>. The table would show, from left to right: The interest rate and payment at consummation with the payment itemized to show that the payment is being applied to interest only; the interest rate and payment when the interest-only option ends; the maximum interest rate and payment during the first five years; and the maximum possible interest rate and payment. The disclosure requirements of <ref href="/us/cfr/t12/s226.18/s/2/i/C">§ 226.18(s)(2)(i)(C)</ref> do not apply to minor payment variations resulting solely from the fact that months have different numbers of days.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(2)(ii) Negative amortization loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate at consummation.</inline> In all cases the interest rate in effect at consummation must be disclosed, even if it will apply only for a short period such as one month.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rates for adjustable-rate mortgages.</inline> The creditor must assume that interest rates rise as quickly as possible after consummation, in accordance with any interest rate caps under the legal obligation. For adjustable-rate mortgages with no rate caps except a life-time maximum, creditors must assume that the interest rate reaches the maximum at the first adjustment. For example, assume that the legal obligation provides for an interest rate at consummation of 1.5 percent. One month after consummation, the interest rate adjusts and will adjust monthly thereafter, according to changes in the index. The consumer may make payments that cover only part of the interest accrued each month, until the date the principal balance reaches 115 percent of its original balance, or until the end of the fifth year after consummation, whichever comes first. The maximum possible rate is 10.5 percent. No other limits on interest rates apply. The minimum required payment adjusts each year, and may increase by no more than 7.5 percent over the previous year's payment. The creditor should disclose the following rates and the dates when they are scheduled to occur: A rate of 1.5 percent for the first month following consummation and the minimum payment; a rate of 10.5 percent, and the corresponding minimum payment taking into account the 7.5 percent limit on payment increases, at the beginning of the second year; and a rate of 10.5 percent and the corresponding minimum payment taking into account the 7.5 percent payment increase limit, at the beginning of the third year. The creditor also must disclose the rate of 10.5 percent, the fully amortizing payment, and the date on which the consumer must first make such a payment under the terms of the legal obligation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(2)(iii) Introductory rate disclosure for amortizing adjustable-rate mortgage.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Introductory rate.</inline> In some adjustable-rate mortgages, creditors may set an initial interest rate that is lower than the fully-indexed rate at consummation. For amortizing loans with an introductory rate, creditors must disclose the information required in <ref href="/us/cfr/t12/s226.18/s/2/iii">§ 226.18(s)(2)(iii)</ref> directly below the table.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(2)(iii)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Place in sequence.</inline> “Designation of the place in sequence” refers to identifying the month or year, as applicable, of the change in the rate resulting from the expiration of an introductory rate by its place in the sequence of months or years, as applicable, of the transaction's term. For example, if a transaction has a discounted rate for the first three years, <ref href="/us/cfr/t12/s226.18/s/2/iii/B">§ 226.18(s)(2)(iii)(B)</ref> requires a statement such as, “In the fourth year, even if market rates do not change, this rate will increase to __%.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(2)(iii)(C).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fully-indexed rate.</inline> The fully-indexed rate is defined in <ref href="/us/cfr/t12/s226.18/s/7">§ 226.18(s)(7)</ref> as the index plus the margin at consummation. For purposes of <ref href="/us/cfr/t12/s226.18/s/2/iii/C">§ 226.18(s)(2)(iii)(C)</ref>, “at consummation” refers to disclosures delivered at consummation, or three business days before consummation pursuant to <ref href="/us/cfr/t12/s226.19/a/2/ii">§ 226.19(a)(2)(ii)</ref>; for early disclosures delivered within three business days after receipt of a consumer's application pursuant to <ref href="/us/cfr/t12/s226.19/a/1">§ 226.19(a)(1)</ref>, the fully-indexed rate disclosed under <ref href="/us/cfr/t12/s226.18/s/2/iii/C">§ 226.18(s)(2)(iii)(C)</ref> may be based on the index in effect at the time the disclosures are provided. The index in effect at consummation (or at the time of early disclosures) need not be used if a contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 days before consummation (or any earlier date of disclosure) in calculating the fully-indexed rate to be disclosed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(3) Payments for amortizing loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payments corresponding to interest rates.</inline> Creditors must disclose the periodic payment that corresponds to each interest rate disclosed under <ref href="/us/cfr/t12/s226.18/s/2/i/A">§ 226.18(s)(2)(i)(A)</ref>–(C). The corresponding periodic payment is the regular payment for each such interest rate, without regard to any final payment that differs from others because of the rounding of periodic payments to account for payment amounts including fractions of cents. Balloon payments, however, must be disclosed as provided in <ref href="/us/cfr/t12/s226.18/s/5">§ 226.18(s)(5)</ref>.
<?page num="668"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal and interest payment amounts; examples.</inline>
</p>
<p style="-uslm-sgm:P">i. For fixed-rate interest-only transactions, <ref href="/us/cfr/t12/s226.18/s/3/ii/B">§ 226.18(s)(3)(ii)(B)</ref> requires scheduled increases in the regular periodic payment amounts to be disclosed along with the date of the increase. For example, in a fixed-rate interest-only loan, a scheduled increase in the payment amount from an interest-only payment to a fully amortizing payment must be disclosed. Similarly, in a fixed-rate balloon loan, the balloon payment must be disclosed in accordance with <ref href="/us/cfr/t12/s226.18/s/5">§ 226.18(s)(5)</ref>.</p>
<p style="-uslm-sgm:P">ii. For adjustable-rate mortgage transactions, <ref href="/us/cfr/t12/s226.18/s/3/i/A">§ 226.18(s)(3)(i)(A)</ref> requires that for each interest rate required to be disclosed under <ref href="/us/cfr/t12/s226.18/s/2/i">§ 226.18(s)(2)(i)</ref> (the interest rate at consummation, the maximum rate during the first five years, and the maximum possible rate) a corresponding payment amount must be disclosed.</p>
<p style="-uslm-sgm:P">iii. The format of the payment disclosure varies depending on whether all regular periodic payment amounts will include principal and interest, and whether there will be an escrow account for taxes and insurance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(3)(i)(C).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Taxes and insurance.</inline> An estimated payment amount for taxes and insurance must be disclosed if the creditor will establish an escrow account for such amounts. If the escrow account will include amounts for items other than taxes and insurance, such as homeowners association dues, the creditor may but is not required to include such items in the estimate. When such estimated escrow payments must be disclosed in multiple columns of the table, such as for adjustable- and step-rate transactions, each column should use the same estimate for taxes and insurance except that the estimate should reflect changes in periodic mortgage insurance premiums that are known to the creditor at the time the disclosure is made. The estimated amounts of mortgage insurance premiums should be based on the declining principal balance that will occur as a result of changes to the interest rate that are assumed for purposes of disclosing those rates under <ref href="/us/cfr/t12/s226.18/s/2">§ 226.18(s)(2)</ref> and accompanying commentary. The payment amount must include estimated amounts for property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss. Premiums for credit insurance, debt suspension and debt cancellation agreements, however, should not be included. Except for periodic mortgage insurance premiums included in the escrow payment under <ref href="/us/cfr/t12/s226.18/s/3/i/C">§ 226.18(s)(3)(i)(C)</ref>, amounts included in the escrow payment disclosure such as property taxes and homeowner's insurance generally are not finance charges under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref> and, therefore, do not affect other disclosures, including the finance charge and annual percentage rate.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage insurance.</inline> Payment amounts under <ref href="/us/cfr/t12/s226.18/s/3/i">§ 226.18(s)(3)(i)</ref> should reflect the consumer's mortgage insurance payments until the date on which the creditor must automatically terminate coverage under applicable law, even though the consumer may have a right to request that the insurance be cancelled earlier. The payment amount must reflect the terms of the legal obligation, as determined by applicable state or other law. For example, assume that under applicable law, mortgage insurance must terminate after the 130th scheduled monthly payment, and the creditor collects at closing and places in escrow two months of premiums. If, under the legal obligation, the creditor will include mortgage insurance premiums in 130 payments and refund the escrowed payments when the insurance is terminated, payment amounts disclosed through the 130th payment should reflect premium payments. If, under the legal obligation, the creditor will apply the amount escrowed to the two final insurance payments, payments disclosed through the 128th payment should reflect premium payments. The escrow amount reflected on the disclosure should include mortgage insurance premiums even if they are not escrowed and even if there is no escrow account established for the transaction.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(3)(i)(D).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total monthly payment.</inline> For amortizing loans, each column should add up to a total estimated payment. The total estimated payment amount should be labeled. If periodic payments are not due monthly, the creditor should use the appropriate term such as “quarterly” or “annually.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(3)(ii) Interest-only payments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest-only loans that are also negative amortization loans.</inline> The rules in <ref href="/us/cfr/t12/s226.18/s/3/ii">§ 226.18(s)(3)(ii)</ref> for disclosing payments on interest-only loans apply only if the loan is not also a negative amortization loan. If the loan is a negative amortization loan, even if it also has an interest-only feature, payments are disclosed under the rules in <ref href="/us/cfr/t12/s226.18/s/4">§ 226.18(s)(4)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(3)(ii)(C).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrows.</inline> See the commentary under <ref href="/us/cfr/t12/s226.18/s/3/i/C">§ 226.18(s)(3)(i)(C)</ref> for guidance on escrows for purposes of <ref href="/us/cfr/t12/s226.18/s/3/ii/C">§ 226.18(s)(3)(ii)(C)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(4) Payments for negative amortization loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Table.</inline> Section 226.18(s)(1) provides that tables shall include only the information required in <ref href="/us/cfr/t12/s226.18/s/2">§ 226.18(s)(2)</ref>–(4). Thus, a table for a negative amortization loan must contain no more than two horizontal rows of payments and no more than five vertical columns of interest rates.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment amounts.</inline> The payment amounts disclosed under <ref href="/us/cfr/t12/s226.18/s/4">§ 226.18(s)(4)</ref> are the minimum or fully amortizing periodic payments, <?page num="669"?>as applicable, corresponding to the interest rates disclosed under <ref href="/us/cfr/t12/s226.18/s/2/ii">§ 226.18(s)(2)(ii)</ref>. The corresponding periodic payment is the regular payment for each such interest rate, without regard to any final payment that differs from the rest because of the rounding of periodic payments to account for payment amounts including fractions of cents.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(4)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minimum required payments.</inline> In one row of the table, the creditor must disclose the minimum required payment in each column of the table, corresponding to each interest rate or adjustment required in <ref href="/us/cfr/t12/s226.18/s/2/ii">§ 226.18(s)(2)(ii)</ref>. The payments in this row must be calculated based on an assumption that the consumer makes the minimum required payment for as long as possible under the terms of the legal obligation. This row should be identified as the minimum payment option, and the statement required by <ref href="/us/cfr/t12/s226.18/s/4/i/C">§ 226.18(s)(4)(i)(C)</ref> should be included in the heading for the row.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 18(s)(4)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fully amortizing payments.</inline> In one row of the table, the creditor must disclose the fully amortizing payment in each column of the table, corresponding to each interest rate required in <ref href="/us/cfr/t12/s226.18/s/2/ii">§ 226.18(s)(2)(ii)</ref>. The creditor must assume, for purposes of calculating the amounts in this row that the consumer makes only fully amortizing payments starting with the first scheduled payment.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(5) Balloon payments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A balloon payment is one that is more than two times the regular periodic payment. In a reverse mortgage transaction, the single payment is not considered a balloon payment. A balloon payment must be disclosed outside and below the table, unless the balloon payment coincides with an interest rate adjustment or a scheduled payment increase. In those cases, the balloon payment must be disclosed in the table.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(6) Special disclosures for loans with negative amortization.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrows.</inline> See the commentary under <ref href="/us/cfr/t12/s226.18/s/3/i/C">§ 226.18(s)(3)(i)(C)</ref> for guidance on escrows for purposes of <ref href="/us/cfr/t12/s226.18/s/6">§ 226.18(s)(6)</ref>. Under that guidance, because mortgage insurance payments decline over a loan's term, the payment amounts shown in the table should reflect the mortgage insurance payment that will be applicable at the time each disclosed periodic payment will be in effect. Accordingly, the disclosed mortgage insurance payment will be zero if it corresponds to a periodic payment that will occur after the creditor will be legally required to terminate mortgage insurance. On the other hand, because only one escrow amount is disclosed under <ref href="/us/cfr/t12/s226.18/s/6">§ 226.18(s)(6)</ref> for negative amortization loans and escrows are not itemized in the payment amounts, the single escrow amount disclosed should reflect the mortgage insurance amount that will be collected at the outset of the loan's term, even though that amount will decline in the future and ultimately will be discontinued pursuant to the terms of the mortgage insurance policy.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">18(s)(7) Definitions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Negative amortization loans.</inline> Under <ref href="/us/cfr/t12/s226.18/s/7/v">§ 226.18(s)(7)(v)</ref>, a negative amortization loan is one that requires only a minimum periodic payment that covers only a portion of the accrued interest, resulting in negative amortization. For such a loan, <ref href="/us/cfr/t12/s226.18/s/4/iii">§ 226.18(s)(4)(iii)</ref> requires creditors to disclose the fully amortizing periodic payment for each interest rate disclosed under <ref href="/us/cfr/t12/s226.18/s/2/ii">§ 226.18(s)(2)(ii)</ref>, in addition to the minimum periodic payment, regardless of whether the legal obligation explicitly recites that the consumer may make the fully amortizing payment. Some loan types that result in negative amortization do not meet the definition of negative amortization loan for purposes of <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>. These include, for example, loans requiring level, amortizing payments but having a payment schedule containing gaps during which interest accrues and is added to the principal balance before regular, amortizing payments begin (or resume). For example, “seasonal income” loans may provide for amortizing payments during nine months of the year and no payments for the other three months; the required minimum payments (when made) are amortizing payments, thus such loans are not negative amortization loans under <ref href="/us/cfr/t12/s226.18/s/7/v">§ 226.18(s)(7)(v)</ref>. An adjustable-rate loan that has fixed periodic payments that do not adjust when the interest rate adjusts also would not be disclosed as a negative amortization loan under <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>. For example, assume the initial rate is 4%, for which the fully amortizing payment is $1500. Under the terms of the legal obligation, the consumer will make $1500 monthly payments even if the interest rate increases, and the additional interest is capitalized. The possibility (but not certainty) of negative amortization occurring after consummation does not make this transaction a negative amortization loan for purposes of <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>. Loans that do not meet the definition of negative amortization loan, even if they may have negative amortization, are amortizing loans and are disclosed under <ref href="/us/cfr/t12/s226.18/s/2/i">§§ 226.18(s)(2)(i)</ref> and 226.18(s)(3).</p>
<heading style="-uslm-sgm:HD2">Section 226.19—Certain Mortgage and Variable-Rate Transactions</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(a)(1)(i) Time of disclosure</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This section requires early disclosure of credit terms in mortgage transactions that are secured by a consumer's dwelling (other than home equity lines of credit subject to <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> or mortgage transactions secured by an interest in a timeshare plan) that are also subject to the Real Estate Settlement Procedures Act (RESPA) and its implementing Regulation X, administered by the Department of Housing and Urban Development (HUD). To be covered by <ref href="/us/cfr/t12/s226.19">§ 226.19</ref>, a <?page num="670"?>transaction must be a Federally related mortgage loan under RESPA. “Federally related mortgage loan” is defined under RESPA (<ref href="/us/usc/t12/s2602">12 U.S.C. 2602</ref>) and Regulation X (<ref href="/us/cfr/t24/s3500.2">24 CFR 3500.2</ref>), and is subject to any interpretations by HUD.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing and use of estimates.</inline> The disclosures required by <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref> must be delivered or mailed not later than three business days after the creditor receives the consumer's written application. The general definition of “business day” in <ref href="/us/cfr/t12/s226.2/a/6">§ 226.2(a)(6)</ref>—a day on which the creditor's offices are open to the public for substantially all of its business functions—is used for purposes of <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 2(a)(6)–1. This general definition is consistent with the definition of “business day” in HUD's Regulation X—a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t24/s3500.2">24 CFR 3500.2</ref>. Accordingly, the three-business-day period in <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref> for making early disclosures coincides with the time period within which creditors subject to RESPA must provide good faith estimates of settlement costs. If the creditor does not know the precise credit terms, the creditor must base the disclosures on the best information reasonably available and indicate that the disclosures are estimates under <ref href="/us/cfr/t12/s226.17/c/2">§ 226.17(c)(2)</ref>. If many of the disclosures are estimates, the creditor may include a statement to that effect (such as “all numerical disclosures except the late-payment disclosure are estimates”) instead of separately labelling each estimate. In the alternative, the creditor may label as an estimate only the items primarily affected by unknown information. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.17/c/2">§ 226.17(c)(2)</ref>.) The creditor may provide explanatory material concerning the estimates and the contingencies that may affect the actual terms, in accordance with the commentary to <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written application.</inline> Creditors may rely on RESPA and Regulation X (including any interpretations issued by HUD) in deciding whether a “written application” has been received. In general, Regulation X defines “application” to mean the submission of a borrower's financial information in anticipation of a credit decision relating to a Federally related mortgage loan. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t24/s3500.2/b">24 CFR 3500.2(b)</ref>. An application is received when it reaches the creditor in any of the ways applications are normally transmitted—by mail, hand delivery, or through an intermediary agent or broker. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 19(b)–3 for guidance in determining whether or not the transaction involves an intermediary agent or broker.) If an application reaches the creditor through an intermediary agent or broker, the application is received when it reaches the creditor, rather than when it reaches the agent or broker.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Denied or withdrawn applications.</inline> The creditor may determine within the three-business-day period that the application will not or cannot be approved on the terms requested, as, for example, when a consumer applies for a type or amount of credit that the creditor does not offer, or the consumer's application cannot be approved for some other reason. In that case, or if the consumer withdraws the application within the three-business-day period, the creditor need not make the disclosures under this section. If the creditor fails to provide early disclosures and the transaction is later consummated on the original terms, the creditor will be in violation of this provision. If, however, the consumer amends the application because of the creditor's unwillingness to approve it on its original terms, no violation occurs for not providing disclosures based on the original terms. But the amended application is a new application subject to <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Itemization of amount financed.</inline> In many mortgage transactions, the itemization of the amount financed required by <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref> will contain items, such as origination fees or points, that also must be disclosed as part of the good faith estimates of settlement costs required under RESPA. Creditors furnishing the RESPA good faith estimates need not give consumers any itemization of the amount financed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(a)(1)(ii) Imposition of fees.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of fees.</inline> The consumer must receive the disclosures required by this section before paying or incurring any fee imposed by a creditor or other person in connection with the consumer's application for a mortgage transaction that is subject to <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref>, except as provided in <ref href="/us/cfr/t12/s226.19/a/1/iii">§ 226.19(a)(1)(iii)</ref>. If the creditor delivers the disclosures to the consumer in person, a fee may be imposed anytime after delivery. If the creditor places the disclosures in the mail, the creditor may impose a fee after the consumer receives the disclosures or, in all cases, after midnight on the third business day following mailing of the disclosures. For purposes of <ref href="/us/cfr/t12/s226.19/a/1/ii">§ 226.19(a)(1)(ii)</ref>, the term “business day” means all calendar days except Sundays and legal public holidays referred to in <ref href="/us/cfr/t12/s226.2/a/6">§ 226.2(a)(6)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Comment 2(a)(6)–2. For example, assuming that there are no intervening legal public holidays, a creditor that receives the consumer's written application on Monday and mails the early mortgage loan disclosure on Tuesday may impose a fee on the consumer after midnight on Friday.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees restricted.</inline> A creditor or other person may not impose any fee, such as for an appraisal, underwriting, or broker services, until the consumer has received the disclosures required by <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref>. The only exception to the fee restriction allows the creditor or other person to impose a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> and reasonable fee for obtaining a consumer's credit history, such as for a credit report(s).
<?page num="671"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collection of fees.</inline> A creditor complies with <ref href="/us/cfr/t12/s226.19/a/1/ii">§ 226.19(a)(1)(ii)</ref> if—</p>
<p style="-uslm-sgm:P">i. The creditor receives a consumer's written application directly from the consumer and does not collect any fee, other than a fee for obtaining a consumer's credit history, until the consumer receives the early mortgage loan disclosure.</p>
<p style="-uslm-sgm:P">ii. A third party submits a consumer's written application to a creditor and both the creditor and third party do not collect any fee, other than a fee for obtaining a consumer's credit history, until the consumer receives the early mortgage loan disclosure from the creditor.</p>
<p style="-uslm-sgm:P">iii. A third party submits a consumer's written application to a second creditor following a prior creditor's denial of an application made by the same consumer (or following the consumer's withdrawal), and, if a fee already has been assessed, the new creditor or third party does not collect or impose any additional fee until the consumer receives an early mortgage loan disclosure from the new creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(a)(1)(iii) Exception to fee restriction.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Requirements.</inline> A creditor or other person may impose a fee before the consumer receives the required disclosures if it is for obtaining the consumer's credit history, such as by purchasing a credit report(s) on the consumer. The fee also must be <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> and reasonable in amount. For example, a creditor may collect a fee for obtaining a credit report(s) if it is in the creditor's ordinary course of business to obtain a credit report(s). If the criteria in <ref href="/us/cfr/t12/s226.19/a/1/iii">§ 226.19(a)(1)(iii)</ref> are met, the creditor may describe or refer to this fee, for example, as an “application fee.”</p>
<heading style="-uslm-sgm:HD1">19(<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">a</inline>)(2) Waiting period(s) required.</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business day definition.</inline> For purposes of <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>, “business day” means all calendar days except Sundays and the legal public holidays referred to in <ref href="/us/cfr/t12/s226.2/a/6">§ 226.2(a)(6)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 2(a)(6)–2.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consummation after both waiting periods expire.</inline> Consummation may not occur until both the seven-business-day waiting period and the three-business-day waiting period have expired. For example, assume a creditor delivers the early disclosures to the consumer in person or places them in the mail on Monday, June 1, and the creditor then delivers corrected disclosures in person to the consumer on Wednesday, June 3. Although Saturday, June 6 is the third business day after the consumer received the corrected disclosures, consummation may not occur before Tuesday, June 9, the seventh business day following delivery or mailing of the early disclosures.</p>
<heading style="-uslm-sgm:HD1">19(<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">a</inline>)(2)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">i</inline>) Seven-business-day waiting period.</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing.</inline> The disclosures required by <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref> must be delivered or placed in the mail no later than the seventh business day before consummation. The seven-business-day waiting period begins when the creditor delivers the early disclosures or places them in the mail, not when the consumer receives or is deemed to have received the early disclosures. For example, if a creditor delivers the early disclosures to the consumer in person or places them in the mail on Monday, June 1, consummation may occur on or after Tuesday, June 9, the seventh business day following delivery or mailing of the early disclosures.</p>
<heading style="-uslm-sgm:HD1">19(<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">a</inline>)(2)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-1">ii</inline>) Three-business-day waiting period.</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Conditions for redisclosure.</inline> If, at the time of consummation, the annual percentage rate disclosed is accurate under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor does not have to make corrected disclosures under <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>. If, on the other hand, the annual percentage rate disclosed is not accurate under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor must make corrected disclosures of all changed terms (including the annual percentage rate) so that the consumer receives them not later than the third business day before consummation. For example, assume consummation is scheduled for Thursday, June 11 and the early disclosures for a regular mortgage transaction disclose an annual percentage rate of 7.00%:</p>
<p style="-uslm-sgm:P">i. On Thursday, June 11, the annual percentage rate will be 7.10%. The creditor is not required to make corrected disclosures under <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>.</p>
<p style="-uslm-sgm:P">ii. On Thursday, June 11, the annual percentage rate will be 7.15%. The creditor must make corrected disclosures so that the consumer receives them on or before Monday, June 8.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content of new disclosures.</inline> If redisclosure is required, the creditor may provide a complete set of new disclosures, or may redisclose only the changed terms. If the creditor chooses to provide a complete set of new disclosures, the creditor may but need not highlight the new terms, provided that the disclosures comply with the format requirements of <ref href="/us/cfr/t12/s226.17/a">§ 226.17(a)</ref>. If the creditor chooses to disclose only the new terms, all the new terms must be disclosed. For example, a different annual percentage rate will almost always produce a different finance charge, and often a new schedule of payments; all of these changes would have to be disclosed. If, in addition, unrelated terms such as the amount financed or prepayment penalty vary from those originally disclosed, the accurate terms must be disclosed. However, no new disclosures are required if the only inaccuracies involve estimates other than the <?page num="672"?>annual percentage rate, and no variable rate feature has been added. For a discussion of the requirement to redisclose when a variable-rate feature is added, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> comment 17(f)–2. For a discussion of redisclosure requirements in general, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> the commentary on <ref href="/us/cfr/t12/s226.17/f">§ 226.17(f)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing.</inline> When redisclosures are necessary because the annual percentage rate has become inaccurate, they must be received by the consumer no later than the third business day before consummation. (For redisclosures triggered by other events, the creditor must provide corrected disclosures before consummation. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.17/f">§ 226.17(f)</ref>.) If the creditor delivers the corrected disclosures to the consumer in person, consummation may occur any time on the third business day following delivery. If the creditor provides the corrected disclosures by mail, the consumer is considered to have received them three business days after they are placed in the mail, for purposes of determining when the three-business-day waiting period required under <ref href="/us/cfr/t12/s226.19/a/2/ii">§ 226.19(a)(2)(ii)</ref> begins. Creditors that use electronic mail or a courier other than the postal service may also follow this approach.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis for annual percentage rate comparison.</inline> To determine whether a creditor must make corrected disclosures under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, a creditor compares (a) what the annual percentage rate will be at consummation to (b) the annual percentage rate stated in the most recent disclosures the creditor made to the consumer. For example, assume consummation for a regular mortgage transaction is scheduled for Thursday, June 11, the early disclosures provided in May stated an annual percentage rate of 7.00%, and corrected disclosures received by the consumer on Friday, June 5 stated an annual percentage rate of 7.15%:</p>
<p style="-uslm-sgm:P">i. On Thursday, June 11, the annual percentage rate will be 7.25%, which exceeds the most recently disclosed annual percentage rate by less than the applicable tolerance. The creditor is not required to make additional corrected disclosures or wait an additional three business days under <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>.</p>
<p style="-uslm-sgm:P">ii. On Thursday, June 11, the annual percentage rate will be 7.30%, which exceeds the most recently disclosed annual percentage rate by more than the applicable tolerance. The creditor must make corrected disclosures such that the consumer receives them on or before Monday, June 8.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(a)(3) Consumer's waiver of waiting period before consummation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Modification or waiver.</inline> A consumer may modify or waive the right to a waiting period required by <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref> only after the creditor makes the disclosures required by <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>. The consumer must have a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> personal financial emergency that necessitates consummating the credit transaction before the end of the waiting period. Whether these conditions are met is determined by the facts surrounding individual situations. The imminent sale of the consumer's home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period, is one example of a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> personal financial emergency. Each consumer who is primarily liable on the legal obligation must sign the written statement for the waiver to be effective.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of waivers within the seven-business-day waiting period.</inline> Assume the early disclosures are delivered to the consumer in person on Monday, June 1, and at that time the consumer executes a waiver of the seven-business-day waiting period (which would end on Tuesday, June 9) so that the loan can be consummated on Friday, June 5:</p>
<p style="-uslm-sgm:P">i. If the annual percentage rate on the early disclosures is inaccurate under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor must provide a corrected disclosure to the consumer before consummation, which triggers the three-business-day waiting period in <ref href="/us/cfr/t12/s226.19/a/2/ii">§ 226.19(a)(2)(ii)</ref>. After the consumer receives the corrected disclosure, the consumer must execute a waiver of the three-business-day waiting period in order to consummate the transaction on Friday, June 5.</p>
<p style="-uslm-sgm:P">ii. If a change occurs that does not render the annual percentage rate on the early disclosures inaccurate under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor must disclose the changed terms before consummation, consistent with <ref href="/us/cfr/t12/s226.17/f">§ 226.17(f)</ref>. Disclosure of the changed terms does not trigger an additional waiting period, and the transaction may be consummated on June 5 without the consumer giving the creditor an additional modification or waiver.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of waivers made after the seven-business-day waiting period.</inline> Assume the early disclosures are delivered to the consumer in person on Monday, June 1 and consummation is scheduled for Friday, June 19. On Wednesday, June 17, a change to the annual percentage rate occurs:</p>
<p style="-uslm-sgm:P">i. If the annual percentage rate on the early disclosures is inaccurate under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor must provide a corrected disclosure to the consumer before consummation, which triggers the three-business-day waiting period in <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>. After the consumer receives the corrected disclosure, the consumer must execute a waiver of the three-business-day waiting period in order to consummate the transaction on Friday, June 19.</p>
<p style="-uslm-sgm:P">ii. If a change occurs that does not render the annual percentage rate on the early disclosures inaccurate under <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>, the creditor must disclose the changed terms before consummation, consistent with <ref href="/us/cfr/t12/s226.17/f">§ 226.17(f)</ref>. Disclosure of the changed terms does not trigger an additional waiting period, and the transaction may be consummated on Friday, June 19 without the consumer giving the <?page num="673"?>creditor an additional modification or waiver.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(a)(4) Notice.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inclusion in other disclosures.</inline> The notice required by <ref href="/us/cfr/t12/s226.19/a/4">§ 226.19(a)(4)</ref> must be grouped together with the disclosures required by <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref> or <ref href="/us/cfr/t12/s226.19/a/2">§ 226.19(a)(2)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 17(a)(1)–2 for a discussion of the rules for segregating disclosures. In other cases, the notice set forth in <ref href="/us/cfr/t12/s226.19/a/4">§ 226.19(a)(4)</ref> may be disclosed together with or separately from the disclosures required under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 17(a)(1)–5(xvi).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(a)(5)(ii) Time of disclosures for timeshare plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing.</inline> A mortgage transaction secured by a consumer's interest in a “timeshare plan,” as defined in <ref href="/us/usc/t11/s101/53D">11 U.S.C. 101(53D)</ref>, that is also a Federally related mortgage loan under RESPA is subject to the requirements of <ref href="/us/cfr/t12/s226.19/a/5">§ 226.19(a)(5)</ref> instead of the requirements of <ref href="/us/cfr/t12/s226.19/a/1">§ 226.19(a)(1)</ref> through <ref href="/us/cfr/t12/s226.19/a/4">§ 226.19(a)(4)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 19(a)(1)(i)–1. Early disclosures for transactions subject to <ref href="/us/cfr/t12/s226.19/a/5">§ 226.19(a)(5)</ref> must be given (a) before consummation or (b) within three business days after the creditor receives the consumer's written application, whichever is earlier. The general definition of “business day” in <ref href="/us/cfr/t12/s226.2/a/6">§ 226.2(a)(6)</ref>—a day on which the creditor's offices are open to the public for substantially all of its business functions—applies for purposes of <ref href="/us/cfr/t12/s226.19/a/5/ii">§ 226.19(a)(5)(ii)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 2(a)(6)–1. These timing requirements are different from the timing requirements under <ref href="/us/cfr/t12/s226.19/a/1/i">§ 226.19(a)(1)(i)</ref>. Timeshare transactions covered by <ref href="/us/cfr/t12/s226.19/a/5">§ 226.19(a)(5)</ref> may be consummated any time after the disclosures required by <ref href="/us/cfr/t12/s226.19/a/5/ii">§ 226.19(a)(5)(ii)</ref> are provided.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of estimates.</inline> If the creditor does not know the precise credit terms, the creditor must base the disclosures on the best information reasonably available and indicate that the disclosures are estimates under <ref href="/us/cfr/t12/s226.17/c/2">§ 226.17(c)(2)</ref>. If many of the disclosures are estimates, the creditor may include a statement to that effect (such as “all numerical disclosures except the late-payment disclosure are estimates”) instead of separately labelling each estimate. In the alternative, the creditor may label as an estimate only the items primarily affected by unknown information. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to <ref href="/us/cfr/t12/s226.17/c/2">§ 226.17(c)(2)</ref>.) The creditor may provide explanatory material concerning the estimates and the contingencies that may affect the actual terms, in accordance with the commentary to <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written application.</inline> For timeshare transactions, creditors may rely on comment 19(a)(1)(i)–3 in determining whether a “written application” has been received.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Denied or withdrawn applications.</inline> For timeshare transactions, creditors may rely on comment 19(a)(1)(i)–4 in determining that disclosures are not required by <ref href="/us/cfr/t12/s226.19/a/5/ii">§ 226.19(a)(5)(ii)</ref> because the consumer's application will not or cannot be approved on the terms requested or the consumer has withdrawn the application.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Itemization of amount financed.</inline> For timeshare transactions, creditors may rely on comment 19(a)(1)(i)–5 in determining whether providing the good faith estimates of settlement costs required by RESPA satisfies the requirement of <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref> to provide an itemization of the amount financed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(a)(5)(iii) Redisclosure for timeshare plans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consummation or settlement.</inline> For extensions of credit secured by a consumer's timeshare plan, when corrected disclosures are required, they must be given no later than “consummation or settlement.” “Consummation” is defined in <ref href="/us/cfr/t12/s226.2/a">§ 226.2(a)</ref>. “Settlement” is defined in Regulation X (<ref href="/us/cfr/t24/s3500.2/b">24 CFR 3500.2(b)</ref>) and is subject to any interpretations issued by HUD. In some cases, a creditor may delay redisclosure until settlement, which may be at a time later than consummation. If a creditor chooses to redisclose at settlement, disclosures may be based on the terms in effect at settlement, rather than at consummation. For example, in a variable-rate transaction, a creditor may choose to base disclosures on the terms in effect at settlement, despite the general rule in comment 17(c)(1)–8 that variable-rate disclosures should be based on the terms in effect at consummation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content of new disclosures.</inline> Creditors may rely on comment 19(a)(2)(ii)–2 in determining the content of corrected disclosures required under <ref href="/us/cfr/t12/s226.19/a/5/iii">§ 226.19(a)(5)(iii)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(b) Certain variable-rate transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> Section 226.19(b) applies to all closed-end variable-rate transactions that are secured by the consumer's principal dwelling and have a term greater than one year. The requirements of this section apply not only to transactions financing the initial acquisition of the consumer's principal dwelling, but also to any other closed-end variable-rate transaction secured by the principal dwelling. Closed-end variable-rate transactions that are not secured by the principal dwelling, or are secured by the principal dwelling but have a term of one year or less, are subject to the disclosure requirements of <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref> rather than those of <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>. (Furthermore, “shared-equity” or “shared-appreciation” mortgages are subject to the disclosure requirements of <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref> rather than those of <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> regardless of the general coverage of those sections.) For purposes of this section, the term of a variable-rate demand loan is determined in accordance with the commentary to <ref href="/us/cfr/t12/s226.17/c/5">§ 226.17(c)(5)</ref>. In determining whether a construction loan that may be permanently financed by the same creditor is covered under this section, the creditor may treat the construction and the permanent phases as separate transactions with distinct terms to maturity or as a single combined transaction. <?page num="674"?>For purposes of the disclosures required under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>, the creditor may nevertheless treat the two phases either as separate transactions or as a single combined transaction in accordance with <ref href="/us/cfr/t12/s226.17/c/6">§ 226.17(c)(6)</ref>. Finally, in any assumption of a variable-rate transaction secured by the consumer's principal dwelling with a term greater than one year, disclosures need not be provided under <ref href="/us/cfr/t12/s226.18/f/2/ii">§§ 226.18(f)(2)(ii)</ref> or 226.19(b). </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing.</inline> A creditor must give the disclosures required under this section at the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intermediary agent or broker.</inline> In cases where a creditor receives a written application through an intermediary agent or broker, however, footnote 45b provides a substitute timing rule requiring the creditor to deliver the disclosures or place them in the mail not later than three business days after the creditor receives the consumer's written application. (See comment 19(b)–3 for guidance in determining whether or not the transaction involves an intermediary agent or broker.) This three-day rule also applies where the creditor takes an application over the telephone.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Telephone request.</inline> In cases where the consumer merely requests an application over the telephone, the creditor must include the early disclosures required under this section with the application that is sent to the consumer.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mail solicitations.</inline> In cases where the creditor solicits applications through the mail, the creditor must also send the disclosures required under this section if an application form is included with the solicitation.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Conversion.</inline> In cases where an open-end credit account will convert to a closed-end transaction subject to this section under a written agreement with the consumer, disclosures under this section may be given at the time of conversion. (See the commentary to <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref> for information on the timing requirements for <ref href="/us/cfr/t12/s226.19/b/2">§ 226.19(b)(2)</ref> disclosures when a variable-rate feature is later added to a transaction.)</p>
<p style="-uslm-sgm:P">v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of electronic disclosures provided on or with electronic applications.</inline> Creditors must provide the disclosures required by this section (including the brochure) on or with a blank application that is made available to the consumer in electronic form, such as on a creditor's Internet Web site. Creditors have flexibility in satisfying this requirement. Methods creditors could use to satisfy the requirement include, but are not limited to, the following examples:</p>
<p style="-uslm-sgm:P">A. The disclosures could automatically appear on the screen when the application appears;</p>
<p style="-uslm-sgm:P">B. The disclosures could be located on the same web page as the application (whether or not they appear on the initial screen), if the application contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable;</p>
<p style="-uslm-sgm:P">C. Creditors could provide a link to the electronic disclosures on or with the application as long as consumers cannot bypass the disclosures before submitting the application. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or</p>
<p style="-uslm-sgm:P">D. The disclosures could be located on the same web page as the application without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application.</p>
<p style="-uslm-sgm:P">Whatever method is used, a creditor need not confirm that the consumer has read the disclosures.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intermediary agent or broker.</inline> In certain transactions involving an “intermediary agent or broker,” a creditor may delay providing disclosures. A creditor may not delay providing disclosures in transactions involving either a legal agent (as determined by applicable law) or any other third party that is not an “intermediary agent or broker.” In determining whether or not a transaction involves an “intermediary agent or broker” the following factors should be considered:</p>
<p style="-uslm-sgm:P">• The number of applications submitted by the broker to the creditor as compared to the total number of applications received by the creditor. The greater the percentage of total loan applications submitted by the broker in any given period of time, the less likely it is that the broker would be considered an “intermediary agent or broker” of the creditor during the next period.</p>
<p style="-uslm-sgm:P">• The number of applications submitted by the broker to the creditor as compared to the total number of applications received by the broker. (This factor is applicable only if the creditor has such information.) The greater the percentage of total loan applications received by the broker that is submitted to a creditor in any given period of time, the less likely it is that the broker would be considered an “intermediary agent or broker” of the creditor during the next period.</p>
<p style="-uslm-sgm:P">• The amount of work (such as document preparation) the creditor expects to be done by the broker on an application based on the creditor's prior dealings with the broker and on the creditor's requirements for accepting applications, taking into consideration the customary practice of brokers in a particular area. The more work that the creditor expects the broker to do on an application, in excess of what is usually expected of a broker in that area, the less likely it is that the broker would be considered an “intermediary agent or broker” of the creditor.</p>
<?GPOvSpace 02?>
<?page num="675"?>
<p style="-uslm-sgm:P">An example of an “intermediary agent or broker” is a broker who, customarily within a brief period of time after receiving an application, inquires about the credit terms of several creditors with whom the broker does business and submits the application to one of them. The broker is responsible for only a small percentage of the applications received by that creditor. During the time the broker has the application, it might request a credit report and an appraisal (or even prepare an entire loan package if customary in that particular area). </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other variable-rate regulations.</inline> Transactions in which the creditor is required to comply with and has complied with the disclosure requirements of the variable-rate regulations of other Federal agencies are exempt from the requirements of <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>, by virtue of footnote 45a, and are exempt from the requirements of <ref href="/us/cfr/t12/s226.20/c">§ 226.20(c)</ref>, by virtue of footnote 45c. Those variable-rate regulations include the regulations issued by the Federal Home Loan Bank Board and those issued by the Department of Housing and Urban Development. The exception in footnotes 45a and 45c is also available to creditors that are required by state law to comply with the federal variable-rate regulations noted above and to creditors that are authorized by title VIII of the Depository Institutions Act of 1982 (<ref href="/us/usc/t12/s3801">12 U.S.C. 3801</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) to make loans in accordance with those regulations. Creditors using this exception should comply with the timing requirements of those regulations rather than the timing requirements of Regulation Z in making the variable-rate disclosures. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of variable-rate transactions.</inline>
</p>
<p style="-uslm-sgm:P">(i) The following transactions, if they have a term greater than one year and are secured by the consumer's principal dwelling, constitute variable-rate transactions subject to the disclosure requirements of <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>. </p>
<p style="-uslm-sgm:P">(A) Renewable balloon-payment instruments where the creditor is both unconditionally obligated to renew the balloon-payment loan at the consumer's option (or is obligated to renew subject to conditions within the consumer's control) and has the option of increasing the interest rate at the time of renewal. (See comment 17(c)(1)–11 for a discussion of conditions within a consumer's control in connection with renewable balloon-payment loans.) </p>
<p style="-uslm-sgm:P">(B) Preferred-rate loans where the terms of the legal obligation provide that the initial underlying rate is fixed but will increase upon the occurrence of some event, such as an employee leaving the employ of the creditor, and the note reflects the preferred rate. The disclosures under <ref href="/us/cfr/t12/s226.19/b/1">§§ 226.19(b)(1)</ref> and 226.19(b)(2)(v), (viii), (ix), and (xii) are not applicable to such loans. </p>
<p style="-uslm-sgm:P">(C) “Price-level-adjusted mortgages” or other indexed mortgages that have a fixed rate of interest but provide for periodic adjustments to payments and the loan balance to reflect changes in an index measuring prices or inflation. The disclosures under <ref href="/us/cfr/t12/s226.19/b/1">§ 226.19(b)(1)</ref> are not applicable to such loans, nor are the following provisions to the extent they relate to the determination of the interest rate by the addition of a margin, changes in the interest rate, or interest rate discounts: Section 226.19(b)(2) (i), (iii), (iv), (v), (vi), (vii), (viii), and (ix). (See comments 20(c)–2 and 30–1 regarding the inapplicability of variable-rate adjustment notices and interest rate limitations to price-level-adjusted or similar mortgages.)</p>
<p style="-uslm-sgm:P">(ii) Graduated-payment mortgages and step-rate transactions without a variable-rate feature are not considered variable-rate transactions. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitute.</inline> Creditors who wish to use publications other than the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer Handbook on Adjustable Rate Mortgages</inline> must make a good faith determination that their brochures are suitable substitutes to the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer Handbook.</inline> A substitute is suitable if it is, at a minimum, comparable to the Consumer Handbook in substance and comprehensiveness. Creditors are permitted to provide more detailed information than is contained in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer Handbook.</inline>
</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> The <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer Handbook</inline> need not be given for variable-rate transactions subject to this section in which the underlying interest rate is fixed. (See comment 19(b)–5 for an example of a variable-rate transaction where the underlying interest rate is fixed.) </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure for each variable-rate program.</inline> A creditor must provide disclosures to the consumer that fully describe each of the creditor's variable-rate loan programs in which the consumer expresses an interest. If a program is made available only to certain customers of an institution, a creditor need not provide disclosures for that program to other consumers who express a general interest in a creditor's ARM programs. Disclosures must be given at the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier. If program disclosures cannot be provided because a consumer expresses an interest in individually negotiating loan terms that are not generally offered, disclosures reflecting those terms may be provided as soon as reasonably possible after the terms have been decided upon, but not later than the time a non-refundable fee is paid. If a consumer who has received program disclosures subsequently expresses an interest in other available variable-rate programs subject to 226.19(b)(2), or the creditor and consumer decide on a program for which the consumer has not received disclosures, the creditor must provide appropriate disclosures as soon as reasonably possible. The creditor, of <?page num="676"?>course, is permitted to give the consumer information about additional programs subject to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> initially.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate loan program defined.</inline> i. Generally, if the identification, the presence or absence, or the exact value of a loan feature must be disclosed under this section, variable-rate loans that differ as to such features constitute separate loan programs. For example, separate loan programs would exist based on differences in any of the following loan features:</p>
<p style="-uslm-sgm:P">A. The index or other formula used to calculate interest rate adjustments.</p>
<p style="-uslm-sgm:P">B. The rules relating to changes in the index value, interest rate, payments, and loan balance.</p>
<p style="-uslm-sgm:P">C. The presence or absence of, and the amount of, rate or payment caps.</p>
<p style="-uslm-sgm:P">D. The presence of a demand feature.</p>
<p style="-uslm-sgm:P">E. The possibility of negative amortization.</p>
<p style="-uslm-sgm:P">F. The possibility of interest rate carryover.</p>
<p style="-uslm-sgm:P">G. The frequency of interest rate and payment adjustments.</p>
<p style="-uslm-sgm:P">H. The presence of a discount feature.</p>
<p style="-uslm-sgm:P">I. In addition, if a loan feature must be taken into account in preparing the disclosures required by <ref href="/us/cfr/t12/s226.19/b/2/viii">§ 226.19(b)(2)(viii)</ref>, variable-rate loans that differ as to that feature constitute separate programs under <ref href="/us/cfr/t12/s226.19/b/2">§ 226.19(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">ii. If, however, a representative value may be given for a loan feature or the feature need not be disclosed under <ref href="/us/cfr/t12/s226.19/b/2">§ 226.19(b)(2)</ref>, variable-rate loans that differ as to such features do not constitute separate loan programs. For example, separate programs would not exist based on differences in the following loan features:</p>
<p style="-uslm-sgm:P">A. The amount of a discount.</p>
<p style="-uslm-sgm:P">B. The amount of a margin.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of program disclosures.</inline> A creditor may provide separate program disclosure forms for each ARM program it offers or a single disclosure form that describes multiple programs. A disclosure form may consist of more than one page. For example, a creditor may attach a separate page containing the historical payment example for a particular program. A disclosure form describing more than one program need not repeat information applicable to each program that is described. For example, a form describing multiple programs may disclose the information applicable to all of the programs in one place with the various program features (such as options permitting conversion to a fixed rate) disclosed separately. The form, however, must state if any program feature that is described is available only in conjunction with certain other program features. Both the separate and multiple program disclosures may illustrate more than one loan maturity or payment amortization—for example, by including multiple payment and loan balance columns in the historical payment example. Disclosures may be inserted or printed in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer Handbook</inline> (or a suitable substitute) as long as they are identified as the creditor's loan program disclosures.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">As applicable.</inline> The disclosures required by this section need only be made as applicable. Any disclosure not relevant to a particular transaction may be eliminated. For example, if the transaction does not contain a demand feature, the disclosure required under <ref href="/us/cfr/t12/s226.19/b/2/x">§ 226.19(b)(2)(x)</ref> need not be given. As used in this section, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">payment</inline> refers only to a payment based on the interest rate, loan balance and loan term, and does not refer to payment of other elements such as mortgage insurance premiums.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Revisions.</inline> A creditor must revise the disclosures required under this section once a year as soon as reasonably possible after the new index value becomes available. Revisions to the disclosures also are required when the loan program changes.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in interest rate, payment, or term.</inline> A creditor must disclose the fact that the terms of the legal obligation permit the creditor, after consummation of the transaction, to increase (or decrease) the interest rate, payment, or term of the loan initially disclosed to the consumer. For example, the disclosures for a variable-rate program in which the interest rate and payment (but not loan term) can change might read, “Your interest rate and payment can change yearly.” In transactions where the term of the loan may change due to rate fluctuations, the creditor must state that fact.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification of index or formula.</inline> If a creditor ties interest rate changes to a particular index, this fact must be disclosed, along with a source of information about the index. For example, if a creditor uses the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity as its index, the disclosure might read, “Your index is the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of one year published weekly in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wall Street Journal.”</inline> If no particular index is used, the creditor must briefly describe the formula used to calculate interest rate changes.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes at creditor's discretion.</inline> If interest rate changes are at the creditor's discretion, this fact must be disclosed. If an index is internally defined, such as by a creditor's prime rate, the creditor should either briefly describe that index or state that interest rate changes are at the creditor's discretion.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determination of interest rate and payment.</inline> This provision requires an explanation of how the creditor will determine the consumer's interest rate and payment. In cases where a creditor bases its interest rate on a <?page num="677"?>specific index and adjusts the index through the addition of a margin, for example, the disclosure might read, “Your interest rate is based on the index plus a margin, and your payment will be based on the interest rate, loan balance, and remaining loan term.” In transactions where paying the periodic payments will not fully amortize the outstanding balance at the end of the loan term and where the final payment will equal the periodic payment plus the remaining unpaid balance, the creditor must disclose this fact. For example, the disclosure might read, “Your periodic payments will not fully amortize your loan and you will be required to make a single payment of the periodic payment plus the remaining unpaid balance at the end of the loan term.” The creditor, however, need not reflect any irregular final payment in the historical example or in the disclosure of the initial and maximum rates and payments. If applicable, the creditor should also disclose that the rate and payment will be rounded. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(iv).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Current margin value and interest rate.</inline> Because the disclosures can be prepared in advance, the interest rate and margin may be several months old when the disclosures are delivered. A statement, therefore, is required alerting consumers to the fact that they should inquire about the current margin value applied to the index and the current interest rate. For example, the disclosure might state, “Ask us for our current interest rate and margin.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(v).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounted and premium interest rate.</inline> In some variable-rate transactions, creditors may set an initial interest rate that is not determined by the index or formula used to make later interest rate adjustments. Typically, this initial rate charged to consumers is lower than the rate would be if it were calculated using the index or formula. However, in some cases the initial rate may be higher. If the initial interest rate will be a discount or a premium rate, creditors must alert the consumer to this fact. For example, if a creditor discounted a consumer's initial rate, the disclosure might state, “Your initial interest rate is not based on the index used to make later adjustments.” (See the commentary to <ref href="/us/cfr/t12/s226.17/c/1">§ 226.17(c)(1)</ref> for a further discussion of discounted and premium variable-rate transactions.) In addition, the disclosure must suggest that consumers inquire about the amount that the program is currently discounted. For example, the disclosure might state, “Ask us for the amount our adjustable rate mortgages are currently discounted.” In a transaction with a consumer buydown or with a third-party buydown that will be incorporated in the legal obligation, the creditor should disclose the program as a discounted variable-rate transaction, but need not disclose additional information regarding the buydown in its program disclosures. (See the commentary to <ref href="/us/cfr/t12/s226.19/b/2/viii">§ 226.19(b)(2)(viii)</ref> for a discussion of how to reflect the discount or premium in the historical example or the maximum rate and payment disclosure).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(vi).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Frequency.</inline> The frequency of interest rate and payment adjustments must be disclosed. If interest rate changes will be imposed more frequently or at different intervals than payment changes, a creditor must disclose the frequency and timing of both types of changes. For example, in a variable-rate transaction where interest rate changes are made monthly, but payment changes occur on an annual basis, this fact must be disclosed. In certain ARM transactions, the interval between loan closing and the initial adjustment is not known and may be different from the regular interval for adjustments. In such cases, the creditor may disclose the initial adjustment period as a range of the minimum and maximum amount of time from consummation or closing. For example, the creditor might state: “The first adjustment to your interest rate and payment will occur no sooner than 6 months and no later than 18 months after closing. Subsequent adjustments may occur once each year after the first adjustment.” (See comments 19(b)(2)(viii)(A)–7 and 19(b)(2)(viii)(B)–4 for guidance on other disclosures when this alternative disclosure rule is used.) </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(vii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate and payment caps.</inline> The creditor must disclose limits on changes (increases or decreases) in the interest rate or payment. If an initial discount is not taken into account in applying overall or periodic rate limitations, that fact must be disclosed. If separate overall or periodic limitations apply to interest rate increases resulting from other events, such as the exercise of a fixed-rate conversion option or leaving the creditor's employ, those limitations must also be stated. Limitations do not include legal limits in the nature of usury or rate ceilings under state or Federal statutes or regulations. (See <ref href="/us/cfr/t12/s226.30">§ 226.30</ref> for the rule requiring that a maximum interest rate be included in certain variable-rate transactions.) The creditor need not disclose each periodic or overall rate limitation that is currently available. As an alternative, the creditor may disclose the range of the lowest and highest periodic and overall rate limitations that may be applicable to the creditor's ARM transactions. For example, the creditor might state: “The limitation on increases to your interest rate at each adjustment will be set at an amount in the following range: Between 1 and 2 percentage points at each adjustment. The limitation on increases to your interest rate over the term of the loan will be set at an amount in the following range: Between 4 and 7 percentage points above the initial interest <?page num="678"?>rate.” A creditor using this alternative rule must include a statement in its program disclosures suggesting that the consumer ask about the overall rate limitations currently offered for the creditor's ARM programs. (See comments 19(b)(2)(viii)(A)–6 and 19(b)(2)(viii)(B)–3 for an explanation of the additional requirements for a creditor using this alternative rule for disclosure of periodic and overall rate limitations.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Negative amortization and interest rate carryover.</inline> A creditor must disclose, where applicable, the possibility of negative amortization. For example, the disclosure might state, “If any of your payments is not sufficient to cover the interest due, the difference will be added to your loan amount.” Loans that provide for more than one way to trigger negative amortization are separate variable-rate programs requiring separate disclosures. (See the commentary to <ref href="/us/cfr/t12/s226.19/b/2">§ 226.19(b)(2)</ref> for a discussion on the definition of a variable-rate loan program and the format for disclosure.) If a consumer is given the option to cap monthly payments that may result in negative amortization, the creditor must fully disclose the rules relating to the option, including the effects of exercising the option (such as negative amortization will occur and the principal loan balance will increase); however, the disclosure in <ref href="/us/cfr/t12/s226.19/b/2/viii">§ 226.19(b)(2)(viii)</ref> need not be provided.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Conversion option.</inline> If a loan program permits consumers to convert their variable-rate loans to fixed-rate loans, the creditor must disclose that the interest rate may increase if the consumer converts the loan to a fixed-rate loan. The creditor must also disclose the rules relating to the conversion feature, such as the period during which the loan may be converted, that fees may be charged at conversion, and how the fixed rate will be determined. The creditor should identify any index or other measure or formula used to determine the fixed rate and state any margin to be added. In disclosing the period during which the loan may be converted and the margin, the creditor may use information applicable to the conversion feature during the six months preceding preparation of the disclosures and state that the information is representative of conversion features recently offered by the creditor. The information may be used until the program disclosures are otherwise revised. Although the rules relating to the conversion option must be disclosed, the effect of exercising the option should not be reflected elsewhere in the disclosures, such as in the historical example or in the calculation of the initial and maximum interest rate and payments. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preferred-rate loans.</inline> Section 226.19(b) applies to preferred-rate loans, where the rate will increase upon the occurrence of some event, such as an employee leaving the creditor's employ, whether or not the underlying rate is fixed or variable. In these transactions, the creditor must disclose the event that would allow the creditor to increase the rate such as that the rate may increase if the employee leaves the creditor's employ. The creditor must also disclose the rules relating to termination of the preferred rate, such as that fees may be charged when the rate is changed and how the new rate will be determined. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(viii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Historical example and initial and maximum interest rates and payments.</inline> A creditor may disclose both the historical example and the initial and maximum interest rates and payments.</p>
<heading style="-uslm-sgm:HD2">Paragraph 19(b)(2)(viii)(A).</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Index movement.</inline> This section requires a creditor to provide an historical example, based on a $10,000 loan amount originating in 1977, showing how interest rate changes implemented according to the terms of the loan program would have affected payments and the loan balance at the end of each year during a 15-year period. (In all cases, the creditor need only calculate the payments and loan balance for the term of the loan. For example, in a five-year loan, a creditor would show the payments and loan balance for the five-year term, from 1977 to 1981, with a zero loan balance reflected for 1981. For the remaining ten years, 1982–1991, the creditor need only show the remaining index values, margin and interest rate and must continue to reflect all significant loan program terms such as rate limitations affecting them.) Pursuant to this section, the creditor must provide a history of index values for the preceding 15 years. Initially, the disclosures would give the index values from 1977 to the present. Each year thereafter, the revised program disclosures should include an additional year's index value until 15 years of values are shown. If the values for an index have not been available for 15 years, a creditor need only go back as far as the values are available in giving a history and payment example. In all cases, only one index value per year need be shown. Thus, in transactions where interest rate adjustments are implemented more frequently than once per year, a creditor may assume that the interest rate and payment resulting from the index value chosen will stay in effect for the entire year for purposes of calculating the loan balance as of the end of the year and for reflecting other loan program terms. In cases where interest rate changes are at the creditor's discretion (see the commentary to <ref href="/us/cfr/t12/s226.19/b/2/ii">§ 226.19(b)(2)(ii)</ref>), the creditor must provide a history of the rates imposed for the preceding 15 years, beginning with the rates in 1977. In giving this history, the creditor need only go back as far as the creditor's rates can reasonably be determined. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Selection of index values.</inline> The historical example must reflect the method by which <?page num="679"?>index values are determined under the program. If a creditor uses an average of index values or any other index formula, the history given should reflect those values. The creditor should select one date or, when an average of single values is used as an index, one period and should base the example on index values measured as of that same date or period for each year shown in the history. A date or period at any time during the year may be selected, but the same date or period must be used for each year in the historical example. For example, a creditor could use values for the first business day in July or for the first week ending in July for each of the 15 years shown in the example. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Selection of margin.</inline> For purposes of the disclosure required under <ref href="/us/cfr/t12/s226.19/b/2/viii/A">§ 226.19(b)(2)(viii)(A)</ref>, a creditor may select a representative margin that has been used during the six months preceding preparation of the disclosures, and should disclose that the margin is one that the creditor has used recently. The margin selected may be used until a creditor revises the disclosure form. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of discount or premium.</inline> For purposes of the disclosure required under <ref href="/us/cfr/t12/s226.19/b/2/viii/A">§ 226.19(b)(2)(viii)(A)</ref>, a creditor may select a discount or premium (amount and term) that has been used during the six months preceding preparation of the disclosures, and should disclose that the discount or premium is one that the creditor has used recently. The discount or premium should be reflected in the historical example for as long as the discount or premium is in effect. A creditor may assume that a discount that would have been in effect for any part of a year was in effect for the full year for purposes of reflecting it in the historical example. For example, a 3-month discount may be treated as being in effect for the entire first year of the example; a 15-month discount may be treated as being in effect for the first two years of the example. In illustrating the effect of the discount or premium, creditors should adjust the value of the interest rate in the historical example, and should not adjust the margin or index values. For example, if during the six months preceding preparation of the disclosures the fully indexed rate would have been 10% but the first year's rate under the program was 8%, the creditor would discount the first interest rate in the historical example by 2 percentage points. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Term of the loan.</inline> In calculating the payments and loan balances in the historical example, a creditor need not base the disclosures on each term to maturity or payment amortization that it offers. Instead, disclosures for ARMs may be based upon terms to maturity or payment amortizations of 5, 15 and 30 years, as follows: ARMs with terms or amortizations from over 1 year to 10 years may be based on a 5-year term or amortization; ARMs with terms or amortizations from over 10 years to 20 years may be based on a 15-year term or amortization; and ARMs with terms or amortizations over 20 years may be based on a 30-year term or amortization. Thus, disclosures for ARMs offered with any term from over 1 year to 40 years may be based solely on terms of 5, 15 and 30 years. Of course, a creditor may always base the disclosures on the actual terms or amortizations offered. If the creditor bases the disclosures on 5-, 15- or 30-year terms or payment amortization as provided above, the term or payment amortization used in making the disclosure must be stated. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate caps.</inline> A creditor using the alternative rule described in comment 19(b)(2)(vii)–1 for disclosure of rate limitations must base the historical example upon the highest periodic and overall rate limitations disclosed under section 226.19(b)(2)(vii). In addition, the creditor must state the limitations used in the historical example. (See comment 19(b)(2)(viii)(B)–3 for an explanation of the use of the highest rate limitation in other disclosures.)</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Frequency of adjustments.</inline> In certain transactions, creditors may use the alternative rule described in comment 19(b)(2)(vi)–1 for disclosure of the frequency of rate and payment adjustments. In such cases, the creditor may assume for purposes of the historical example that the first adjustment occurred at the end of the first full year in which the adjustment could occur. For example, in an ARM in which the first adjustment may occur between 6 and 18 months after closing and annually thereafter, the creditor may assume that the first adjustment occurred at the end of the first year in the historical example. (See comment 19(b)(2)(viii)(B)–4 for an explanation of how to compute the maximum interest rate and payment when the initial adjustment period is not known.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(viii)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Initial and maximum interest rates and payments.</inline> The disclosure form must state the initial and maximum interest rates and payments for a $10,000 loan originated at an initial interest rate (index value plus margin adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure. (See comment 19(b)(2)–5 on revisions to the loan program disclosure.) In calculating the maximum payment under this paragraph, a creditor should assume that the interest rate increases as rapidly as possible under the loan program, and the maximum payment disclosed should reflect the amortization of the loan during this period. Thus, in a loan with 2 percentage point annual (and 5 percentage point overall) interest rate limitations or “caps,” the maximum interest rate would be 5 percentage points higher than the initial interest rate disclosed. Moreover, the loan would not reach the maximum interest rate until the fourth year because of the 2 <?page num="680"?>percentage point annual rate limitations, and the maximum payment disclosed would reflect the amortization of the loan during this period. If the loan program includes a discounted or premium initial interest rate, the initial interest rate should be adjusted by the amount of the discount or premium.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Term of the loan.</inline> In calculating the initial and maximum payments, the creditor need not base the disclosures on each term to maturity or payment amortization offered under the program. Instead, the creditor may follow the rules set out in comment 19(b)(2)(viii)(A)–5.</p>
<p style="-uslm-sgm:P">If a historical example is provided under <ref href="/us/cfr/t12/s226.19/b/2/viii/A">§ 226.19(b)(2)(viii)(A)</ref>, the terms to maturity or payment amortization used in the historical example must be used in calculating the initial and maximum payment. In addition, creditors must state the term or payment amortization used in making the disclosures under this section.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate caps.</inline> A creditor using the alternative rule for disclosure of interest rate limitations described in comment 19(b)(2)(vii)–1 must calculate the maximum interest rate and payment based upon the highest periodic and overall rate limitations disclosed under <ref href="/us/cfr/t12/s226.19/b/2/vii">§ 226.19(b)(2)(vii)</ref>. In addition, the creditor must state the rate limitations used in calculating the maximum interest rate and payment. (See comment 19(b)(2)(viii)(A)–6 for an explanation of the use of the highest rate limitation in other disclosures.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Frequency of adjustments.</inline> In certain transactions, a creditor may use the alternative rule for disclosure of the frequency of rate and payment adjustments described in comment 19(b)(2)(vi)–1. In such cases, the creditor must base the calculations of the initial and maximum rates and payments upon the earliest possible first adjustment disclosed under <ref href="/us/cfr/t12/s226.19/b/2/vi">§ 226.19(b)(2)(vi)</ref>. (See comment 19(b)(2)(viii)(A)–7 for an explanation of how to disclose the historical example when the initial adjustment period is not known.)</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic payment statement.</inline> The statement that the periodic payment may increase or decrease substantially may be satisfied by the disclosure in paragraph 19(b)(2)(vi) if it states for example, “your monthly payment can increase or decrease substantially based on annual changes in the interest rate.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(ix).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculation of payments.</inline> A creditor is required to include a statement on the disclosure form that explains how a consumer may calculate his or her actual monthly payments for a loan amount other than $10,000. The example should be based upon the most recent payment shown in the historical example or upon the initial interest rate reflected in the maximum rate and payment disclosure. In transactions in which the latest payment shown in the historical example is not for the latest year of index values shown (such as in a five-year loan), a creditor may provide additional examples based on the initial and maximum payments disclosed under <ref href="/us/cfr/t12/s226.19/b/2/viii/B">§ 226.19(b)(2)(viii)(B)</ref>. The creditor, however, is not required to calculate the consumer's payments. (See the model clauses in appendix H–4(C).)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(x).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Demand feature.</inline> If a variable-rate loan subject to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> requirements contains a demand feature as discussed in the commentary to <ref href="/us/cfr/t12/s226.18/i">§ 226.18(i)</ref>, this fact must be disclosed. (Pursuant to <ref href="/us/cfr/t12/s226.18/i">§ 226.18(i)</ref>, creditors would also disclose the demand feature in the standard disclosures given later.)</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(xi).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjustment notices.</inline> A creditor must disclose to the consumer the type of information that will be contained in subsequent notices of adjustments and when such notices will be provided. (See the commentary to <ref href="/us/cfr/t12/s226.20/c">§ 226.20(c)</ref> regarding notices of adjustments.) For example, the disclosure might state, “You will be notified at least 25, but no more than 120, days before the due date of a payment at a new level. This notice will contain information about the index and interest rates, payment amount, and loan balance.” In transactions where there may be interest rate adjustments without accompanying payment adjustments in a year, the disclosure might read, “You will be notified once each year during which interest rate adjustments, but no payment adjustments, have been made to your loan. This notice will contain information about the index and interest rates, payment amount, and loan balance.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 19(b)(2)(xii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple loan programs.</inline> A creditor that offers multiple variable-rate loan programs is required to have disclosures for each variable-rate loan program subject to <ref href="/us/cfr/t12/s226.19/b/2">§ 226.19(b)(2)</ref>. Unless disclosures for all of its variable-rate programs are provided initially, the creditor must inform the consumer that other closed-end variable-rate programs exist, and that disclosure forms are available for these additional loan programs. For example, the disclosure form might state, “Information on other adjustable rate mortgage programs is available upon request.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">19(c) Electronic disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosures.</inline> Whether disclosures must be in electronic form depends upon the following:</p>
<p style="-uslm-sgm:P">i. If a consumer accesses an ARM loan application electronically (other than as described under ii. below), such as online at a home computer, the creditor must provide the disclosures in electronic form (such as with the application form on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application. If the creditor instead <?page num="681"?>mailed paper disclosures to the consumer, this requirement would not be met.</p>
<p style="-uslm-sgm:P">ii. In contrast, if a consumer is physically present in the creditor's office, and accesses an ARM loan application electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the creditor to provide applications to consumers), the creditor may provide disclosures in either electronic or paper form, provided the creditor complies with the timing, delivery, and retainability requirements of the regulation.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Section 128(b)(2) and the Real Estate Settlement Procedures Act (<ref href="/us/usc/t12/s2602">12 U.S.C. 2602</ref>).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Sections 226.2, 226.17, and 226.22.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other regulations:</inline> Regulation X (<ref href="/us/cfr/t24/s3500.2/a">24 CFR 3500.2(a)</ref>, 3500.5(b), and 3500.6(a)).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> None. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> This section implements section 128(b)(2), a new provision that requires early disclosure of credit terms in certain mortgage transactions.</p>
<heading style="-uslm-sgm:HD2">Section 226.20 Subsequent Disclosure Requirements</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(a) Refinancings.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> A refinancing is a new transaction requiring a complete new set of disclosures. Whether a refinancing has occurred is determined by reference to whether the original obligation has been satisfied or extinguished and replaced by a new obligation, based on the parties' contract and applicable law. The refinancing may involve the consolidation of several existing obligations, disbursement of new money to the consumer or on the consumer's behalf, or the rescheduling of payments under an existing obligation. In any form, the new obligation must completely replace the prior one.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Changes in the terms of an existing obligation, such as the deferral of individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation. </p>
<p style="-uslm-sgm:P">• A substitution of agreements that meets the refinancing definition will require new disclosures, even if the substitution does not substantially alter the prior credit terms. </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions.</inline> A transaction is subject to <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref> only if it meets the general definition of a refinancing. Section 226.20(a) (1) through (5) lists 5 events that are not treated as refinancings, even if they are accomplished by cancellation of the old obligation and substitution of a new one. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate.</inline>
</p>
<p style="-uslm-sgm:P">i. If a variable-rate feature was properly disclosed under the regulation, a rate change in accord with those disclosures is not a refinancing. For example, no new disclosures are required when the variable-rate feature is invoked on a renewable balloon-payment mortgage that was previously disclosed as a variable-rate transaction. </p>
<p style="-uslm-sgm:P">ii. Even if it is not accomplished by the cancellation of the old obligation and substitution of a new one, a new transaction subject to new disclosures results if the creditor either: </p>
<p style="-uslm-sgm:P">A. Increases the rate based on a variable-rate feature that was not previously disclosed; or </p>
<p style="-uslm-sgm:P">B. Adds a variable-rate feature to the obligation. A creditor does not add a variable-rate feature by changing the index of a variable-rate transaction to a comparable index, whether the change replaces the existing index or substitutes an index for one that no longer exists. </p>
<p style="-uslm-sgm:P">iii. If either of the events in paragraph 20(a)3.ii.A. or ii.B. occurs in a transaction secured by a principal dwelling with a term longer than one year, the disclosures required under <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> also must be given at that time. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unearned finance charge.</inline> In a transaction involving precomputed finance charges, the creditor must include in the finance charge on the refinanced obligation any unearned portion of the original finance charge that is not rebated to the consumer or credited against the underlying obligation. For example, in a transaction with an add-on finance charge, a creditor advances new money to a consumer in a fashion that extinguishes the original obligation and replaces it with a new one. The creditor neither refunds the unearned finance charge on the original obligation to the consumer nor credits it to the remaining balance on the old obligation. Under these circumstances, the unearned finance charge must be included in the finance charge on the new obligation and reflected in the annual percentage rate disclosed on refinancing. Accrued but unpaid finance charges are included in the amount financed in the new obligation. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> Section 226.20(a) applies only to refinancings undertaken by the original creditor or a holder or servicer of the original obligation. A “refinancing” by any other person is a new transaction under the regulation, not a refinancing under this section. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(a)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Renewal.</inline> This exception applies both to obligations with a single payment of principal and interest and to obligations with periodic payments of interest and a final payment of principal. In determining whether a new obligation replacing an old one is a renewal of the original terms or a refinancing, the creditor may consider it a renewal even if:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Accrued unpaid interest is added to the principal balance.
<?page num="682"?></p>
<p style="-uslm-sgm:P">• Changes are made in the terms of renewal resulting from the factors listed in <ref href="/us/cfr/t12/s226.17/c/3">§ 226.17(c)(3)</ref>.</p>
<p style="-uslm-sgm:P">• The principal at renewal is reduced by a curtailment of the obligation.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual percentage rate reduction.</inline> A reduction in the annual percentage rate with a corresponding change in the payment schedule is not a refinancing. If the annual percentage rate is subsequently increased (even though it remains below its original level) and the increase is effected in such a way that the old obligation is satisfied and replaced, new disclosures must then be made. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Corresponding change.</inline> A corresponding change in the payment schedule to implement a lower annual percentage rate would be a shortening of the maturity, or a reduction in the payment amount or the number of payments of an obligation. The exception in <ref href="/us/cfr/t12/s226.20/a/2">§ 226.20(a)(2)</ref> does not apply if the maturity is lengthened, or if the payment amount or number of payments is increased beyond that remaining on the existing transaction. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(a)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Court agreements.</inline> This exception includes, for example, agreements such as reaffirmations of debts discharged in bankruptcy, settlement agreements, and post-judgment agreements. (See the commentary to <ref href="/us/cfr/t12/s226.2/a/14">§ 226.2(a)(14)</ref> for a discussion of court-approved agreements that are not considered “credit.”) </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(a)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Workout agreements.</inline> A workout agreement is not a refinancing unless the annual percentage rate is increased or additional credit is advanced beyond amounts already accrued plus insurance premiums. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(a)(5).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Insurance renewal.</inline> The renewal of optional insurance added to an existing credit transaction is not a refinancing, assuming that appropriate Truth in Lending disclosures were provided for the initial purchase of the insurance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(b) Assumptions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General definition.</inline> An assumption as defined in <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref> is a new transaction and new disclosures must be made to the subsequent consumer. An assumption under the regulation requires the following three elements:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">• A residential mortgage transaction.</p>
<p style="-uslm-sgm:FP-1">• An express acceptance of the subsequent consumer by the creditor.</p>
<p style="-uslm-sgm:FP-1">• A written agreement.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">The assumption of a nonexempt consumer credit obligation requires no disclosures unless all three elements are present. For example, an automobile dealer need not provide Truth in Lending disclosures to a customer who assumes an existing obligation secured by an automobile. However, a residential mortgage transaction with the elements described in <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref> is an assumption that calls for new disclosures; the disclosures must be given whether or not the assumption is accompanied by changes in the terms of the obligation. (See comment 2(a)(24)–5 for a discussion of assumptions that are not considered residential mortgage transactions.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Existing residential mortgage transaction.</inline> A transaction may be a residential mortgage transaction as to one consumer and not to the other consumer. In that case, the creditor must look to the assuming consumer in determining whether a residential mortgage transaction exists. To illustrate:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• The original consumer obtained a mortgage to purchase a home for vacation purposes. The loan was not a residential mortgage transaction as to that consumer. The mortgage is assumed by a consumer who will use the home as a principal dwelling. As to that consumer, the loan is a residential mortgage transaction. For purposes of <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref>, the assumed loan is an “existing residential mortgage transaction” requiring disclosures, if the other criteria for an assumption are met. </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Express agreement. Expressly agrees</inline> means that the creditor's agreement must relate specifically to the new debtor and must unequivocally accept that debtor as a primary obligor. The following events are not construed to be express agreements between the creditor and the subsequent consumer:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Approval of creditworthiness.</p>
<p style="-uslm-sgm:P">• Notification of a change in records.</p>
<p style="-uslm-sgm:P">• Mailing of a coupon book to the subsequent consumer.</p>
<p style="-uslm-sgm:P">• Acceptance of payments from the new consumer.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Retention of original consumer.</inline> The retention of the original consumer as an obligor in some capacity does not prevent the change from being an assumption, provided the new consumer becomes a primary obligor. But the mere addition of a guarantor to an obligation for which the original consumer remains primarily liable does not give rise to an assumption. However, if neither party is designated as the primary obligor but the creditor accepts payment from the subsequent consumer, an assumption exists for purposes of <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Status of parties.</inline> Section 226.20(b) applies only if the previous debtor was a consumer and the obligation is assumed by another consumer. It does not apply, for example, when an individual takes over the obligation of a corporation.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosures.</inline> For transactions that are assumptions within this provision, the creditor must make disclosures based on the “remaining obligation.” For example: </p>
<p style="-uslm-sgm:P">• The amount financed is the remaining principal balance plus any arrearages or <?page num="683"?>other accrued charges from the original transaction. </p>
<p style="-uslm-sgm:P">• If the finance charge is computed from time to time by application of a percentage rate to an unpaid balance, in determining the amount of the finance charge and the annual percentage rate to be disclosed, the creditor should disregard any prepaid finance charges paid by the original obligor, but must include in the finance charge any prepaid finance charge imposed in connection with the assumption. </p>
<p style="-uslm-sgm:P">• If the creditor requires the assuming consumer to pay any charges as a condition of the assumption, those sums are prepaid finance charges as to that consumer, unless exempt from the finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>. If a transaction involves add-on or discount finance charges, the creditor may make abbreviated disclosures, as outlined in <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref> (1) through (5). Creditors providing disclosures pursuant to this section for assumptions of variable-rate transactions secured by the consumer's principal dwelling with a term longer than one year need not provide new disclosures under <ref href="/us/cfr/t12/s226.18/f/2/ii">§ 226.18(f)(2)(ii)</ref> or <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>. In such transactions, a creditor may disclose the variable-rate feature solely in accordance with <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref>.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Abbreviated disclosures.</inline> The abbreviated disclosures permitted for assumptions of transactions involving add-on or discount finance charges must be made clearly and conspicuously in writing in a form that the consumer may keep. However, the creditor need not comply with the segregation requirement of <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref>. The terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total of payments,</inline> when disclosed according to <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref> (4) and (5), are not subject to the description requirements of <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> (e) and (h). The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate</inline> disclosed under <ref href="/us/cfr/t12/s226.20/b/4">§ 226.20(b)(4)</ref> need not be more conspicuous than other disclosures.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(c) Variable-rate adjustments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of adjustment notices.</inline> This section requires a creditor (or a subsequent holder) to provide certain disclosures in cases where an adjustment to the interest rate is made in a variable-rate transaction subject to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>. There are two timing rules, depending on whether payment changes accompany interest rate changes. A creditor is required to provide at least one notice each year during which interest rate adjustments have occurred without accompanying payment adjustments. For payment adjustments, a creditor must deliver or place in the mail notices to borrowers at least 25, but not more than 120, calendar days before a payment at a new level is due. The timing rules also apply to the notice required to be given in connection with the adjustment to the rate and payment that follows conversion of a transaction subject to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> to a fixed-rate transaction. (In cases where an open-end account is converted to a closed-end transaction subject to <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>, the requirements of this section do not apply until adjustments are made following conversion.) </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions.</inline> Section 226.20(c) does not apply to “shared-equity,” “shared-appreciation,” or “price level adjusted” or similar mortgages.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis of disclosures.</inline> The disclosures required under this section shall reflect the terms of the parties' legal obligation, as required under <ref href="/us/cfr/t12/s226.17/c/1">§ 226.17(c)(1)</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(c)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Current and prior interest rates.</inline> The requirements under this paragraph are satisfied by disclosing the interest rate used to compute the new adjusted payment amount (“current rate”) and the adjusted interest rate that was disclosed in the last adjustment notice, as well as all other interest rates applied to the transaction in the period since the last notice (“prior rates”). (If there has been no prior adjustment notice, the prior rates are the interest rate applicable to the transaction at consummation, as well as all other interest rates applied to the transaction in the period since consummation.) If no payment adjustment has been made in a year, the current rate is the new adjusted interest rate for the transaction, and the prior rates are the adjusted interest rate applicable to the loan at the time of the last adjustment notice, and all other rates applied to the transaction in the period between the current and last adjustment notices. In disclosing all other rates applied to the transaction during the period between notices, a creditor may disclose a range of the highest and lowest rates applied during that period. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(c)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Current and prior index values.</inline> This section requires disclosure of the index or formula values used to compute the current and prior interest rates disclosed in <ref href="/us/cfr/t12/s226.20/c/1">§ 226.20(c)(1)</ref>. The creditor need not disclose the margin used in computing the rates. If the prior interest rate was not based on an index or formula value, the creditor also need not disclose the value of the index that would otherwise have been used to compute the prior interest rate. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(c)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unapplied index increases.</inline> The requirement that the consumer receive information about the extent to which the creditor has foregone any increase in the interest rate is applicable only to those transactions permitting interest rate carryover. The amount of increase that is foregone at an adjustment is the amount that, subject to rate caps, can be applied to future adjustments independently to increase, or offset decreases in, the rate that is determined according to the index or formula. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(c)(4).</inline>
<?page num="684"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Contractual effects of the adjustment.</inline> The contractual effects of an interest rate adjustment must be disclosed including the payment due after the adjustment is made whether or not the payment has been adjusted. A contractual effect of a rate adjustment would include, for example, disclosure of any change in the term or maturity of the loan if the change resulted from the rate adjustment. In transactions where paying the periodic payments will not fully amortize the outstanding balance at the end of the loan term and where the final payment will equal the periodic payment plus the remaining unpaid balance, the amount of the adjusted payment must be disclosed if such payment has changed as a result of the rate adjustment. A statement of the loan balance also is required. The balance required to be disclosed is the balance on which the new adjusted payment is based. If no payment adjustment is disclosed in the notice, the balance disclosed should be the loan balance on which the payment disclosed under <ref href="/us/cfr/t12/s226.20/c/5">§ 226.20(c)(5)</ref> is based, if applicable, or the balance at the time the disclosure is prepared.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 20(c)(5).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fully-amortizing payment.</inline> This paragraph requires a disclosure only when negative amortization occurs as a result of the adjustment. A disclosure is not required simply because a loan calls for non-amortizing or partially amortizing payments. For example, in a transaction with a five-year term and payments based on a longer amortization schedule, and where the final payment will equal the periodic payment plus the remaining unpaid balance, the creditor would not have to disclose the payment necessary to fully amortize the loan in the remainder of the five-year term. A disclosure is required, however, if the payment disclosed under <ref href="/us/cfr/t12/s226.20/c/4">§ 226.20(c)(4)</ref> is not sufficient to prevent negative amortization in the loan. The adjustment notice must state the payment required to prevent negative amortization. (This paragraph does not apply if the payment disclosed in <ref href="/us/cfr/t12/s226.20/c/4">§ 226.20(c)(4)</ref> is sufficient to prevent negative amortization in the loan but the final payment will be a different amount due to rounding.)</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.2.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.8(j) through (l), and Interpretation Sections 226.807, 226.811, 226.814, and 226.817.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> While the previous regulation treated virtually any change in terms as a refinancing requiring new disclosures, this regulation limits refinancings to transactions in which the entire original obligation is extinguished and replaced by a new one. Redisclosure is no longer required for deferrals or extensions.</p>
<p style="-uslm-sgm:P">The assumption provision retains the substance of <ref href="/us/cfr/t12/s226.8/k">§ 226.8(k)</ref> and Interpretation <ref href="/us/cfr/t12/s226.807">§ 226.807</ref> of the previous regulation, but limits its scope to residential mortgage transactions.</p>
<heading style="-uslm-sgm:HD2">Section 226.21—Treatment of Credit Balances</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 21(a).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit balance.</inline> A credit balance arises whenever the creditor receives or holds funds in an account in excess of the total balance due from the consumer on that account. A balance might result, for example, from the debtor's paying off a loan by transmitting funds in excess of the total balance owed on the account, or from the early payoff of a loan entitling the consumer to a rebate of insurance premiums and finance charges. However, <ref href="/us/cfr/t12/s226.21">§ 226.21</ref> does not determine whether the creditor in fact owes or holds sums for the consumer. For example, if a creditor has no obligation to rebate any portion of precomputed finance charges on prepayment, the consumer's early payoff would not create a credit balance with respect to those charges. Similarly, nothing in this provision interferes with any rights the creditor may have under the contract or under state law with respect to set-off, cross collateralization, or similar provisions.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total balance due.</inline> The phrase <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total balance due</inline> refers to the total outstanding balance. Thus, this provision does not apply where the consumer has simply paid an amount in excess of the payment due for a given period.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing of refund.</inline> The creditor may also fulfill its obligation under this section by:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Refunding any credit balance to the consumer immediately.</p>
<p style="-uslm-sgm:P">• Refunding any credit balance prior to a written request from the consumer.</p>
<p style="-uslm-sgm:P">• Making a good faith effort to refund any credit balance before 6 months have passed. If that attempt is unsuccessful, the creditor need not try again to refund the credit balance at the end of the 6-month period.</p>
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<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 21(b).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written requests—standing orders.</inline> The creditor is not required to honor standing orders requesting refunds of any credit balance that may be created on the consumer's account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 21(c).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith effort to refund.</inline> The creditor must take positive steps to return any credit balance that has remained in the account for over 6 months. This includes, if necessary, attempts to trace the consumer through the consumer's last known address or telephone number, or both. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith effort unsuccessful.</inline> Section 226.21 imposes no further duties on the creditor if a good faith effort to return the balance is unsuccessful. The ultimate disposition of the credit balance (or any credit balance of $1 or less) is to be determined under other applicable law.
<?page num="685"?></p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Section 165.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> This section implements section 165 of the Act, which was expanded by the 1980 statutory amendments to apply to closed-end as well as open-end credit.</p>
<heading style="-uslm-sgm:HD2">Section 226.22—Determination of the Annual Percentage Rate</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">22(a) Accuracy of the annual percentage rate.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 22(a)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculation method.</inline> The regulation recognizes both the actuarial method and the United States Rule Method (U.S. Rule) as measures of an exact annual percentage rate. Both methods yield the same annual percentage rate when payment intervals are equal. They differ in their treatment of unpaid accrued interest. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Actuarial method.</inline> When no payment is made, or when the payment is insufficient to pay the accumulated finance charge, the actuarial method requires that the unpaid finance charge be added to the amount financed and thereby capitalized. Interest is computed on interest since in succeeding periods the interest rate is applied to the unpaid balance including the unpaid finance charge. Appendix J provides instructions and examples for calculating the annual percentage rate using the actuarial method.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">U.S. Rule.</inline> The U.S. Rule produces no compounding of interest in that any unpaid accrued interest is accumulated separately and is not added to principal. In addition, under the U.S. Rule, no interest calculation is made until a payment is received. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis for calculations.</inline> When a transaction involves “step rates” or “split rates”—that is, different rates applied at different times or to different portions of the principal balance—a single composite annual percentage rate must be calculated and disclosed for the entire transaction. Assume, for example, a step-rate transaction in which a $10,000 loan is repayable in 5 years at 10 percent interest for the first 2 years, 12 percent for years 3 and 4, and 14 percent for year 5. The monthly payments are $210.71 during the first 2 years of the term, $220.25 for years 3 and 4, and $222.59 for year 5. The composite annual percentage rate, using a calculator with a “discounted cash flow analysis” or “internal rate of return” function, is 10.75 percent.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith reliance on faulty calculation tools.</inline> Footnote 45d absolves a creditor of liability for an error in the annual percentage rate or finance charge that resulted from a corresponding error in a calculation tool used in good faith by the creditor. Whether or not the creditor's use of the tool was in good faith must be determined on a case-by-case basis, but the creditor must in any case have taken reasonable steps to verify the accuracy of the tool, including any instructions, before using it. Generally, the footnote is available only for errors directly attributable to the calculation tool itself, including software programs; it is not intended to absolve a creditor of liability for its own errors, or for errors arising from improper use of the tool, from incorrect data entry, or from misapplication of the law.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 22(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Regular transactions.</inline> The annual percentage rate for a regular transaction is considered accurate if it varies in either direction by not more than <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> of 1 percentage point from the actual annual percentage rate. For example, when the exact annual percentage rate is determined to be 10<inline role="fraction" style="-uslm-sgm:FR">1/8</inline>%, a disclosed annual percentage rate from 10% to 10<inline role="fraction" style="-uslm-sgm:FR">1/4</inline>%, or the decimal equivalent, is deemed to comply with the regulation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 22(a)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Irregular transactions.</inline> The annual percentage rate for an irregular transaction is considered accurate if it varies in either direction by not more than <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point from the actual annual percentage rate. This tolerance is intended for more complex transactions that do not call for a single advance and a regular series of equal payments at equal intervals. The <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point tolerance may be used, for example, in a construction loan where advances are made as construction progresses, or in a transaction where payments vary to reflect the consumer's seasonal income. It may also be used in transactions with graduated payment schedules where the contract commits the consumer to several series of payments in different amounts. It does not apply, however, to loans with variable rate features where the initial disclosures are based on a regular amortization schedule over the life of the loan, even though payments may later change because of the variable rate feature.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">22(a)(4) Mortgage loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> If a creditor improperly omits a $75 fee from the finance charge on a regular transaction, the understated finance charge is considered accurate under <ref href="/us/cfr/t12/s226.18/d/1">§ 226.18(d)(1)</ref>, and the annual percentage rate corresponding to that understated finance charge also is considered accurate even if it falls outside the tolerance of <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> of 1 percentage point provided under <ref href="/us/cfr/t12/s226.22/a/2">§ 226.22(a)(2)</ref>. Because a $75 error was made, an annual percentage rate corresponding to a $100 understatement of the finance charge would not be considered accurate. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">22(a)(5) Additional tolerance for mortgage loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> This paragraph contains an additional tolerance for a disclosed annual percentage rate that is incorrect but is closer to the actual annual percentage rate than the rate that would be considered accurate under the tolerance in <ref href="/us/cfr/t12/s226.22/a/4">§ 226.22(a)(4)</ref>. To illustrate: <?page num="686"?>in an irregular transaction subject to a <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point tolerance, if the actual annual percentage rate is 9.00 percent and a $75 omission from the finance charge corresponds to a rate of 8.50 percent that is considered accurate under <ref href="/us/cfr/t12/s226.22/a/4">§ 226.22(a)(4)</ref>, a disclosed APR of 8.65 percent is within the tolerance in <ref href="/us/cfr/t12/s226.22/a/5">§ 226.22(a)(5)</ref>. In this example of an understated finance charge, a disclosed annual percentage rate below 8.50 or above 9.25 percent will not be considered accurate. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">22(b) Computation tools.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 22(b)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board tables.</inline> Volumes I and II of the Board's Annual Percentage Rate Tables provide a means of calculating annual percentage rates for regular and irregular transactions, respectively. An annual percentage rate computed in accordance with the instructions in the tables is deemed to comply with the regulation, even where use of the tables produces a rate that falls outside the general standard of accuracy. To illustrate:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Volume I may be used for single advance transactions with completely regular payment schedules or with payment schedules that are regular except for an odd first payment, odd first period or odd final payment. When used for a transaction with a large final balloon payment, Volume I may produce a rate that is considerably higher than the exact rate produced using a computer program based directly on appendix J. However, the Volume I rate—produced using certain adjustments in that volume—is considered to be in compliance. </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 22(b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other calculation tools.</inline> Creditors need not use the Board tables in calculating the annual percentage rates. Any computation tools may be used, so long as they produce annual percentage rates within <inline role="fraction" style="-uslm-sgm:FR">1/8</inline> or <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point, as applicable, of the precise actuarial or U.S. Rule annual percentage rate.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">22(c) Single add-on rate transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Creditors applying a single add-on rate to all transactions up to 60 months in length may disclose the same annual percentage rate for all those transactions, although the actual annual percentage rate varies according to the length of the transaction. Creditors utilizing this provision must show the highest of those rates. For example:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• An add-on rate of 10 percent converted to an annual percentage rate produce the following actual annual percentage rates at various maturities: at 3 months, 14.94 percent; at 21 months, 18.18 percent; and at 60 months, 17.27 percent. The creditor must disclose an annual percentage rate of 18.18 percent (the highest annual percentage rate) for any transaction up to 5 years, even though that rate is precise only for a transaction of 21 months.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">22(d) Certain transactions involving ranges of balances.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Creditors applying a fixed dollar finance charge to all balances within a specified range of balances may understate the annual percentage rate by up to 8 percent of that rate, by disclosing for all those balances the annual percentage rate computed on the median balance within that range. For example:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• If a finance charge of $9 applies to all balances between $91 and $100, an annual percentage rate of 10 percent (the rate on the median balance) may be disclosed as the annual percentage rate for all balances, even though a $9 finance charge applied to the lowest balance ($91) would actually produce an annual percentage rate of 10.7 percent.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Section 107.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.17(c)(4) and appendix J.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation: Section 226.5(b) through (e).</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> The section now provides a larger tolerance (<inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1 percentage point) for irregular transactions.</p>
<heading style="-uslm-sgm:HD2">Section 226.23—Right of Rescission</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transactions not covered.</inline> Credit extensions that are not subject to the regulation are not covered by <ref href="/us/cfr/t12/s226.23">§ 226.23</ref> even if a customer's principal dwelling is the collateral securing the credit. For example, the right of rescission does not apply to a business purpose loan, even though the loan is secured by the customer's principal dwelling.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(a) Consumer's right to rescind.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(a)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security interest arising from transaction.</inline> In order for the right of rescission to apply, the security interest must be retained as part of the credit transaction. For example:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A security interest that is acquired by a contractor who is also extending the credit in the transaction.</p>
<p style="-uslm-sgm:P">• A mechanic's or materialman's lien that is retained by a subcontractor or supplier of the contractor-creditor, even when the latter has waived its own security interest in the consumer's home.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">The security interest is not part of the credit transaction and therefore the transaction is not subject to the right of rescission when, for example:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A mechanic's or materialman's lien is obtained by a contractor who is not a party to the credit transaction but is merely paid with the proceeds of the consumer's unsecured bank loan.</p>
<p style="-uslm-sgm:P">• All security interests that may arise in connection with the credit transaction are validly waived.
<?page num="687"?></p>
<p style="-uslm-sgm:P">• The creditor obtains a lien and completion bond that in effect satisfies all liens against the consumer's principal dwelling as a result of the credit transaction.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Although liens arising by operation of law are not considered security interests for purposes of disclosure under <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, that section specifically includes them in the definition for purposes of the right of rescission. Thus, even though an interest in the consumer's principal dwelling is not a required disclosure under <ref href="/us/cfr/t12/s226.18/m">§ 226.18(m)</ref>, it may still give rise to the right of rescission. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer.</inline> To be a consumer within the meaning of <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, that person must at least have an ownership interest in the dwelling that is encumbered by the creditor's security interest, although that person need not be a signatory to the credit agreement. For example, if only one spouse signs a credit contract, the other spouse is a consumer if the ownership interest of that spouse is subject to the security interest.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal dwelling.</inline> A consumer can only have one principal dwelling at a time. (But see comment 23(a)(1)–4.) A vacation or other second home would not be a principal dwelling. A transaction secured by a second home (such as a vacation home) that is not currently being used as the consumer's principal dwelling is not rescindable, even if the consumer intends to reside there in the future. When a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within one year or upon completion of construction, the new dwelling is considered the principal dwelling if it secures the acquisition or construction loan. In that case, the transaction secured by the new dwelling is a residential mortgage transaction and is not rescindable. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by B is a residential mortgage transaction. Dwelling, as defined in <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, includes structures that are classified as personalty under state law. For example, a transaction secured by a mobile home, trailer, or houseboat used as the consumer's principal dwelling may be rescindable. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special rule for principal dwelling.</inline> Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that loan. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Addition of a security interest.</inline> Under footnote 47, the addition of a security interest in a consumer's principal dwelling to an existing obligation is rescindable even if the existing obligation is not satisfied and replaced by a new obligation, and even if the existing obligation was previously exempt under <ref href="/us/cfr/t12/s226.3/b">§ 226.3(b)</ref>. The right of rescission applies only to the added security interest, however, and not to the original obligation. In those situations, only the <ref href="/us/cfr/t12/s226.23/b">§ 226.23(b)</ref> notice need be delivered, not new material disclosures; the rescission period will begin to run from the delivery of the notice.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer's exercise of right.</inline> The consumer must exercise the right of rescission in writing but not necessarily on the notice supplied under <ref href="/us/cfr/t12/s226.23/b">§ 226.23(b)</ref>. Whatever the means of sending the notification of rescission—mail, telegram or other written means—the time period for the creditor's performance under <ref href="/us/cfr/t12/s226.23/d/2">§ 226.23(d)(2)</ref> does not begin to run until the notification has been received. The creditor may designate an agent to receive the notification so long as the agent's name and address appear on the notice provided to the consumer under <ref href="/us/cfr/t12/s226.23/b">§ 226.23(b)</ref>. Where the creditor fails to provide the consumer with a designated address for sending the notification of rescission, delivering notification to the person or address to which the consumer has been directed to send, payments constitutes delivery to the creditor or assignee. State law determines whether delivery of the notification to a third party other than the person to whom payments are made is delivery to the creditor or assignee, in the case where the creditor fails to designate an address for sending the notification of rescission. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(a)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rescission period.</inline> The period within which the consumer may exercise the right to rescind runs for 3 business days from the last of 3 events:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Consummation of the transaction.</p>
<p style="-uslm-sgm:P">• Delivery of all material disclosures.</p>
<p style="-uslm-sgm:P">• Delivery to the consumer of the required rescission notice.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">For example, if a transaction is consummated on Friday, June 1, and the disclosures and notice of the right to rescind were given on Thursday, May 31, the rescission period will expire at midnight of the third business day after June 1—that is, Tuesday, June 5. In another example, if the disclosures are given and the transaction consummated on Friday, June 1, and the rescission notice is given on Monday, June 4, the rescission period expires at midnight of the third business day after June 4—that is, Thursday, June 7. <?page num="688"?>The consumer must place the rescission notice in the mail, file it for telegraphic transmission, or deliver it to the creditor's place of business within that period in order to exercise the right.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Material disclosures.</inline> Footnote 48 sets forth the material disclosures that must be provided before the rescission period can begin to run. Failure to provide information regarding the annual pecentage rate also includes failure to inform the consumer of the existence of a variable rate feature. Failure to give the other required disclosures does not prevent the running of the rescission period, although that failure may result in civil liability or administrative sanctions.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unexpired right of rescission.</inline> When the creditor has failed to take the action necessary to start the three-business day rescission period running, the right to rescind automatically lapses on the occurrence of the earliest of the following three events:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">• The expiration of three years after consummation of the transaction.</p>
<p style="-uslm-sgm:FP-1">• Transfer of all the consumer's interest in the property.</p>
<p style="-uslm-sgm:FP-1">• Sale of the consumer's interest in the property, including a transaction in which the consumer sells the dwelling and takes back a purchase money note and mortgage or retains legal title through a device such as an installment sale contract.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Transfer of all the consumers' interest includes such transfers as bequests and gifts. A sale or transfer of the property need not be voluntary to terminate the right to rescind. For example, a foreclosure sale would terminate an unexpired right to rescind. As provided in section 125 of the Act, the three-year limit may be extended by an administrative proceeding to enforce the provisions of this section. A partial transfer of the consumer's interest, such as a transfer bestowing co-ownership on a spouse, does not terminate the right of rescission.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(a)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Joint owners.</inline> When more than one consumer has the right to rescind a transaction, any of them may exercise that right and cancel the transaction on behalf of all. For example, if both husband and wife have the right to rescind a transaction, either spouse acting alone may exercise the right and both are bound by the rescission.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(b) Notice of right to rescind.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Who receives notice.</inline> Each consumer entitled to rescind must be given:</p>
<p style="-uslm-sgm:P">• Two copies of the rescission notice.</p>
<p style="-uslm-sgm:P">• The material disclosures.</p>
<p style="-uslm-sgm:P">In a transaction involving joint owners, both of whom are entitled to rescind, both must receive the notice of the right to rescind and disclosures. For example, if both spouses are entitled to rescind a transaction, each must receive two copies of the rescission notice (one copy to each if the notice is provided in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act) and one copy of the disclosures.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> The notice must be on a separate piece of paper, but may appear with other information such as the itemization of the amount financed. The material must be clear and conspicuous, but no minimum type size or other technical requirements are imposed. The notices in appendix H provide models that creditors may use in giving the notice.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Content.</inline> The notice must include all of the information outlined in Section 226.23(b)(1)(i) through (v). The requirement in <ref href="/us/cfr/t12/s226.23/b">§ 226.23(b)</ref> that the transaction be identified may be met by providing the date of the transaction. The creditor may provide a separate form that the consumer may use to exercise the right of rescission, or that form may be combined with the other rescission disclosures, as illustrated in appendix H. The notice may include additional information related to the required information, such as:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A description of the property subject to the security interest.</p>
<p style="-uslm-sgm:P">• A statement that joint owners may have the right to rescind and that a rescission by one is effective for all.</p>
<p style="-uslm-sgm:P">• The name and address of an agent of the creditor to receive notice of rescission.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Time of providing notice.</inline> The notice required by <ref href="/us/cfr/t12/s226.23/b">§ 226.23(b)</ref> need not be given before consummation of the transaction. The creditor may deliver the notice after the transaction is consummated, but the rescission period will not begin to run until the notice is given. For example, if the creditor provides the notice on May 15, but disclosures were given and the transaction was consummated on May 10, the 3-business day rescission period will run from May 15.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(c) Delay of creditor's performance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Until the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded, the creditor must not, either directly or through a third party:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Disburse loan proceeds to the consumer.</p>
<p style="-uslm-sgm:P">• Begin performing services for the consumer.</p>
<p style="-uslm-sgm:P">• Deliver materials to the consumer.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrow.</inline> The creditor may disburse loan proceeds during the rescission period in a valid escrow arrangement. The creditor may not, however, appoint the consumer as “trustee” or “escrow agent” and distribute funds to the consumer in that capacity during the delay period.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Actions during the delay period.</inline> Section 226.23(c) does not prevent the creditor from taking other steps during the delay, short of beginning actual performance. Unless otherwise prohibited, such as by state law, the creditor may, for example: </p>
<p style="-uslm-sgm:P">• Prepare the loan check.
<?page num="689"?></p>
<p style="-uslm-sgm:P">• Perfect the security interest. </p>
<p style="-uslm-sgm:P">• Prepare to discount or assign the contract to a third party. </p>
<p style="-uslm-sgm:P">• Accrue finance charges during the delay period. </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Delay beyond rescission period.</inline> The creditor must wait until it is reasonably satisfied that the consumer has not rescinded. For example, the creditor may satisfy itself by doing one of the following:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Waiting a reasonable time after expiration of the rescission period to allow for delivery of a mailed notice.</p>
<p style="-uslm-sgm:P">• Obtaining a written statement from the consumer that the right has not been exercised.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">When more than one consumer has the right to rescind, the creditor cannot reasonably rely on the assurance of only one consumer, because other consumers may exercise the right.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(d) Effects of rescission.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(d)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Termination of security interest.</inline> Any security interest giving rise to the right of rescission becomes void when the consumer exercises the right of rescission. The security interest is automatically negated regardless of its status and whether or not it was recorded or perfected. Under <ref href="/us/cfr/t12/s226.23/d/2">§ 226.23(d)(2)</ref>, however, the creditor must take any action necessary to reflect the fact that the security interest no longer exists.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(d)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Refunds to consumer.</inline> The consumer cannot be required to pay any amount in the form of money or property either to the creditor or to a third party as part of the credit transaction. Any amounts of this nature already paid by the consumer must be refunded. “Any amount” includes finance charges already accrued, as well as other charges, such as broker fees, application and commitment fees, or fees for a title search or appraisal, whether paid to the creditor, paid directly to a third party, or passed on from the creditor to the third party. It is irrelevant that these amounts may not represent profit to the creditor.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts not refundable to consumer.</inline> Creditors need not return any money given by the consumer to a third party outside of the credit transaction, such as costs incurred for a building permit or for a zoning variance. Similarly, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any amount</inline> does not apply to any money or property given by the creditor to the consumer; those amounts must be tendered by the consumer to the creditor under <ref href="/us/cfr/t12/s226.23/d/3">§ 226.23(d)(3)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reflection of security interest termination.</inline> The creditor must take whatever steps are necessary to indicate that the security interest is terminated. Those steps include the cancellation of documents creating the security interest, and the filing of release or termination statements in the public record. In a transaction involving subcontractors or suppliers that also hold security interests related to the credit transaction, the creditor must insure that the termination of their security interests is also reflected. The 20-day period for the creditor's action refers to the time within which the creditor must begin the process. It does not require all necessary steps to have been completed within that time, but the creditor is responsible for seeing the process through to completion.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(d)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Property exchange.</inline> Once the creditor has fulfilled its obligations under <ref href="/us/cfr/t12/s226.23/d/2">§ 226.23(d)(2)</ref>, the consumer must tender to the creditor any property or money the creditor has already delivered to the consumer. At the consumer's option, property may be tendered at the location of the property. For example, if lumber or fixtures have been delivered to the consumer's home, the consumer may tender them to the creditor by making them available for pick-up at the home, rather than physically returning them to the creditor's premises. Money already given to the consumer <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">must</inline> be tendered at the creditor's place of business.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable value.</inline> If returning the property would be extremely burdensome to the consumer, the consumer may offer the creditor its reasonable value rather than returning the property itself. For example, if building materials have already been incorporated into the consumer's dwelling, the consumer may pay their reasonable value.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(d)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Modifications.</inline> The procedures outlined in <ref href="/us/cfr/t12/s226.23/d/2">§ 226.23(d)(2)</ref> and (3) may be modified by a court. For example, when a consumer is in bankruptcy proceedings and prohibited from returning anything to the creditor, or when the equities dictate, a modification might be made. The sequence of procedures under <ref href="/us/cfr/t12/s226.23/d/2">§ 226.23(d)(2)</ref> and (3), or a court's modification of those procedures under <ref href="/us/cfr/t12/s226.23/d/4">§ 226.23(d)(4)</ref>, does not affect a consumer's substantive right to rescind and to have the loan amount adjusted accordingly. Where the consumer's right to rescind is contested by the creditor, a court would normally determine whether the consumer has a right to rescind and determine the amounts owed before establishing the procedures for the parties to tender any money or property. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(e) Consumer's waiver of right to rescind.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Need for waiver.</inline> To waive the right to rescind, the consumer must have a bona fide personal financial emergency that must be met before the end of the rescission period. The existence of the consumer's waiver will not, of itself, automatically insulate the creditor from liability for failing to provide the right of rescission.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Procedure.</inline> To waive or modify the right to rescind, the consumer must give a written <?page num="690"?>statement that specifically waives or modifies the right, and also includes a brief description of the emergency. Each consumer entitled to rescind must sign the waiver statement. In a transaction involving multiple consumers, such as a husband and wife using their home as collateral, the waiver must bear the signatures of both spouses.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(f) Exempt transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Residential mortgage transaction.</inline> Any transaction to construct or acquire a principal dwelling, whether considered real or personal property, is exempt. (See the commentary to <ref href="/us/cfr/t12/s226.23/a">§ 226.23(a)</ref>.) For example, a credit transaction to acquire a mobile home or houseboat to be used as the consumer's principal dwelling would not be rescindable.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lien status.</inline> The lien status of the mortgage is irrelevant for purposes of the exemption in <ref href="/us/cfr/t12/s226.23/f/1">§ 226.23(f)(1)</ref>; the fact that a loan has junior lien status does not by itself preclude application of this exemption. For example, a home buyer may assume the existing first mortgage and create a second mortgage to finance the balance of the purchase price. Such a transaction would not be rescindable. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combined-purpose transaction.</inline> A loan to acquire a principal dwelling and make improvements to that dwelling is exempt if treated as one transaction. If, on the other hand, the loan for the acquisition of the principal dwelling and the subsequent advances for improvements are treated as more than one transaction, then only the transaction that finances the acquisition of that dwelling is exempt.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">New advances.</inline> The exemption in <ref href="/us/cfr/t12/s226.23/f/2">§ 226.23(f)(2)</ref> applies only to refinancings (including consolidations) by the original creditor. The original creditor is the creditor to whom the written agreement was initially made payable. In a merger, consolidation or acquisition, the successor institution is considered the original creditor for purposes of the exemption in <ref href="/us/cfr/t12/s226.23/f/2">§ 226.23(f)(2)</ref>. If the refinancing involves a new advance of money, the amount of the new advance is rescindable. In determining whether there is a new advance, a creditor may rely on the amount financed, refinancing costs, and other figures stated in the latest Truth in Lending disclosures provided to the consumer and is not required to use, for example, more precise information that may only become available when the loan is closed. For purposes of the right of rescission, a new advance does not include amounts attributed solely to the costs of the refinancing. These amounts would include <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref> charges (such as attorneys fees and title examination and insurance fees, if bona fide and reasonable in amount), as well as insurance premiums and other charges that are not finance charges. (Finance charges on the new transaction—points, for example—would not be considered in determining whether there is a new advance of money in a refinancing since finance charges are not part of the amount financed.) To illustrate, if the sum of the outstanding principal balance plus the earned unpaid finance charge is $50,000 and the new amount financed is $51,000, then the refinancing would be exempt if the extra $1,000 is attributed solely to costs financed in connection with the refinancing that are not finance charges. Of course, if new advances of money are made (for example, to pay for home improvements) and the consumer exercises the right of rescission, the consumer must be placed in the same position as he or she was in prior to entering into the new credit transaction. Thus, all amounts of money (which would include all the costs of the refinancing) already paid by the consumer to the creditor or to a third party as part of the refinancing would have to be refunded to the consumer. (See the commentary to <ref href="/us/cfr/t12/s226.23/d/2">§ 226.23(d)(2)</ref> for a discussion of refunds to consumers.) A model rescission notice applicable to transactions involving new advances appears in appendix H. The general rescission notice (model form H–8) is the appropriate form for use by creditors not considered original creditors in refinancing transactions.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State creditors.</inline> Cities and other political subdivisions of states acting as creditors are not exempted from this section.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple advances.</inline> Just as new disclosures need not be made for subsequent advances when treated as one transaction, no new rescission rights arise so long as the appropriate notice and disclosures are given at the outset of the transaction. For example, the creditor extends credit for home improvements secured by the consumer's principal dwelling, with advances made as repairs progress. As permitted by <ref href="/us/cfr/t12/s226.17/c/6">§ 226.17(c)(6)</ref>, the creditor makes a single set of disclosures at the beginning of the construction period, rather than separate disclosures for each advance. The right of rescission does not arise with each advance. However, if the advances are treated as separate transactions, the right of rescission applies to each advance.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Spreader clauses.</inline> When the creditor holds a mortgage or deed of trust on the consumer's principal dwelling and that mortgage or deed of trust contains a “spreader clause,” subsequent loans made are separate transactions and are subject to the right of rescission. Those loans are rescindable unless the creditor effectively waives its security interest under the spreader clause with respect to the subsequent transactions.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Converting open-end to closed-end credit.</inline> Under certain state laws, consummation of a closed-end credit transaction may occur at the time a consumer enters into the intitial open-end credit agreement. As provided in the commentary to <ref href="/us/cfr/t12/s226.17/b">§ 226.17(b)</ref>, closed-end credit disclosures may be delayed under these circumstances until the conversion of <?page num="691"?>the open-end account to a closed-end transaction. In accounts secured by the consumer's principal dwelling, no new right of rescission arises at the time of conversion. Rescission rights under <ref href="/us/cfr/t12/s226.15">§ 226.15</ref> are unaffected.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(g) Tolerances for accuracy.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(g)(2) One percent tolerance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">New advance.</inline> The phrase “new advance” has the same meaning as in comment 23(f)–4.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(h) Special Rules for Foreclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rescission.</inline> Section 226.23(h) applies only to transactions that are subject to rescission under <ref href="/us/cfr/t12/s226.23/a/1">§ 226.23(a)(1)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 23(h)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage broker fees.</inline> A consumer may rescind a loan in foreclosure if a mortgage broker fee that should have been included in the finance charge was omitted, without regard to the dollar amount involved. If the amount of the mortgage broker fee is included but misstated the rule in <ref href="/us/cfr/t12/s226.23/h/2">§ 226.23(h)(2)</ref> applies.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">23(h)(2) Tolerance for disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> This section is based on the accuracy of the total finance charge rather than its component charges. </p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 113, 125, and 130.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.2 and appendix H.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.9.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> The right to rescind applies not only to real property used as the consumer's principal dwelling, but to personal property as well. The regulation provides no specific text or format for the notice of the right to rescind.</p>
<heading style="-uslm-sgm:HD2">Section 226.24—Advertising</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective date.</inline> For guidance on the applicability of the Board's changes to <ref href="/us/cfr/t12/s226.24">§ 226.24</ref> published on <date date="2008-07-30">July 30, 2008</date>, see comment 1(d)(5)–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(a) Actually available terms.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> To the extent that an advertisement mentions specific credit terms, it may state only those terms that the creditor is actually prepared to offer. For example, a creditor may not advertise a very low annual percentage rate that will not in fact be available at any time. This provision is not intended to inhibit the promotion of new credit programs, but to bar the advertising of terms that are not and will not be available. For example, a creditor may advertise terms that will be offered for only a limited period, or terms that will become available at a future date.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(b) Clear and conspicuous standard.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—general.</inline> This section is subject to the general “clear and conspicuous” standard for this subpart, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref>, but prescribes no specific rules for the format of the necessary disclosures, other than the format requirements related to the advertisement of rates and payments as described in comment 24(b)–2 below. The credit terms need not be printed in a certain type size nor need they appear in any particular place in the advertisement. For example, a merchandise tag that is an advertisement under the regulation complies with this section if the necessary credit terms are on both sides of the tag, so long as each side is accessible.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—rates and payments in advertisements for credit secured by a dwelling.</inline> For purposes of <ref href="/us/cfr/t12/s226.24/f">§ 226.24(f)</ref>, a clear and conspicuous disclosure means that the required information in <ref href="/us/cfr/t12/s226.24/f/2/i">§§ 226.24(f)(2)(i)</ref> and 226.24(f)(3)(i)(A) and (B) is disclosed with equal prominence and in close proximity to the advertised rates or payments triggering the required disclosures, and that the required information in <ref href="/us/cfr/t12/s226.24/f/3/i/C">§ 226.24(f)(3)(i)(C)</ref> is disclosed prominently and in close proximity to the advertised rates or payments triggering the required disclosures. If the required information in <ref href="/us/cfr/t12/s226.24/f/2/i">§§ 226.24(f)(2)(i)</ref> and 226.24(f)(3)(i)(A) and (B) is the same type size as the advertised rates or payments triggering the required disclosures, the disclosures are deemed to be equally prominent. The information in <ref href="/us/cfr/t12/s226.24/f/3/i/C">§ 226.24(f)(3)(i)(C)</ref> must be disclosed prominently, but need not be disclosed with equal prominence or be the same type size as the payments triggering the required disclosures. If the required information in <ref href="/us/cfr/t12/s226.24/f/2/i">§§ 226.24(f)(2)(i)</ref> and 226.24(f)(3)(i) is located immediately next to or directly above or below the advertised rates or payments triggering the required disclosures, without any intervening text or graphical displays, the disclosures are deemed to be in close proximity. Notwithstanding the above, for electronic advertisements that disclose rates or payments, compliance with the requirements of <ref href="/us/cfr/t12/s226.24/e">§ 226.24(e)</ref> is deemed to satisfy the clear and conspicuous standard.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—Internet advertisements for credit secured by a dwelling.</inline> For purposes of this section, a clear and conspicuous disclosure for visual text advertisements on the Internet for credit secured by a dwelling means that the required disclosures are not obscured by techniques such as graphical displays, shading, coloration, or other devices and comply with all other requirements for clear and conspicuous disclosures under <ref href="/us/cfr/t12/s226.24">§ 226.24</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 24(e)–4.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—televised advertisements for credit secured by a dwelling.</inline> For purposes of this section, including alternative disclosures as provided for by <ref href="/us/cfr/t12/s226.24/g">§ 226.24(g)</ref>, a clear and conspicuous disclosure in the context of visual text advertisements on television for credit secured by a dwelling means that the required disclosures are not obscured by techniques such as graphical displays, shading, coloration, or other devices, <?page num="692"?>are displayed in a manner that allows a consumer to read the information required to be disclosed, and comply with all other requirements for clear and conspicuous disclosures under <ref href="/us/cfr/t12/s226.24">§ 226.24</ref>. For example, very fine print in a television advertisement would not meet the clear and conspicuous standard if consumers cannot see and read the information required to be disclosed.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard—oral advertisements for credit secured by a dwelling.</inline> For purposes of this section, including alternative disclosures as provided for by <ref href="/us/cfr/t12/s226.24/g">§ 226.24(g)</ref>, a clear and conspicuous disclosure in the context of an oral advertisement for credit secured by a dwelling, whether by radio, television, or other medium, means that the required disclosures are given at a speed and volume sufficient for a consumer to hear and comprehend them. For example, information stated very rapidly at a low volume in a radio or television advertisement would not meet the clear and conspicuous standard if consumers cannot hear and comprehend the information required to be disclosed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(c) Advertisment of rate of finance charge.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual percentage rate.</inline> Advertised rates must be stated in terms of an <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate,</inline> as defined in <ref href="/us/cfr/t12/s226.22">§ 226.22</ref>. Even though state or local law permits the use of add-on, discount, time-price differential, or other methods of stating rates, advertisements must state them as annual percentage rates. Unlike the transactional disclosure of an annual percentage rate under <ref href="/us/cfr/t12/s226.18/e">§ 226.18(e)</ref>, the advertised annual percentage rate need not include a descriptive explanation of the term and may be expressed using the abbreviation <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">APR.</inline> The advertisement must state that the rate is subject to increase after consummation if that is the case, but the advertisement need not describe the rate increase, its limits, or how it would affect the payment schedule. As under <ref href="/us/cfr/t12/s226.18/f">§ 226.18(f)</ref>, relating to disclosure of a variable rate, the rate increase disclosure requirement in this provision does not apply to any rate increase due to delinquency (including late payment), default, acceleration, assumption, or transfer of collateral.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Simple or periodic rates.</inline> The advertisement may not simultaneously state any other rate, except that a simple annual rate or periodic rate applicable to an unpaid balance may appear along with (but not more conspicuously than) the annual percentage rate. An advertisement for credit secured by a dwelling may not state a periodic rate, other than a simple annual rate, that is applied to an unpaid balance. For example, in an advertisement for credit secured by a dwelling, a simple annual interest rate may be shown in the same type size as the annual percentage rate for the advertised credit, subject to the requirements of section 226.24(f). A simple annual rate or periodic rate that is applied to an unpaid balance is the rate at which interest is accruing; those terms do not include a rate lower than the rate at which interest is accruing, such as an effective rate, payment rate, or qualifying rate.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Buydowns.</inline> When a third party (such as a seller) or a creditor wishes to promote the availability of reduced interest rates (consumer or seller buydowns), the advertised annual percentage rate must be determined in accordance with the commentary to <ref href="/us/cfr/t12/s226.17/c">§ 226.17(c)</ref> regarding the basis of transactional disclosures for buydowns. The seller or creditor may advertise the reduced simple interest rate, provided the advertisement shows the limited term to which the reduced rate applies and states the simple interest rate applicable to the balance of the term. The advertisement may also show the effect of the buydown agreement on the payment schedule for the buydown period, but this will trigger the additional disclosures under <ref href="/us/cfr/t12/s226.24/d/2">§ 226.24(d)(2)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounted variable-rate transactions.</inline> The advertised annual percentage rate for discounted variable-rate transactions must be determined in accordance with comment 17(c)(1)–10 regarding the basis of transactional disclosures for such financing.</p>
<p style="-uslm-sgm:P">i. A creditor or seller may promote the availability of the initial rate reduction in such transactions by advertising the reduced simple annual rate, provided the advertisement shows with equal prominence and in close proximity the limited term to which the reduced rate applies and the annual percentage rate that will apply after the term of the initial rate reduction expires. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.24/f">§ 226.24(f)</ref>.</p>
<p style="-uslm-sgm:P">ii. Limits or caps on periodic rate or payment adjustments need not be stated. To illustrate using the second example in comment 17(c)(1)–10, the fact that the rate is presumed to be 11 percent in the second year and 12 percent for the remaining 28 years need not be included in the advertisement.</p>
<p style="-uslm-sgm:P">iii. The advertisement may also show the effect of the discount on the payment schedule for the discount period, but this will trigger the additional disclosures under <ref href="/us/cfr/t12/s226.24/d">§ 226.24(d)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(d) Advertisement of terms that require additional disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Under <ref href="/us/cfr/t12/s226.24/d/1">§ 226.24(d)(1)</ref>, whenever certain triggering terms appear in credit advertisements, the additional credit terms enumerated in <ref href="/us/cfr/t12/s226.24/d/2">§ 226.24(d)(2)</ref> must also appear. These provisions apply even if the triggering term is not stated explicitly but may be readily determined from the advertisement. For example, an advertisement may state “80 percent financing available,” which is in fact indicating that a 20 percent downpayment is required.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(d) Advertisement of terms that require additional disclosures.</inline>
<?page num="693"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Under <ref href="/us/cfr/t12/s226.24/c/1">§ 226.24(c)(1)</ref>, whenever certain triggering terms appear in credit advertisements, the additional credit terms enumerated in <ref href="/us/cfr/t12/s226.24/c/2">§ 226.24(c)(2)</ref> must also appear. These provisions apply even if the triggering term is not stated explicitly, but may be readily determined from the advertisement. For example, an advertisement may state “80% financing available,” which is in fact indicating that a 20% downpayment is required.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 24(d)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Downpayment.</inline> The dollar amount of a downpayment or a statement of the downpayment as a percentage of the price requires further information. By virtue of the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">downpayment</inline> in <ref href="/us/cfr/t12/s226.2">§ 226.2</ref>, this triggering term is limited to credit sale transactions. It includes such statements as:</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Only 5% down.</inline>
</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">As low as $100 down.</inline>
</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total move-in costs of $800.</inline>
</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">This provision applies only if a downpayment is actually required; statements such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">no downpayment</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">no trade-in required</inline> do not trigger the additional disclosures under this paragraph. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment period.</inline> The number of payments required or the total period of repayment includes such statements as:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">48-month payment terms.</inline>
</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">30-year mortgage.</inline>
</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Repayment in as many as 36 monthly installments.</inline>
</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">But it does not include such statements as “pay weekly,” “monthly payment terms arranged,” or “take years to repay,” since these statements do not indicate a time period over which a loan may be financed.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment amount.</inline> The dollar amount of any payment includes statements such as:</p>
<p style="-uslm-sgm:P">• “Payable in installments of $103”.</p>
<p style="-uslm-sgm:P">• “$25 weekly”.</p>
<p style="-uslm-sgm:P">• “$500,000 loan for just $1,650 per month”.</p>
<p style="-uslm-sgm:P">• “$1,200 balance payable in 10 equal installments”.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">In the last example, the amount of each payment is readily determinable, even though not explicitly stated. But statements such as “monthly payments to suit your needs” or “regular <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">monthly</inline> payments” are not deemed to be statements of the amount of any payment.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Finance charge.</inline> The dollar amount of the finance charge or any portion of it includes statements such as:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• “$500 total cost of credit.”</p>
<p style="-uslm-sgm:P">• “$2 monthly carrying charge.”</p>
<p style="-uslm-sgm:P">• “$50,000 mortgages, 2 points to the borrower.”</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">In the last example, the $1,000 prepaid finance charge can be readily determined from the information given. Statements of the annual percentage rate or statements that there is no particular charge for credit (such as “no closing costs”) are not triggering terms under this paragraph.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 24(d)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of downpayment.</inline> The total downpayment as a dollar amount or percentage must be shown, but the word “downpayment” need not be used in making this disclosure. For example, “10% cash required from buyer” or “credit terms require minimum $100 trade-in” would suffice.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure of repayment terms.</inline> The phrase “terms of repayment” generally has the same meaning as the “payment schedule” required to be disclosed under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>. Section 226.24(d)(2)(ii) provides flexibility to creditors in making this disclosure for advertising purposes. Repayment terms may be expressed in a variety of ways in addition to an exact repayment schedule; this is particularly true for advertisements that do not contemplate a single specific transaction. Repayment terms, however, must reflect the consumer's repayment obligations over the full term of the loan, including any balloon payment, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> comment 24(d)(2)–3, not just the repayment terms that will apply for a limited period of time. For example:</p>
<p style="-uslm-sgm:P">i. A creditor may use a unit-cost approach in making the required disclosure, such as “48 monthly payments of $27.83 per $1,000 borrowed.”</p>
<p style="-uslm-sgm:P">ii. In an advertisement for credit secured by a dwelling, when any series of payments varies because of the inclusion of mortgage insurance premiums, a creditor may state the number and timing of payments, the fact that payments do not include amounts for mortgage insurance premiums, and that the actual payment obligation will be higher.</p>
<p style="-uslm-sgm:P">iii. In an advertisement for credit secured by a dwelling, when one series of monthly payments will apply for a limited period of time followed by a series of higher monthly payments for the remaining term of the loan, the advertisement must state the number and time period of each series of payments, and the amounts of each of those payments. For this purpose, the creditor must assume that the consumer makes the lower series of payments for the maximum allowable period of time.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balloon payment; disclosure of repayment terms.</inline> In some transactions, a balloon payment will occur when the consumer only makes the minimum payments specified in an advertisement. A balloon payment results if paying the minimum payments does not fully amortize the outstanding balance by a specified date or time, usually the end of the term of the loan, and the consumer must repay the entire outstanding balance at such time. If a balloon payment will occur when the consumer only makes the minimum payments specified in an advertisement, the advertisement must state with equal prominence and in close proximity to the minimum payment statement the amount and <?page num="694"?>timing of the balloon payment that will result if the consumer makes only the minimum payments for the maximum period of time that the consumer is permitted to make such payments.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual percentage rate.</inline> The advertised annual percentage rate may be expressed using the abbreviation “APR.” The advertisement must also state, if applicable, that the annual percentage rate is subject to increase after consummation.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of examples.</inline> A creditor may use illustrative credit transactions to make the necessary disclosures under <ref href="/us/cfr/t12/s226.24/d/2">§ 226.24(d)(2)</ref>. That is, where a range of possible combinations of credit terms is offered, the advertisement may use examples of typical transactions, so long as each example contains all of the applicable terms required by <ref href="/us/cfr/t12/s226.24/d">§ 226.24(d)</ref>. The examples must be labeled as such and must reflect representative credit terms made available by the creditor to present and prospective customers.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(e) Catalogs or Other Multiple-page Advertisements; Electronic Advertisements</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> The multiple-page advertisements to which this section refers are advertisements consisting of a series of sequentially numbered pages—for example, a supplement to a newspaper. A mailing consisting of several separate flyers or pieces of promotional material in a single envelope does not constitute a single multiple-page advertisement for purposes of <ref href="/us/cfr/t12/s226.24/e">§ 226.24(e)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.24(e) permits creditors to put credit information together in one place in a catalog or other multiple-page advertisement or in an electronic advertisement (such as an advertisement appearing on an Internet Web site). The rule applies only if the advertisement contains one or more of the triggering terms from <ref href="/us/cfr/t12/s226.24/d/1">§ 226.24(d)(1)</ref>. A list of different annual percentage rates applicable to different balances, for example, does not trigger further disclosures under <ref href="/us/cfr/t12/s226.24/d/2">§ 226.24(d)(2)</ref> and so is not covered by <ref href="/us/cfr/t12/s226.24/e">§ 226.24(e)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Representative examples.</inline> The table or schedule must state all the necessary information for a representative sampling of amounts of credit. This must reflect amounts of credit the creditor actually offers, up to and including the higher-priced items. This does not mean that the chart must make the disclosures for the single most expensive item the seller offers, but only that the chart cannot be limited to information about less expensive sales when the seller commonly offers a distinct level of more expensive goods or services. The range of transactions shown in the table or schedule in a particular catalog or multiple-page advertisement need not exceed the range of transactions actually offered in that advertisement.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic advertisement.</inline> If an electronic advertisement (such as an advertisement appearing on an Internet Web site) contains the table or schedule permitted under <ref href="/us/cfr/t12/s226.24/e/1">§ 226.24(e)(1)</ref>, any statement of terms set forth in <ref href="/us/cfr/t12/s226.24/d/1">§ 226.24(d)(1)</ref> appearing anywhere else in the advertisement must clearly direct the consumer to the location where the table or schedule begins. For example, a term triggering additional disclosures may be accompanied by a link that directly takes the consumer to the additional information.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(f) Disclosure of rates and payments in advertisements for credit secured by a dwelling.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability.</inline> The requirements of <ref href="/us/cfr/t12/s226.24/f/2">§ 226.24(f)(2)</ref> apply to advertisements for loans where more than one simple annual rate of interest will apply. The requirements of <ref href="/us/cfr/t12/s226.24/f/3/i/A">§ 226.24(f)(3)(i)(A)</ref> require a clear and conspicuous disclosure of each payment that will apply over the term of the loan. In determining whether a payment will apply when the consumer may choose to make a series of lower monthly payments that will apply for a limited period of time, the creditor must assume that the consumer makes the series of lower payments for the maximum allowable period of time. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 24(d)(2)–2.iii. However, for purposes of <ref href="/us/cfr/t12/s226.24/f">§ 226.24(f)</ref>, the creditor may, but need not, assume that specific events which trigger changes to the simple annual rate of interest or to the applicable payments will occur. For example:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fixed-rate conversion loans.</inline> If a loan program permits consumers to convert their variable-rate loans to fixed rate loans, the creditor need not assume that the fixed-rate conversion option, by itself, means that more than one simple annual rate of interest will apply to the loan under <ref href="/us/cfr/t12/s226.24/f/2">§ 226.24(f)(2)</ref> and need not disclose as a separate payment under <ref href="/us/cfr/t12/s226.24/f/3/i/A">§ 226.24(f)(3)(i)(A)</ref> the payment that would apply if the consumer exercised the fixed-rate conversion option.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preferred-rate loans.</inline> Some loans contain a preferred-rate provision, where the rate will increase upon the occurrence of some event, such as the consumer-employee leaving the creditor's employ or the consumer closing an existing deposit account with the creditor or the consumer revoking an election to make automated payments. A creditor need not assume that the preferred-rate provision, by itself, means that more than one simple annual rate of interest will apply to the loan under <ref href="/us/cfr/t12/s226.24/f/2">§ 226.24(f)(2)</ref> and the payments that would apply upon occurrence of the event that triggers the rate increase need not be disclosed as a separate payments under <ref href="/us/cfr/t12/s226.24/f/3/i/A">§ 226.24(f)(3)(i)(A)</ref>.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate reductions.</inline> Some loans contain a provision where the rate will decrease upon the occurrence of some event, such as if the consumer makes a series of payments on time. A creditor need not assume that the rate reduction provision, by itself, means that more than one simple annual rate of interest will apply to the loan under <?page num="695"?><ref href="/us/cfr/t12/s226.24/f/2">§ 226.24(f)(2)</ref> and need not disclose the payments that would apply upon occurrence of the event that triggers the rate reduction as a separate payments under <ref href="/us/cfr/t12/s226.24/f/3/i/A">§ 226.24(f)(3)(i)(A)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Equal prominence, close proximity.</inline> Information required to be disclosed under <ref href="/us/cfr/t12/s226.24/f/2/i">§§ 226.24(f)(2)(i)</ref> and 226.24(f)(3)(i) that is immediately next to or directly above or below the simple annual rate or payment amount (but not in a footnote) is deemed to be closely proximate to the listing. Information required to be disclosed under <ref href="/us/cfr/t12/s226.24/f/2/i">§§ 226.24(f)(2)(i)</ref> and 226.24(f)(3)(i)(A) and (B) that is in the same type size as the simple annual rate or payment amount is deemed to be equally prominent.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Clear and conspicuous standard.</inline> For more information about the applicable clear and conspicuous standard, see comment 24(b)–2.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Comparisons in advertisements.</inline> When making any comparison in an advertisement between actual or hypothetical credit payments or rates and the payments or rates available under the advertised product, the advertisement must state all applicable payments or rates for the advertised product and the time periods for which those payments or rates will apply, as required by this section.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application to variable-rate transactions—disclosure of rates.</inline> In advertisements for variable-rate transactions, if a simple annual rate that applies at consummation is not based on the index and margin that will be used to make subsequent rate adjustments over the term of the loan, the requirements of <ref href="/us/cfr/t12/s226.24/f/2/i">§ 226.24(f)(2)(i)</ref> apply.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonably current index and margin.</inline> For the purposes of this section, an index and margin is considered reasonably current if:</p>
<p style="-uslm-sgm:P">i. For direct mail advertisements, it was in effect within 60 days before mailing;</p>
<p style="-uslm-sgm:P">ii. For advertisements in electronic form it was in effect within 30 days before the advertisement is sent to a consumer's e-mail address, or in the case of an advertisement made on an Internet Web site, when viewed by the public; or</p>
<p style="-uslm-sgm:P">iii. For printed advertisements made available to the general public, including ones contained in a catalog, magazine, or other generally available publication, it was in effect within 30 days before printing.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(f)(3) Disclosure of payments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts and time periods of payments.</inline> Section 226.24(f)(3)(i) requires disclosure of the amounts and time periods of all payments that will apply over the term of the loan. This section may require disclosure of several payment amounts, including any balloon payment. For example, if an advertisement for credit secured by a dwelling offers $300,000 of credit with a 30-year loan term for a payment of $600 per month for the first six months, increasing to $1,500 per month after month six, followed by a balloon payment of $30,000 at the end of the loan term, the advertisement must disclose the amount and time periods of each of the two monthly payment streams, as well as the amount and timing of the balloon payment, with equal prominence and in close proximity to each other. However, if the final scheduled payment of a fully amortizing loan is not greater than two times the amount of any other regularly scheduled payment, the final payment need not be disclosed.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application to variable-rate transactions—disclosure of payments.</inline> In advertisements for variable-rate transactions, if the payment that applies at consummation is not based on the index and margin that will be used to make subsequent payment adjustments over the term of the loan, the requirements of <ref href="/us/cfr/t12/s226.24/f/3/i">§ 226.24(f)(3)(i)</ref> apply.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(g) Alternative disclosures—television or radio advertisements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multi-purpose telephone number.</inline> When an advertised telephone number provides a recording, disclosures should be provided early in the sequence to ensure that the consumer receives the required disclosures. For example, in providing several options—such as providing directions to the advertiser's place of business—the option allowing the consumer to request disclosures should be provided early in the telephone message to ensure that the option to request disclosures is not obscured by other information.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statement accompanying telephone number.</inline> Language must accompany a telephone number indicating that disclosures are available by calling the telephone number, such as “call 1–800–000–0000 for details about credit costs and terms.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">24(i) Prohibited acts or practices in advertisements for credit secured by a dwelling.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Comparisons in advertisements.</inline> The requirements of <ref href="/us/cfr/t12/s226.24/i/2">§ 226.24(i)(2)</ref> apply to all advertisements for credit secured by a dwelling, including radio and television advertisements. A comparison includes a claim about the amount a consumer may save under the advertised product. For example, a statement such as “save $300 per month on a $300,000 loan” constitutes an implied comparison between the advertised product's payment and a consumer's current payment.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Misrepresentations about government endorsement.</inline> A statement that the federal Community Reinvestment Act entitles the consumer to refinance his or her mortgage at the low rate offered in the advertisement is prohibited because it conveys a misleading impression that the advertised product is endorsed or sponsored by the federal government.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Misleading claims of debt elimination.</inline> The prohibition against misleading claims of debt elimination or waiver or forgiveness does not apply to legitimate statements that the advertised product may reduce debt payments, consolidate debts, or shorten the term of the debt. Examples of misleading <?page num="696"?>claims of debt elimination or waiver or forgiveness of loan terms with, or obligations to, another creditor of debt include: “Wipe-Out Personal Debts!”, “New DEBT-FREE Payment”, “Set yourself free; get out of debt today”, “Refinance today and wipe your debt clean!”, “Get yourself out of debt * * * Forever!”, and “Pre-payment Penalty Waiver.”</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 141, 142, and 144.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Sections 226.2, 226.4, and 226.22.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.10 (a), (b), and (d).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> This section retains the advertising rules in a form very similar to the previous regulation, but with certain changes to reflect the 1980 statutory amendments. For example, if triggering terms appear in any advertisement, the additional disclosures required no longer include the cash price. The special rule for FHA section 235 financing has been eliminated, as well as the rule for advertising credit payable in more than four installments with no identified finance charge. Interpretation <ref href="/us/cfr/t12/s226.1002">§ 226.1002</ref>, requiring disclosure of representative amounts of credit in catalogs and multiple-page advertisements, has been incorporated in simplified form in <ref href="/us/cfr/t12/s226.24/d">§ 226.24(d)</ref>.</p>
<p style="-uslm-sgm:P">Unlike the previous regulation, if the advertised annual percentage rate is subject to increase, that fact must now be disclosed.</p>
<heading style="-uslm-sgm:HD1">Subpart D—Miscellaneous </heading>
<heading style="-uslm-sgm:HD2">Section 226.25—Record Retention</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">25(a) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Evidence of required actions.</inline> The creditor must retain evidence that it performed the required actions as well as made the required disclosures. This includes, for example, evidence that the creditor properly handled adverse credit reports in connection with amounts subject to a billing dispute under <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>, and properly handled the refunding of credit balances under <ref href="/us/cfr/t12/s226.11">§§ 226.11</ref> and 226.21. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Methods of retaining evidence.</inline> Adequate evidence of compliance does not necessarily mean actual paper copies of disclosure statements or other business records. The evidence may be retained on microfilm, microfiche, or by any other method that reproduces records accurately (including computer programs). The creditor need retain only enough information to reconstruct the required disclosures or other records. Thus, for example, the creditor need not retain each open-end periodic statement, so long as the specific information on each statement can be retrieved. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Certain variable-rate transactions.</inline> In variable-rate transactions that are subject to the disclosure requirements of <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>, written procedures for compliance with those requirements as well as a sample disclosure form for each loan program represent adequate evidence of compliance. (See comment 25(a)–2 pertaining to permissible methods of retaining the required disclosures.)</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Home equity plans.</inline> In home equity plans that are subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, written procedures for compliance with those requirements as well as a sample disclosure form and contract for each home equity program represent adequate evidence of compliance. (See comment 25(a)–2 pertaining to permissible methods of retaining the required disclosures.) </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibited payments to loan originators.</inline> For each transaction subject to the loan originator compensation provisions in <ref href="/us/cfr/t12/s226.36/d/1">§ 226.36(d)(1)</ref>, a creditor should maintain records of the compensation it provided to the loan originator for the transaction as well as the compensation agreement in effect on the date the interest rate was set for the transaction. See <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref> and comment 35(a)(2)(iii)–3 for additional guidance on when a transaction's rate is set. For example, where a loan originator is a mortgage broker, a disclosure of compensation or other broker agreement required by applicable state law that complies with <ref href="/us/cfr/t12/s226.25">§ 226.25</ref> would be presumed to be a record of the amount actually paid to the loan originator in connection with the transaction.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 105 and 108.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Appendix I.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.6(i).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> Section 226.25 substitutes a uniform 2-year record-retention rule for the previous requirement that certain creditors retain records through at least one compliance examination. It also states more explicitly that the record-retention requirements apply to evidence of required actions.</p>
<heading style="-uslm-sgm:HD2">Section 226.26—Use of Annual Percentage Rate in Oral Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of rules.</inline> The restrictions of <ref href="/us/cfr/t12/s226.26">§ 226.26</ref> apply only if the creditor chooses to respond orally to the consumer's request for credit cost information. Nothing in the regulation requires the creditor to supply rate information orally. If the creditor volunteers information (including rate information) through oral solicitations directed generally to prospective customers, as through a telephone solicitation, those communications may be advertisements subject to the rules in <ref href="/us/cfr/t12/s226.16">§§ 226.16</ref> and 226.24. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">26(a) Open-end credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information that may be given.</inline> The creditor may state periodic rates in addition to the required annual percentage rate, but it need not do so. If the annual percentage rate is unknown because transaction charges, loan fees, or similar finance charges may be <?page num="697"?>imposed, the creditor must give the corresponding annual percentage rate (that is, the periodic rate multiplied by the number of periods in a year, as described in <ref href="/us/cfr/t12/s226.6/a/1/ii">§§ 226.6(a)(1)(ii)</ref> and (b)(4)(i)(A) and 226.7(a)(4) and (b)(4)). In such cases, the creditor may, but need not, also give the consumer information about other finance charges and other charges.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">26(b) Closed-end credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information that may be given.</inline> The creditor may state other annual or periodic rates that are applied to an unpaid balance, along with the required annual percentage rate. This rule permits disclosure of a simple interest rate, for example, but not an add-on, discount, or similar rate. If the creditor cannot give a precise annual percentage rate in its oral response because of variables in the transaction, it must give the annual percentage rate for a comparable sample transaction; in this case, other cost information may, but need not, be given. For example, the creditor may be unable to state a precise annual percentage rate for a mortgage loan without knowing the exact amount to be financed, the amount of loan fees or mortgage insurance premiums, or similar factors. In this situation, the creditor should state an annual percentage rate for a sample transaction; it may also provide information about the consumer's specific case, such as the contract interest rate, points, other finance charges, and other charges.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Section 146.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Sections 226.6(a)(2) and 226.7(d).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Interpretation <ref href="/us/cfr/t12/s226.101">§ 226.101</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> This section implements amended section 146 of the Act, which added a provision dealing with oral disclosures, and incorporates Interpretation <ref href="/us/cfr/t12/s226.101">§ 226.101</ref>.</p>
<heading style="-uslm-sgm:HD2">Section 226.27—Language of Disclosures </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent disclosures.</inline> If a creditor provides account-opening disclosures in a language other than English, subsequent disclosures need not be in that other language. For example, if the creditor gave Spanish-language account-opening disclosures, periodic statements and change-in-terms notices may be made in English. </p>
<p style="-uslm-sgm:P" role="reserved">2. [Reserved] </p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.6(a).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> No substantive change.</p>
<heading style="-uslm-sgm:HD2">Section 226.28—Effect on State Laws</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">28(a) Inconsistent disclosure requirements</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> There are 3 sets of preemption criteria: 1 applies to the general disclosure and advertising rules of the regulation, and 2 apply to the credit billing provisions. Section 226.28 also provides for Board determinations of preemption.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rules for chapters 1, 2, and 3.</inline> The standard for judging whether State laws that cover the types of requirements in chapters 1 (General provisions), 2 (Credit transactions), and 3 (Credit advertising) of the Act are inconsistent and therefore preempted, is contradiction of the Federal law. Examples of laws that would be preempted include:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A State law that requires use of the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge,</inline> but defines the term to include fees that the Federal law excludes, or to exclude fees the Federal law includes.</p>
<p style="-uslm-sgm:P">• A State law that requires a label such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">nominal annual interest rate</inline> to be used for what the Federal law calls the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">annual percentage rate.</inline>
</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Laws not contradictory to chapters 1, 2, and 3.</inline> Generally, State law requirements that call for the disclosure of items of information not covered by the Federal law, or that require more detailed disclosures, do not contradict the Federal requirements. Examples of laws that are not preempted include:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A State law that requires disclosure of the minimum periodic payment for open-end credit, even though not required by <ref href="/us/cfr/t12/s226.7">§ 226.7</ref>.</p>
<p style="-uslm-sgm:P">• A State law that requires contracts to contain warnings such as: “Read this contract before you sign. Do not sign if any spaces are left blank. You are entitled to a copy of this contract.”</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Similarly, a State law that requires itemization of the amount financed does not automatically contradict the permissive itemization under <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>. However, a State law requirement that the itemization appear with the disclosure of the amount financed in the segregated closed-end credit disclosures is inconsistent, and this location requirement would be preempted.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor's options.</inline> Before the Board makes a determination about a specific State law, the creditor has certain options. Since the prohibition against giving the State disclosures does not apply until the Board makes its determination, the creditor may choose to give State disclosures until the Board formally determines that the State law is inconsistent. (The Board will provide sufficient time for creditors to revise forms and procedures as necessary to conform to its determinations.)</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Under this first approach, as in all cases, the Federal disclosures must be clear and conspicuous, and the closed-end disclosures must be properly segregated in accordance with <ref href="/us/cfr/t12/s226.17/a/1">§ 226.17(a)(1)</ref>.</p>
<p style="-uslm-sgm:P">• This ability to give State disclosures relieves any uncertainty that the creditor might have prior to Board determinations of inconsistency.</p>
<?GPOvSpace 02?>
<?page num="698"?>
<p style="-uslm-sgm:P">As a second option, the creditor may apply the preemption standards to a State law, conclude that it is inconsistent, and choose not to give the state-required disclosures. However, nothing in <ref href="/us/cfr/t12/s226.28/a">§ 226.28(a)</ref> provides the creditor with immunity for violations of State law if the creditor chooses <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> to make State disclosures and the Board later determines that the State law is not preempted.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rules for correction of billing errors and regulation of credit reports.</inline> The preemption criteria for the fair credit billing provisions set forth in <ref href="/us/cfr/t12/s226.28">§ 226.28</ref> have 2 parts. With respect to the rules on correction of billing errors and regulation of credit reports (which are in <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>), <ref href="/us/cfr/t12/s226.28/a/2/i">§ 226.28(a)(2)(i)</ref> provides that a State law is inconsistent and preempted if its requirements are different from the Federal law. An exception is made, however, for State laws that allow the consumer to inquire about an account and require the creditor to respond to such inquiries beyond the time limits in the Federal law. Such a State law is not preempted with respect to the extra time period. For example, <ref href="/us/cfr/t12/s226.13">§ 226.13</ref> requires the consumer to submit a written notice of billing error within 60 days after transmittal of the periodic statement showing the alleged error. If a State law allows the consumer 90 days to submit a notice, the State law remains in effect to provide the extra 30 days. Any State law disclosures concerning this extended state time limit must reflect the qualifications and conform to the format specified in <ref href="/us/cfr/t12/s226.28/a/2/i">§ 226.28(a)(2)(i)</ref>. Examples of laws that would be preempted include:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• A State law that has a narrower or broader definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">billing error.</inline>
</p>
<p style="-uslm-sgm:P">• A State law that requires the creditor to take different steps to resolve errors.</p>
<p style="-uslm-sgm:P">• A State law that provides different timing rules for error resolution (subject to the exception discussed above).</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rules for other fair credit billing provisions.</inline> The second part of the criteria for fair credit billing relates to the other rules implementing chapter 4 of the act (addressed in <ref href="/us/cfr/t12/s226.4/c/8">§§ 226.4(c)(8)</ref>, 226.5(b)(2)(ii), 226.6(a)(5) and (b)(5)(iii), 226.7(a)(9) and (b)(9), 226.9(a), 226.10, 226.11, 226.12(c) through (f), 226.13, and 226.21). Section 226.28(a)(2)(ii) provides that the test of inconsistency is whether the creditor can comply with state law without violating Federal law. For example:</p>
<p style="-uslm-sgm:P">i. A state law that allows the card issuer to offset the consumer's credit-card indebtedness against funds held by the card issuer would be preempted, since <ref href="/us/cfr/t12/s226.12/d">§ 226.12(d)</ref> prohibits such action.</p>
<p style="-uslm-sgm:P">ii. A state law that requires periodic statements to be sent more than 14 days before the end of a free-ride period would not be preempted.</p>
<p style="-uslm-sgm:P">iii. A state law that permits consumers to assert claims and defenses against the card issuer without regard to the $50 and 100-mile limitations of <ref href="/us/cfr/t12/s226.12/c/3/ii">§ 226.12(c)(3)(ii)</ref> would not be preempted.</p>
<p style="-uslm-sgm:P">iv. In paragraphs ii. and iii. of this comment, compliance with state law would involve no violation of the Federal law.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Who may receive a chapter 4 determination.</inline> Only states (through their authorized officials) may request and receive determinations on inconsistency with respect to the fair credit billing provisions.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—Arizona.</inline> Effective <date date="1983-10-01">October 1, 1983</date>, the Board has determined that the following provisions in the State law of Arizona are preempted by the Federal law:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">• Section 44–287 B.5—Disclosure of final cash price balance. This provision is preempted in those transactions in which the amount of the final cash price balance is the same as the Federal amount financed, since in such transactions the State law requires the use of a term different from the Federal term to represent the same amount. </p>
<p style="-uslm-sgm:FP-1">• Section 44–287 B.6—Disclosure of finance charge. This provision is preempted in those transactions in which the amount of the finance charge is different from the amount of the Federal finance charge, since in such transactions the State law requires the use of the same term as the Federal law to represent a different amount.</p>
<p style="-uslm-sgm:FP-1">• Section 44–287 B.7—Disclosure of the time balance. The time balance disclosure provision is preempted in those transactions in which the amount is the same as the amount of the Federal total of payments, since in such transactions the State law requires the use of a term different from the Federal term to represent the same amount.</p>
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<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—Florida.</inline> Effective <date date="1983-10-01">October 1, 1983</date>, the Board has determined that the following provisions in the State law of Florida are preempted by the Federal law:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">• Sections 520.07(2)(f) and 520.34(2)(f)—Disclosure of amount financed. This disclosure is preempted in those transactions in which the amount is different from the Federal amount financed, since in such transactions the State law requires the use of the same term as the Federal law to represent a different amount.</p>
<p style="-uslm-sgm:FP-1">• Sections 520.07(2)(g), 520.34(2)(g), and 520.35(2)(d)—Disclosure of finance charge and a description of its components. The finance charge disclosure is preempted in those transactions in which the amount of the finance charge is different from the Federal amount, since in such transactions the State law requires the use of the same <?page num="699"?>term as the Federal law to represent a different amount. The requirement to describe or itemize the components of the finance charge, which is also included in these provisions, is not preempted.</p>
<p style="-uslm-sgm:FP-1">• Sections 520.07(2)(h) and 520.34(2)(h)—Disclosure of total of payments. The total of payments disclosure is preempted in those transactions in which the amount differs from the amount of the Federal total of payments, since in such transactions the State law requires the use of the same term as the Federal law to represent a different amount than the Federal law.</p>
<p style="-uslm-sgm:FP-1">• Sections 520.07(2)(i) and 520.34(2)(i)—Disclosure of deferred payment price. This disclosure is preempted in those transactions in which the amount is the same as the Federal total sale price, since in such transactions the State law requires the use of a different term than the Federal law to represent the same amount as the Federal law.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—Missouri.</inline> Effective <date date="1983-10-01">October 1, 1983</date>, the Board has determined that the following provisions in the State law of Missouri are preempted by the Federal law:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">• Sections 365.070–6(9) and 408.260–5(6)—Disclosure of principal balance. This disclosure is preempted in those transactions in which the amount of the principal balance is the same as the Federal amount financed, since in such transactions the State law requires the use of a term different from the Federal term to represent the same amount.</p>
<p style="-uslm-sgm:FP-1">• Sections 365.070–6(10) and 408.260–5(7)—Disclosure of time price differential and time charge, respectively. These disclosures are preempted in those transactions in which the amount is the same as the Federal finance charge, since in such transactions the State law requires the use of a term different from the Federal law to represent the same amount.</p>
<p style="-uslm-sgm:FP-1">• Sections 365.070–2 and 408.260–2—Use of the terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time price differential</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time charge</inline> in certain notices to the buyer. In those transactions in which the State disclosure of the time price differential or time charge is preempted, the use of the terms in this notice also is preempted. The notice itself is not preempted.</p>
<p style="-uslm-sgm:FP-1">• Sections 365.070–6(11) and 408.260–5(8)—Disclosure of time balance. The time balance disclosure is preempted in those transactions in which the amount is the same as the amount of the Federal total of payments, since in such transactions the State law requires the use of a different term than the Federal law to represent the same amount.</p>
<p style="-uslm-sgm:FP-1">• Sections 365.070–6(12) and 408.260–5(9)—Disclosure of time sale price. This disclosure is preempted in those transactions in which the amount is the same as the Federal total sale price, since in such transactions the State law requires the use of a different term from the Federal law to represent the same amount.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—Mississippi.</inline> Effective <date date="1984-10-01">October 1, 1984</date>, the Board has determined that the following provision in the State law of Mississippi is preempted by the Federal law:</p>
<p style="-uslm-sgm:P">• Section 63–19–31(2)(g)—Disclosure of finance charge. This disclosure is preempted in those cases in which the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">finance charge</inline> would be used under State law to describe a different amount than the finance charge disclosed under Federal law.</p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—South Carolina.</inline> Effective <date date="1984-10-01">October 1, 1984</date>, the Board has determined that the following provision in the State law of South Carolina is preempted by the Federal law.</p>
<p style="-uslm-sgm:P">• Section 37–10–102(c)—Disclosure of due-on-sale clause. This provision is preempted, but only to the extent that the creditor is required to include the disclosure with the segregated Federal disclosures. If the creditor may comply with the State law by placing the due-on-sale notice apart from the Federal disclosures, the state law is not preempted.</p>
<p style="-uslm-sgm:P">13. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—Arizona.</inline> Effective <date date="1986-10-01">October 1, 1986</date>, the Board has determined that the following provision in the State law of Arizona is preempted by the Federal law:</p>
<p style="-uslm-sgm:P">• Section 6–621A.2—Use of the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">the total sum of</inline> $____ in certain notices provided to borrowers. This term describes the same item that is disclosed under Federal law as the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">total of payments.</inline> Since the State law requires the use of a different term than Federal law to describe the same item, the State-required term is preempted. The notice itself is not preempted.</p>
<?GPOvSpace 02?>
<note style="-uslm-sgm:NOTE">
<heading style="-uslm-sgm:HED">Note:</heading>
<p style="-uslm-sgm:P">The State disclosure notice that incorporated the above preempted term was amended on <date date="1987-05-04">May 4, 1987</date>, to provide that disclosures must now be made pursuant to the Federal disclosure provisions.)</p>
</note>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">14. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—Indiana.</inline> Effective <date date="1988-10-01">October 1, 1988</date>, the Board has determined that the following provision in the State law of Indiana is preempted by the Federal law:</p>
<p style="-uslm-sgm:P">• Section 23–2–5–8—Inclusion of the loan broker's fees and charges in the calculation of, among other items, the finance charge and annual percentage rate disclosed to potential borrowers. This disclosure is inconsistent with sections 106(a) and <ref href="/us/cfr/t12/s226.4/a">§ 226.4(a)</ref> of the Federal statute and regulation, respectively, and is preempted in those instances where the use of the same term would disclose a different amount than that required to be disclosed under Federal law.
<?page num="700"?></p>
<p style="-uslm-sgm:P">15. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Preemption determination—Wisconsin.</inline> Effective <date date="1991-10-01">October 1, 1991</date>, the Board has determined that the following provisions in the state law of Wisconsin are preempted by the federal law: </p>
<p style="-uslm-sgm:P">• Section 422.308(1)—the disclosure of the annual percentage rate in cases where the amount of the annual percentage rate disclosed to consumers under the state law differs from the amount that would be disclosed under federal law, since in those cases the state law requires the use of the same term as the federal law to represent a different amount than the federal law. </p>
<p style="-uslm-sgm:P">• Section 766.565(5)—the provision permitting a creditor to include in an open-end home equity agreement authorization to declare the account balance due and payable upon receiving notice of termination from a non-obligor spouse, since such provision is inconsistent with the purpose of the federal law. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">28(b) Equivalent disclosure requirements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A state disclosure may be substituted for a Federal disclosure only <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">after</inline> the Board has made a finding of substantial similarity. Thus, the creditor may not unilaterally choose to make a state disclosure in place of a Federal disclosure, even if it believes that the state disclosure is substantially similar. Since the rule stated in <ref href="/us/cfr/t12/s226.28/b">§ 226.28(b)</ref> does not extend to any requirement relating to the finance charge or annual percentage rate, no state provision on computation, description, or disclosure of these terms may be substituted for the Federal provision.</p>
<heading style="-uslm-sgm:HD2">28(d) Special Rule for Credit and Charge Cards </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The standard that applies to preemption of state laws as they affect transactions of the type subject to <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> and 226.9(e) differs from the preemption standards generally applicable under the Truth in Lending Act. The Fair Credit and Charge Card Disclosure Act fully preempts state laws relating to the disclosure of credit information in consumer credit or charge card applications or solicitations. (For purposes of this section, a single credit or charge card application or solicitation that may be used to open either an account for consumer purposes or an account for business purposes is deemed to be a “consumer credit or charge card application or solicitation.”) For example, a state law requiring disclosure of credit terms in direct mail solicitations for consumer credit card accounts is preempted. A state law requiring disclosures in telephone applications for consumer credit card accounts also is preempted, even if it applies to applications initiated by the consumer rather than the issuer, because the state law relates to the disclosure of credit information in applications or solicitations within the general field of preemption, that is, consumer credit and charge cards. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitations on field of preemption.</inline> Preemption under the Fair Credit and Charge Card Disclosure Act does not extend to state laws applying to types of credit other than open-end consumer credit and charge card accounts. Thus, for example, a state law is not preempted as it applies to disclosures in credit and charge card applications and solicitations solely for business-purpose accounts. On the other hand, state credit disclosure laws will not apply to a single application or solicitation to open either an account for consumer purposes or an account for business purposes. Such “dual purpose” applications and solicitations are treated as “consumer credit or charge card applications or solicitations” under this section and state credit disclosure laws applicable to them are preempted. Preemption under this statute does not extend to state laws applicable to home equity plans; preemption determinations in this area are based on the Home Equity Loan Consumer Protection Act, as implemented in <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref> of the regulation. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Laws not preempted.</inline> State laws relating to disclosures concerning credit and charge cards other than in applications, solicitations, or renewal notices are not preempted under <ref href="/us/cfr/t12/s226.28/d">§ 226.28(d)</ref>. In addition, state laws regulating the terms of credit and charge card accounts are not preempted, nor are laws preempted that regulate the form or content of information unrelated to the information required to be disclosed under <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> and 226.9(e). Finally, state laws concerning the enforcement of the requirements of <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> and 226.9(e) and state laws prohibiting unfair or deceptive acts or practices concerning credit and charge card applications, solicitations and renewals are not preempted. Examples of laws that are not preempted include: </p>
<p style="-uslm-sgm:P">• A state law that requires card issuers to offer a grace period or that prohibits certain fees in credit and charge card transactions. </p>
<p style="-uslm-sgm:P">• A state retail installment sales law or a state plain language law, except to the extent that it regulates the disclosure of credit information in applications, solicitations and renewals of accounts of the type subject to <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> and 226.9(e). </p>
<p style="-uslm-sgm:P">• A state law requiring notice of a consumer's rights under antidiscrimination or similar laws or a state law requiring notice about credit information available from state authorities. </p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 111 and 171 (a) and (c).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Appendix A.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.6 (b) and (c), and Interpretation <ref href="/us/cfr/t12/s226.604">§ 226.604</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> Section 226.28 implements amended section 111 of the Act. The test for preemption of state laws relating to disclosure and advertising is now whether the state law “contradicts” the Federal, rather <?page num="701"?>than whether state requirements are “different.” </p>
<p style="-uslm-sgm:P">The revised regulation contains no counterpart to <ref href="/us/cfr/t12/s226.6/c">§ 226.6(c)</ref> of the previous regulation concerning placement of inconsistent disclosures. It also reflects the statutory amendment providing that once the Board determines that a state-required disclosure is inconsistent with Federal law, the creditor may not make the state disclosure.</p>
<heading style="-uslm-sgm:HD2">Section 226.29—State Exemptions</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">29(a) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Classes eligible.</inline> The state determines the classes of transactions for which it will request an exemption, and makes its application for those classes. Classes might be, for example, all open-end credit transactions, all open-end and closed-end transactions, or all transactions in which the creditor is a bank.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantial similarity.</inline> The “substantially similar” standard requires that state statutory or regulatory provisions and state interpretations of those provisions be generally the same as the Federal Act and Regulation Z. This includes the requirement that state provisions for reimbursement to consumers for overcharges be at least equivalent to those required in section 108 of the act. A State will be eligible for an exemption even if its law covers classes of transactions not covered by the Federal law. For example, if a state's law covers agricultural credit, this will not prevent the Board from granting an exemption for consumer credit, even though agricultural credit is not covered by the Federal law.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adequate enforcement.</inline> The standard requiring adequate provision for enforcement generally means that appropriate state officials must be authorized to enforce the state law through procedures and sanctions comparable to those available to Federal enforcement agencies. Furthermore, state law must make adequate provision for enforcement of the reimbursement rules.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exemptions granted.</inline> Effective <date date="1982-10-01">October 1, 1982</date>, the Board has granted the following exemptions from portions of the revised Truth in Lending Act:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Maine.</inline> Credit or lease transactions subject to the Maine Consumer Credit Code and its implementing regulations are exempt from chapters 2, 4 and 5 of the Federal Act. (The exemption does not apply to transactions in which a federally chartered institution is a creditor or lessor.)</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Connecticut.</inline> Credit transactions subject to the Connecticut Truth in Lending Act are exempt from chapters 2 and 4 of the Federal Act. (The exemption does not apply to transactions in which a federally chartered institution is a creditor.)</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Massachusetts.</inline> Credit transactions subject to the Massachusetts Truth in Lending Act are exempt from chapters 2 and 4 of the Federal Act. (The exemption does not apply to transactions in which a federally chartered institution is a creditor.)</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Oklahoma.</inline> Credit or lease transactions subject to the Oklahoma Consumer Credit Code are exempt from chapters 2 and 5 of the Federal Act. (The exemption does not apply to sections 132 through 135 of the Federal Act, nor does it apply to transactions in which a federally chartered institution is a creditor or lessor.)</p>
<p style="-uslm-sgm:P">• <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wyoming.</inline> Credit transactions subject to the Wyoming Consumer Credit Code are exempt from chapter 2 of the Federal Act. (The exemption does not apply to transactions in which a federally chartered institution is a creditor.)</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">29(b) Civil liability.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Not eligible for exemption.</inline> The provision that an exemption may not extend to sections 130 and 131 of the Act assures that consumers retain access to both Federal and State courts in seeking damages or civil penalties for violations, while creditors retain the defenses specified in those sections.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 108, 123, and 171(b).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Appendix B.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.12.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> The procedures that states must follow to seek exemptions are now located in an appendix. Exemptions under the previous regulation will be automatically revoked on <date date="1982-04-01">April 1, 1982</date>, when compliance with the new regulation is mandatory.</p>
<heading style="-uslm-sgm:HD2">Section 226.30—Limitation on Rates</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope of coverage.</inline> The requirement of this section applies to consumer credit obligations secured by a dwelling (as dwelling is defined in <ref href="/us/cfr/t12/s226.2/a/19">§ 226.2(a)(19)</ref>) in which the annual percentage rate may increase after consummation (or during the term of the plan, in the case of open-end credit) as a result of an increase in the interest rate component of the finance charge—whether those increases are tied to an index or formula or are within a creditor's discretion. The section applies to credit sales as well as loans. Examples of credit obligations subject to this section include:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• Dwelling-secured credit obligations that require variable-rate disclosures under the regulation because the interest rate may increase during the term of the obligation.</p>
<p style="-uslm-sgm:P">• Dwelling-secured open-end credit plans entered into before <date date="1989-11-07">November 7, 1989</date> (the effective date of the home equity rules) that are not considered variable-rate obligations for purposes of disclosure under the regulation but where the creditor reserves the contractual right to increase the interest rate—periodic rate and corresponding annual percentage rate—during the term of the plan.</p>
<?GPOvSpace 02?>
<?page num="702"?>
<p style="-uslm-sgm:FP">In contrast, credit obligations in which there is no contractual right to increase the interest rate during the term of the obligation are not subject to this section. Examples include:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">• “Shared-equity” or “shared-appreciation” mortgage loans that have a fixed rate of interest and a shared-appreciation feature based on the consumer's equity in the mortgaged property. (The appreciation share is payable in a lump sum at a specified time.)</p>
<p style="-uslm-sgm:P">• Dwelling-secured fixed-rate closed-end balloon-payment mortgage loans and dwelling-secured fixed-rate open-end plans with a stated term that the creditor may renew at maturity. (Contrast with the renewable balloon-payment mortgage instrument described in comment 17(c)(1)–11.) </p>
<p style="-uslm-sgm:P">• Dwelling-secured fixed rate closed-end multiple advance transactions in which each advance is disclosed as a separate transaction.</p>
<p style="-uslm-sgm:P">• “Price level adjusted mortgages” or other indexed mortgages that have a fixed rate of interest but provide for periodic adjustments to payments and the loan balance to reflect changes in an index measuring prices or inflation.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">The requirement of this section does not apply to credit obligations entered into prior to <date date="1987-12-09">December 9, 1987</date>. Consequently, new advances under open-end credit plans existing prior to <date date="1987-12-09">December 9, 1987</date>, are not subject to this section.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Refinanced obligations.</inline> On or after <date date="1987-12-09">December 9, 1987</date>, when a credit obligation is refinanced, as defined in <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref>, the new obligation is subject to this section if it is dwelling-secured and allows for increases in the interest rate. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumptions.</inline> On or after <date date="1987-12-09">December 9, 1987</date>, when a credit obligation is assumed, as defined in <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref>, the obligation becomes subject to this section if it is dwelling-secured and allows for increases in the interest rate. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Modifications of obligations.</inline> The modification of an obligation, regardless of when the obligation was entered into, is generally not covered by this section. For example, increasing the credit limit on a dwelling-secured, open-end plan with a variable interest rate entered into before the effective date of the rule does not make the obligation subject to this section. If, however, a security interest in a dwelling is added on or after <date date="1987-12-09">December 9, 1987</date>, to a credit obligation that allows for interest rate increases, the obligation becomes subject to this section. Similarly, if a variable interest rate feature is added to a dwelling-secured credit obligation, the obligation becomes subject to this section. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Land trusts.</inline> In some states, a land trust is used in residential real estate transactions. (See discussion in comment 3(a)–8).) If a consumer-purpose loan that allows for interest rate increases is secured by an assignment of a beneficial interest in a land trust that holds title to a consumer's dwelling, that loan is subject to this section. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to other sections.</inline> Unless otherwise provided for in the commentary to this section, other provisions of the regulation such as definitions, exemptions, rules and interpretations also apply to this section where appropriate. To illustrate: </p>
<p style="-uslm-sgm:P">• An adjustable interest rate business-purpose loan is not subject to this section even if the loan is secured by a dwelling because such credit extensions are not subject to the regulation. (See generally <ref href="/us/cfr/t12/s226.3/a">§ 226.3(a)</ref>.)</p>
<p style="-uslm-sgm:P">• Creditors subject to this section are only those that fall within the definition of a creditor in <ref href="/us/cfr/t12/s226.2/a/17">§ 226.2(a)(17)</ref>. </p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer credit contract.</inline> Creditors are required to specify a lifetime maximum interest rate in their credit contracts—the instrument that creates personal liability and generally contains the terms and conditions of the agreement (for example, a promissory note or home-equity line of credit agreement). In some states, the signing of a commitment letter may create a binding obligation, for example, constituting <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">consummation</inline> as defined in <ref href="/us/cfr/t12/s226.2/a/13">§ 226.2(a)(13)</ref>. The maximum interest rate must be included in the credit contract, but a creditor may include the rate ceiling in the commitment instrument as well. </p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manner of stating the maximum interest rate.</inline> The maximum interest rate must be stated in the credit contract either as a specific amount or in any other manner that would allow the consumer to easily ascertain, at the time of entering into the obligation, what the rate ceiling will be over the term of the obligation.</p>
<p style="-uslm-sgm:P">i. For example, the following statements would be sufficiently specific</p>
<p style="-uslm-sgm:P">A. The maximum interest rate will not exceed X%.</p>
<p style="-uslm-sgm:P">B. The interest rate will never be higher than X percentage points above the initial rate of Y%.</p>
<p style="-uslm-sgm:P">C. The interest rate will not exceed X%, or X percentage points above [a rate to be determined at some future point in time], whichever is less.</p>
<p style="-uslm-sgm:P">D. The maximum interest rate will not exceed X%, or the state usury ceiling, whichever is less.</p>
<p style="-uslm-sgm:P">ii. The following statements would not comply with this section</p>
<p style="-uslm-sgm:P">A. The interest rate will never be higher than X percentage points over the prevailing market rate.</p>
<p style="-uslm-sgm:P">B. The interest rate will never be higher than X percentage points above [a rate to be determined at some future point in time].</p>
<p style="-uslm-sgm:P">C. The interest rate will not exceed the state usury ceiling which is currently X%.
<?page num="703"?></p>
<p style="-uslm-sgm:P">iii. A creditor may state the maximum rate in terms of a maximum annual percentage rate that may be imposed. Under an open-end credit plan, this normally would be the corresponding annual percentage rate. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> generally <ref href="/us/cfr/t12/s226.6/a/1/ii">§ 226.6(a)(1)(ii)</ref> and (b)(4)(i)(A).)</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple interest rate ceilings.</inline> Creditors are not prohibited from setting multiple interest rate ceilings. For example, on loans with multiple variable-rate features, creditors may establish a maximum interest rate for each feature. To illustrate, in a variable-rate loan that has an option to convert to a fixed rate, a creditor may set one maximum interest rate for the initially imposed index-based variable-rate feature and another for the conversion option. Of course, a creditor may establish one maximum interest rate applicable to all features. </p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest rate charged after default.</inline> State law may allow an interest rate after default higher than the contract rate in effect at the time of default; however, the interest rate after default is subject to a maximum interest rate set forth in a credit obligation that is otherwise subject to this section. This rule applies only in situations in which a post-default agreement is still considered part of the original obligation. </p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increasing the maximum interest rate—general rule.</inline> Generally, a creditor may not increase the maximum interest rate originally set on a credit obligation subject to this section unless the consumer and the creditor enter into a new obligation. Therefore, under an open-end plan, a creditor may not increase the rate ceiling imposed merely because there is an increase in the credit limit. If an open-end plan is closed and another opened, a new rate ceiling may be imposed. Furthermore, where an open-end plan has a fixed maturity and a creditor renews the plan at maturity, or enters into a closed-end credit transaction, a new maximum interest rate may be set at that time. If the open-end plan provides for a repayment phase, the maximum interest rate cannot be increased when the repayment phase begins unless the agreement provided for such an increase. For a closed-end credit transaction, a new maximum interest rate may be set only if the transaction is satisfied and replaced by a new obligation. (The exceptions in <ref href="/us/cfr/t12/s226.20/a/1">§ 226.20(a)(1)</ref>–(5) which limit what transactions are considered refinancings for purposes of disclosure do not apply with respect to increasing a rate ceiling that has been imposed; if a transaction is satisfied and replaced, the rate ceiling may be increased.) </p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increasing the maximum interest rate—assumption of an obligation.</inline> If an obligation subject to this section is assumed by a new obligor and the original obligor is released from liability, the maximum interest rate set on the obligation may be increased as part of the assumption agreement. (This rule applies whether or not the transaction constitutes an assumption as defined in <ref href="/us/cfr/t12/s226.20/b">§ 226.20(b)</ref>.) </p>
<heading style="-uslm-sgm:HD3">References </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Competitive Equality Banking Act of 1987, Pub. L. No. 100–86, <ref href="/us/stat/101/552">101 Stat. 552</ref> </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Sections 226.6, 226.18, and 226.19 </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> None </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1987 changes:</inline> This section implements section 1204 of the Competitive Equality Banking Act of 1987, Pub. L. No. 100–86, <ref href="/us/stat/101/552">101 Stat. 552</ref> which provides that, effective <date date="1987-12-09">December 9, 1987</date>, adjustable-rate mortgages must include a limitation on the interest rate that may apply during the term of the mortgage loan. An adjustable-rate mortgage loan is defined in section 1204 as “any loan secured by a lien on a one-to-four family dwelling unit, including a condominium unit, cooperative housing unit, or mobile home, where the loan is made pursuant to an agreement under which the creditor may, from time to time, adjust the rate of interest.” The rule in this section incorporates section 1204 into Regulation Z and limits the scope of section 1204 to dwelling-secured consumer credit subject to the Truth in Lending Act, in which a creditor has the contractual right to increase the interest rate during the term of the credit obligation.</p>
<heading style="-uslm-sgm:HD1">Subpart E—Special Rules for Certain Home Mortgage Transactions </heading>
<heading style="-uslm-sgm:HD2">Section 226.31—General Rules </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">31(c) Timing of disclosure.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Furnishing disclosures.</inline> Disclosures are considered furnished when received by the consumer. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 31(c)(1) Disclosures for certain closed-end home mortgages.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pre-consummation waiting period.</inline> A creditor must furnish <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> disclosures at least three business days prior to consummation. Under <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, “business day” has the same meaning as the rescission rule in comment 2(a)(6)-2—all calendar days except Sundays and the federal legal holidays listed in <ref href="/us/usc/t5/s6103/a">5 U.S.C. 6103(a)</ref>. However, while the disclosure rule under <ref href="/us/cfr/t12/s226.15">§§ 226.15</ref> and 226.23 extends to midnight of the third business day, the rule under <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> does not. For example, under <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, if disclosures were provided on a Friday, consummation could occur any time on Tuesday, the third business day following receipt of the disclosures. If the timing of the rescission rule were to be used, consummation could not occur until after midnight on Tuesday. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 31(c)(1)(i) Change in terms.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Redisclosure required.</inline> Creditors must provide new disclosures when a change in terms makes disclosures previously provided under <ref href="/us/cfr/t12/s226.32/c">§ 226.32(c)</ref> inaccurate, including disclosures based on and labeled as an estimate. A <?page num="704"?>change in terms may result from a formal written agreement or otherwise. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sale of optional products at consummation.</inline> If the consumer finances the purchase of optional products such as credit insurance and as a result the monthly payment differs from what was previously disclosed under <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, redisclosure is required and a new three-day waiting period applies. (See comment 32(c)(3)–1 on when optional items may be included in the regular payment disclosure.) </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 31(c)(1)(ii) Telephone disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Telephone disclosures.</inline> Disclosures by telephone must be furnished at least three business days prior to consummation, calculated in accord with the timing rules under <ref href="/us/cfr/t12/s226.31/c/1">§ 226.31(c)(1)</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 31(c)(1)(iii) Consumer's waiver of waiting period before consummation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Modification or waiver.</inline> A consumer may modify or waive the right to the three-day waiting period only after receiving the disclosures required by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> and only if the circumstances meet the criteria for establishing a bona fide personal financial emergency under <ref href="/us/cfr/t12/s226.23/e">§ 226.23(e)</ref>. Whether these criteria are met is determined by the facts surrounding individual situations. The imminent sale of the consumer's home at foreclosure during the three-day period is one example of a bona fide personal financial emergency. Each consumer entitled to the three-day waiting period must sign the handwritten statement for the waiver to be effective. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">31(c)(2) Disclosures for reverse mortgages.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business days.</inline> For purposes of providing reverse mortgage disclosures, “business day” has the same meaning as in comment 31(c)(1)–1—all calendar days except Sundays and the Federal legal holidays listed in <ref href="/us/usc/t5/s6103/a">5 U.S.C. 6103(a)</ref>. This means if disclosures are provided on a Friday, consummation could occur any time on Tuesday, the third business day following receipt of the disclosures. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open-end plans.</inline> Disclosures for open-end reverse mortgages must be provided at least three business days before the first transaction under the plan (see <ref href="/us/cfr/t12/s226.5/b/1">§ 226.5(b)(1)</ref>). </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">31(d) Basis of disclosures and use of estimates.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Redisclosure.</inline> Section 226.31(d) allows the use of estimates when information necessary for an accurate disclosure is unknown to the creditor, provided that the disclosure is clearly identified as an estimate. For purposes of Subpart E, the rule in <ref href="/us/cfr/t12/s226.31/c/1/i">§ 226.31(c)(1)(i)</ref> requiring new disclosures when the creditor changes terms also applies to disclosures labeled as estimates. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">31(d)(3) Per-diem interest.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Per-diem interest.</inline> This paragraph applies to the disclosure of any numerical amount (such as the finance charge, annual percentage rate, or payment amount) that is affected by the amount of the per-diem interest charge that will be collected at consummation. If the amount of per-diem interest used in preparing the disclosures for consummation is based on the information known to the creditor at the time the disclosure document is prepared, the disclosures are considered accurate under this rule, and affected disclosures are also considered accurate, even if the disclosures were not labeled as estimates. (See comment 17(c)(2)(ii)–1 generally.) </p>
<heading style="-uslm-sgm:HD2">Section 226.32—Requirements for Certain Closed-End Home Mortgages </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">32(a) Coverage.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(a)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application date.</inline> An application is deemed received when it reaches the creditor in any of the ways applications are normally transmitted. (See <ref href="/us/cfr/t12/s226.19/a">§ 226.19(a)</ref>.) For example, if a borrower applies for a 10-year loan on September 30 and the creditor counteroffers with a 7-year loan on October 10, the application is deemed received in September and the creditor must measure the annual percentage rate against the appropriate Treasury security yield as of August 15. An application transmitted through an intermediary agent or broker is received when it reaches the creditor, rather than when it reaches the agent or broker. (See comment 19(b)-3 to determine whether a transaction involves an intermediary agent or broker.) </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">When fifteenth not a business day.</inline> If the 15th day of the month immediately preceding the application date is not a business day, the creditor must use the yield as of the business day immediately preceding the 15th. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating annual percentage rates for variable-rate loans and discount loans.</inline> Creditors must use the rules set out in the commentary to <ref href="/us/cfr/t12/s226.17/c/1">§ 226.17(c)(1)</ref> in calculating the annual percentage rate for variable-rate loans (assume the rate in effect at the time of disclosure remains unchanged) and for discount, premium, and stepped-rate transactions (which must reflect composite annual percentage rates). </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Treasury securities.</inline> To determine the yield on comparable Treasury securities for the annual percentage rate test, creditors may use the yield on actively traded issues adjusted to constant maturities published in the Board's “Selected Interest Rates” (statistical release H–15). Creditors must use the yield corresponding to the constant maturity that is closest to the loan's maturity. If the loan's maturity is exactly halfway between security maturities, the annual percentage rate on the loan should be compared with the yield for Treasury securities having the lower yield. In determining the loan's maturity, creditors may rely on the rules in <ref href="/us/cfr/t12/s226.17/c/4">§ 226.17(c)(4)</ref> regarding irregular first payment periods. For example:</p>
<p style="-uslm-sgm:P">i. If the H–15 contains a yield for Treasury securities with constant maturities of 7 years and 10 years and no maturity in between, the annual percentage rate for an 8-<?page num="705"?>year mortgage loan is compared with the yield of securities having a 7-year maturity, and the annual percentage rate for a 9-year mortgage loan is compared with the yield of securities having a 10-year maturity.</p>
<p style="-uslm-sgm:P">ii. If a mortgage loan has a term of 15 years, and the H–15 contains a yield of 5.21 percent for constant maturities of 10 years, and also contains a yield of 6.33 percent for constant maturities of 20 years, then the creditor compares the annual percentage rate for a 15-year mortgage loan with the yield for constant maturities of 10 years.</p>
<p style="-uslm-sgm:P">iii. If a mortgage loan has a term of 30 years, and the H–15 does not contain a yield for 30-year constant maturities, but contains a yield for 20-year constant maturities, and an average yield for securities with remaining terms to maturity of 25 years and over, then the annual percentage rate on the loan is compared with the yield for 20-year constant maturities.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(a)(1)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total loan amount.</inline> For purposes of the “points and fees” test, the total loan amount is calculated by taking the amount financed, as determined according to <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref>, and deducting any cost listed in <ref href="/us/cfr/t12/s226.32/b/1/iii">§ 226.32(b)(1)(iii)</ref> and <ref href="/us/cfr/t12/s226.32/b/1/iv">§ 226.32(b)(1)(iv)</ref> that is both included as points and fees under <ref href="/us/cfr/t12/s226.32/b/1">§ 226.32(b)(1)</ref> and financed by the creditor. Some examples follow, each using a $10,000 amount borrowed, a $300 appraisal fee, and $400 in points. A $500 premium for optional credit life insurance is used in one example. </p>
<p style="-uslm-sgm:P">i. If the consumer finances a $300 fee for a creditor-conducted appraisal and pays $400 in points at closing, the amount financed under <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref> is $9,900 ($10,000 plus the $300 appraisal fee that is paid to and financed by the creditor, less $400 in prepaid finance charges). The $300 appraisal fee paid to the creditor is added to other points and fees under <ref href="/us/cfr/t12/s226.32/b/1/iii">§ 226.32(b)(1)(iii)</ref>. It is deducted from the amount financed ($9,900) to derive a total loan amount of $9,600. </p>
<p style="-uslm-sgm:P">ii. If the consumer pays the $300 fee for the creditor-conducted appraisal in cash at closing, the $300 is included in the points and fees calculation because it is paid to the creditor. However, because the $300 is not financed by the creditor, the fee is not part of the amount financed under <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref>. In this case, the amount financed is the same as the total loan amount: $9,600 ($10,000, less $400 in prepaid finance charges). </p>
<p style="-uslm-sgm:P">iii. If the consumer finances a $300 fee for an appraisal conducted by someone other than the creditor or an affiliate, the $300 fee is not included with other points and fees under <ref href="/us/cfr/t12/s226.32/b/1/iii">§ 226.32(b)(1)(iii)</ref>. The amount financed under <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref> is $9,900 ($10,000 plus the $300 fee for an independently-conducted appraisal that is financed by the creditor, less the $400 paid in cash and deducted as prepaid finance charges). </p>
<p style="-uslm-sgm:P">iv. If the consumer finances a $300 fee for a creditor-conducted appraisal and a $500 single premium for optional credit life insurance, and pays $400 in points at closing, the amount financed under <ref href="/us/cfr/t12/s226.18/b">§ 226.18(b)</ref> is $10,400 ($10,000, plus the $300 appraisal fee that is paid to and financed by the creditor, plus the $500 insurance premium that is financed by the creditor, less $400 in prepaid finance charges). The $300 appraisal fee paid to the creditor is added to other points and fees under <ref href="/us/cfr/t12/s226.32/b/1/iii">§ 226.32(b)(1)(iii)</ref>, and the $500 insurance premium is added under 226.32(b)(1)(iv). The $300 and $500 costs are deducted from the amount financed ($10,400) to derive a total loan amount of $9,600. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual adjustment of $400 amount.</inline> A mortgage loan is covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> if the total points and fees payable by the consumer at or before loan consummation exceed the greater of $400 or 8 percent of the total loan amount. The $400 figure is adjusted annually on January 1 by the annual percentage change in the CPI that was in effect on the preceding June 1. The Board will publish adjustments after the June figures become available each year. The adjustment for the upcoming year will be included in any proposed commentary published in the fall, and incorporated into the commentary the following spring. The adjusted figures are:</p>
<p style="-uslm-sgm:P">i. For 1996, $412, reflecting a 3.00 percent increase in the CPI-U from June 1994 to June 1995, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">ii. For 1997, $424, reflecting a 2.9 percent increase in the CPI-U from June 1995 to June 1996, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">iii. For 1998, $435, reflecting a 2.5 percent increase in the CPI-U from June 1996 to June 1997, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">iv. For 1999, $441, reflecting a 1.4 percent increase in the CPI-U from June 1997 to June 1998, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">v. For 2000, $451, reflecting a 2.3 percent increase in the CPI-U from June 1998 to June 1999, rounded to the nearest whole dollar. </p>
<p style="-uslm-sgm:P">vi. For 2001, $465, reflecting a 3.1 percent increase in the CPI-U from June 1999 to June 2000, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">vii. For 2002, $480, reflecting a 3.27 percent increase in the CPI-U from June 2000 to June 2001, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">viii. For 2003, $488, reflecting a 1.64 percent increase in the CPI-U from June 2001 to June 2002, rounded to the nearest whole dollar. </p>
<p style="-uslm-sgm:P">ix. For 2004, $499, reflecting a 2.22 percent increase in the CPI-U from June 2002 to June 2003, rounded to the nearest whole dollar. </p>
<p style="-uslm-sgm:P">x. For 2005, $510, reflecting a 2. 29 percent increase in the CPI–U from June 2003 to June 2004, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">xi. For 2006, $528, reflecting a 3.51 percent increase in the CPI–U from June 2004 to June 2005, rounded to the nearest whole dollar.
<?page num="706"?></p>
<p style="-uslm-sgm:P">xii. For 2007, $547, reflecting a 3.55 percent increase in the CPI–U from June 2005 to June 2006, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">xiii. For 2008, $561, reflecting a 2.56 percent increase in the CPI–U from June 2006 to June 2007, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">xiv. For 2009, $583, reflecting a 3.94 percent increase in the CPI–U from June 2007 to June 2008, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">xv. For 2010, $579, reflecting a 0.74 percent decrease in the CPI–U from June 2008 to June 2009, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">xvi. For 2011, $592, reflecting a 2.2 percent increase in the CPI–U from June 2009 to June 2010, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">xvii. For 2012, $611, reflecting a 3.2 percent increase in the CPI–U from June 2010 to June 2011, rounded to the nearest whole dollar.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exemption limited.</inline> Section 226.32(a)(2) lists certain transactions exempt from the provisions of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. Nevertheless, those transactions may be subject to the provisions of <ref href="/us/cfr/t12/s226.35">§ 226.35</ref>, including any provisions of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to which <ref href="/us/cfr/t12/s226.35">§ 226.35</ref> refers. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.35/a">12 CFR 226.35(a)</ref>.</p>
<heading style="-uslm-sgm:HD2">32(b) Definitions </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(b)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.32(b)(1)(i) includes in the total “points and fees” items defined as finance charges under <ref href="/us/cfr/t12/s226.4/a">§§ 226.4(a)</ref> and 226.(4)(b). Items excluded from the finance charge under other provisions of <ref href="/us/cfr/t12/s226.4">§ 226.4</ref> are not included in the total “points and fees” under paragraph 32(b)(1)(i), but may be included in “points and fees” under paragraphs 32(b)(1)(ii) and 32(b)(1)(iii). Interest, including per-diem interest, is excluded from “points and fees” under <ref href="/us/cfr/t12/s226.32/b/1">§ 226.32(b)(1)</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(b)(1)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage broker fees.</inline> In determining “points and fees” for purposes of this section, compensation paid by a consumer to a mortgage broker (directly or through the creditor for delivery to the broker) is included in the calculation whether or not the amount is disclosed as a finance charge. Mortgage broker fees that are not paid by the consumer are not included. Mortgage broker fees already included in the calculation as finance charges under <ref href="/us/cfr/t12/s226.32/b/1/i">§ 226.32(b)(1)(i)</ref> need not be counted again under <ref href="/us/cfr/t12/s226.32/b/1/ii">§ 226.32(b)(1)(ii)</ref>. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Section 226.32(b)(1)(iii) defines “points and fees” to include all items listed in <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref>, other than amounts held for the future payment of taxes. An item listed in <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref> may be excluded from the “points and fees” calculation, however, if the charge is reasonable, the creditor receives no direct or indirect compensation from the charge, and the charge is not paid to an affiliate of the creditor. For example, a reasonable fee paid by the consumer to an independent, third-party appraiser may be excluded from the “points and fees” calculation (assuming no compensation is paid to the creditor). A fee paid by the consumer for an appraisal performed by the creditor must be included in the calculation, even though the fee may be excluded from the finance charge if it is bona fide and reasonable in amount. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(b)(1)(iv).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Premium amount.</inline> In determining “points and fees” for purposes of this section, premiums paid at or before closing for credit insurance are included whether they are paid in cash or financed, and whether the amount represents the entire premium for the coverage or an initial payment. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">32(c) Disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> The disclosures must be clear and conspicuous but need not be in any particular type size or typeface, nor presented in any particular manner. The disclosures need not be a part of the note or mortgage document. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(c)(3) Regular payment; balloon payment.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The regular payment is the amount due from the borrower at regular intervals, such as monthly, bimonthly, quarterly, or annually. There must be at least two payments, and the payments must be in an amount and at such intervals that they fully amortize the amount owed. In disclosing the regular payment, creditors may rely on the rules set forth in <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>; however, the amounts for voluntary items, such as credit life insurance, may be included in the regular payment disclosure only if the consumer has previously agreed to the amounts. </p>
<p style="-uslm-sgm:P">i. If the loan has more than one payment level, the regular payment for each level must be disclosed. For example: </p>
<p style="-uslm-sgm:P">A. In a 30-year graduated payment mortgage where there will be payments of $300 for the first 120 months, $400 for the next 120 months, and $500 for the last 120 months, each payment amount must be disclosed, along with the length of time that the payment will be in effect. </p>
<p style="-uslm-sgm:P">B. If interest and principal are paid at different times, the regular amount for each must be disclosed. </p>
<p style="-uslm-sgm:P">C. In discounted or premium variable-rate transactions where the creditor sets the initial interest rate and later rate adjustments are determined by an index or formula, the creditor must disclose both the initial payment based on the discount or premium and the payment that will be in effect thereafter. Additional explanatory material which does not detract from the required disclosures may accompany the disclosed amounts. For example, if a monthly payment is $250 for the first six months and then increases based on an index and margin, the creditor could use language such as the following: “Your regular monthly payment will be $250 for six months. After six months your regular <?page num="707"?>monthly payment will be based on an index and margin, which currently would make your payment $350. Your actual payment at that time may be higher or lower.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(c)(4) Variable-rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating “worst-case” payment example.</inline> Creditors may rely on instructions in <ref href="/us/cfr/t12/s226.19/b/2/viii/B">§ 226.19(b)(2)(viii)(B)</ref> for calculating the maximum possible increases in rates in the shortest possible timeframe, based on the face amount of the note (not the hypothetical loan amount of $10,000 required by <ref href="/us/cfr/t12/s226.19/b/2/viii/B">§ 226.19(b)(2)(viii)(B)</ref>). The creditor must provide a maximum payment for each payment level, where a payment schedule provides for more than one payment level and more than one maximum payment amount is possible. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(c)(5) Amount borrowed.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Optional insurance; debt-cancellation coverage.</inline> This disclosure is required when the amount borrowed in a refinancing includes premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the case of accident. See comment 4(d)(3)–2 and comment app. G and H–2 regarding terminology for debt-cancellation coverage. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">32(d) Limitations.</inline>
</p>
<heading style="-uslm-sgm:HD2">32(d) Limitations </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Additional prohibitions applicable under other sections.</inline> Section 226.34 sets forth certain prohibitions in connection with mortgage credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, in addition to the limitations in <ref href="/us/cfr/t12/s226.32/d">§ 226.32(d)</ref>. Further, <ref href="/us/cfr/t12/s226.35/b">§ 226.35(b)</ref> prohibits certain practices in connection with transactions that meet the coverage test in <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref>. Because the coverage test in <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref> is generally broader than the coverage test in <ref href="/us/cfr/t12/s226.32/a">§ 226.32(a)</ref>, most <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> mortgage loans are also subject to the prohibitions set forth in <ref href="/us/cfr/t12/s226.35/b">§ 226.35(b)</ref> (such as escrows), in addition to the limitations in <ref href="/us/cfr/t12/s226.32/d">§ 226.32(d)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective date.</inline> For guidance on the application of the Board's revisions published on <date date="2008-07-30">July 30, 2008</date> to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, see comment 1(d)(5)–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(1)(i) Balloon payment.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Regular periodic payments.</inline> The repayment schedule for a <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> mortgage loan with a term of less than five years must fully amortize the outstanding principal balance through “regular periodic payments.” A payment is a “regular periodic payment” if it is not more than twice the amount of other payments. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(2) Negative amortization.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Negative amortization.</inline> The prohibition against negative amortization in a mortgage covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> does not preclude reasonable increases in the principal balance that result from events permitted by the legal obligation unrelated to the payment schedule. For example, when a consumer fails to obtain property insurance and the creditor purchases insurance, the creditor may add a reasonable premium to the consumer's principal balance, to the extent permitted by the legal obligation. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(4) Increased interest rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate transactions.</inline> The limitation on interest rate increases does not apply to rate increases resulting from changes in accordance with the legal obligation in a variable-rate transaction, even if the increase occurs after default by the consumer. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(5) Rebates.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculation of refunds.</inline> The limitation applies only to refunds of precomputed (such as add-on) interest and not to any other charges that are considered finance charges under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref> (for example, points and fees paid at closing). The calculation of the refund of interest includes odd-days interest, whether paid at or after consummation. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(6) Prepayment penalties.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State law.</inline> For purposes of computing a refund of unearned interest, if using the actuarial method defined by applicable state law results in a refund that is greater than the refund calculated by using the method described in section 933(d) of the Housing and Community Development Act of 1992, creditors should use the state law definition in determining if a refund is a prepayment penalty. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">32(d)(7) Prepayment penalty exception.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(7)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculating debt-to-income ratio.</inline> “Debt” does not include amounts paid by the borrower in cash at closing or amounts from the loan proceeds that directly repay an existing debt. Creditors may consider combined debt-to-income ratios for transactions involving joint applicants. For more information about obligations and inflows that may constitute “debt” or “income” for purposes of <ref href="/us/cfr/t12/s226.32/d/7/iii">§ 226.32(d)(7)(iii)</ref>, see comment 34(a)(4)–6 and comment 34(a)(4)(iii)(C)–1.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Verification.</inline> Creditors shall verify income in the manner described in <ref href="/us/cfr/t12/s226.34/a/4/ii">§ 226.34(a)(4)(ii)</ref> and the related comments. Creditors may verify debt with a credit report. However, a credit report may not reflect certain obligations undertaken just before or at consummation of the transaction and secured by the same dwelling that secures the transaction. Section 226.34(a)(4) may require creditors to consider such obligations; see comment 34(a)(4)–3 and comment 34(a)(4)(ii)(C)–1.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interaction with Regulation B.</inline> Section 226.32(d)(7)(iii) does not require or permit the creditor to make inquiries or verifications that would be prohibited by Regulation B, <ref href="/us/cfr/t12/p202">12 CFR part 202</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(7)(iv).</inline>
<?page num="708"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment change.</inline> Section 226.32(d)(7) sets forth the conditions under which a mortgage transaction subject to this section may have a prepayment penalty. Section 226.32(d)(7)(iv) lists as a condition that the amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation. The following examples show whether prepayment penalties are permitted or prohibited under <ref href="/us/cfr/t12/s226.32/d/7/iv">§ 226.32(d)(7)(iv)</ref> in particular circumstances.</p>
<p style="-uslm-sgm:P">i. Initial payments for a variable-rate transaction consummated on <date date="2010-01-01">January 1, 2010</date> are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is <date date="2014-01-01">January 1, 2014</date>. A prepayment penalty is permitted with this mortgage transaction provided that the other <ref href="/us/cfr/t12/s226.32/d/7">§ 226.32(d)(7)</ref> conditions are met, that is: provided that the prepayment penalty is permitted by other applicable law, the penalty expires on or before <date date="2011-12-31">Dec. 31, 2011</date>, the penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or its affiliate, and at consummation the consumer's total monthly debts do not exceed 50 percent of the consumer's monthly gross income, as verified.</p>
<p style="-uslm-sgm:P">ii. Initial payments for a variable-rate transaction consummated on <date date="2010-01-01">January 1, 2010</date> are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is <date date="2013-12-31">December 31, 2013</date>. A prepayment penalty is prohibited with this mortgage transaction because the payment may change within the four-year period following consummation.</p>
<p style="-uslm-sgm:P">iii. Initial payments for a graduated-payment transaction consummated on <date date="2010-01-01">January 1, 2010</date> are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is <date date="2014-01-01">January 1, 2014</date>. A prepayment penalty is permitted with this mortgage transaction provided that the other <ref href="/us/cfr/t12/s226.32/d/7">§ 226.32(d)(7)</ref> conditions are met, that is: provided that the prepayment penalty is permitted by other applicable law, the penalty expires on or before <date date="2011-12-31">December 31, 2011</date>, the penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or its affiliate, and at consummation the consumer's total monthly debts do not exceed 50 percent of the consumer's monthly gross income, as verified.</p>
<p style="-uslm-sgm:P">iv. Initial payments for a step-rate transaction consummated on <date date="2010-01-01">January 1, 2010</date> are $1,000 per month. Under the loan agreement, the first possible date that a payment in a different amount may be due is <date date="2013-12-31">December 31, 2013</date>. A prepayment penalty is prohibited with this mortgage transaction because the payment may change within the four-year period following consummation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment changes excluded.</inline> Payment changes due to the following circumstances are not considered payment changes for purposes of this section:</p>
<p style="-uslm-sgm:P">i. A change in the amount of a periodic payment that is allocated to principal or interest that does not change the total amount of the periodic payment.</p>
<p style="-uslm-sgm:P">ii. The borrower's actual unanticipated late payment, delinquency, or default; and</p>
<p style="-uslm-sgm:P">iii. The borrower's voluntary payment of additional amounts (for example when a consumer chooses to make a payment of interest and principal on a loan that only requires the consumer to pay interest).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">32(d)(8) Due-on-demand clause.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(8)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Failure to meet repayment terms.</inline> A creditor may terminate a loan and accelerate the balance when the consumer fails to meet the repayment terms provided for in the agreement; a creditor may do so, however, only if the consumer actually fails to make payments. For example, a creditor may not terminate and accelerate if the consumer, in error, sends a payment to the wrong location, such as a branch rather than the main office of the creditor. If a consumer files for or is placed in bankruptcy, the creditor may terminate and accelerate under this provision if the consumer fails to meet the repayment terms of the agreement. Section 226.32(d)(8)(ii) does not override any state or other law that requires a creditor to notify a borrower of a right to cure, or otherwise places a duty on the creditor before it can terminate a loan and accelerate the balance. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(d)(8)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Impairment of security.</inline> A creditor may terminate a loan and accelerate the balance if the consumer's action or inaction adversely affects the creditor's security for the loan, or any right of the creditor in that security. Action or inaction by third parties does not, in itself, permit the creditor to terminate and accelerate. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> i. A creditor may terminate and accelerate, for example, if: </p>
<p style="-uslm-sgm:P">A. The consumer transfers title to the property or sells the property without the permission of the creditor. </p>
<p style="-uslm-sgm:P">B. The consumer fails to maintain required insurance on the dwelling. </p>
<p style="-uslm-sgm:P">C. The consumer fails to pay taxes on the property. </p>
<p style="-uslm-sgm:P">D. The consumer permits the filing of a lien senior to that held by the creditor. </p>
<p style="-uslm-sgm:P">E. The sole consumer obligated on the credit dies. </p>
<p style="-uslm-sgm:P">F. The property is taken through eminent domain. </p>
<p style="-uslm-sgm:P">G. A prior lienholder forecloses. </p>
<p style="-uslm-sgm:P">ii. By contrast, the filing of a judgment against the consumer would permit termination and acceleration only if the amount of the judgment and collateral subject to the judgment is such that the creditor's security is adversely affected. If the consumer commits waste or otherwise destructively uses <?page num="709"?>or fails to maintain the property such that the action adversely affects the security, the loan may be terminated and the balance accelerated. Illegal use of the property by the consumer would permit termination and acceleration if it subjects the property to seizure. If one of two consumers obligated on a loan dies, the creditor may terminate the loan and accelerate the balance if the security is adversely affected. If the consumer moves out of the dwelling that secures the loan and that action adversely affects the security, the creditor may terminate a loan and accelerate the balance. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(e)(1) Repayment ability.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determining repayment ability.</inline> The information provided to the creditor in connection with <ref href="/us/cfr/t12/s226.32/d/7">§ 226.32(d)(7)</ref> may be used to show that the creditor considered the consumer's income and obligations before extending the credit. Any expected income can be considered by the creditor, except equity income that the consumer would obtain through the foreclosure of a mortgage covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. For example, a creditor may use information about income other than regular salary or wages such as gifts, expected retirement payments, or income from housecleaning or childcare. The creditor also may use unverified income, as long as the creditor has a reasonable basis for believing that the income exists and will support the loan. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(e)(2) Home-Improvement Contracts.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(e)(2)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Joint payees.</inline> If a creditor pays a contractor with an instrument jointly payable to the contractor and the consumer, the instrument must name as payee each consumer who is primarily obligated on the note. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 32(e)(3) Notice to Assignee.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent sellers or assignors.</inline> Any person, whether or not the original creditor, that sells or assigns a mortgage subject to this section must furnish the notice of potential liability to the purchaser or assignee. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> While the notice of potential liability need not be in any particular format, the notice must be prominent. Placing it on the face of the note, such as with a stamp, is one means of satisfying the prominence requirement. </p>
<heading style="-uslm-sgm:HD2">Section 226.33—Requirements for Reverse Mortgages </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">33(a) Definition.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonrecourse transaction.</inline> A nonrecourse reverse mortgage transaction limits the homeowner's liability to the proceeds of the sale of the home (or any lesser amount specified in the credit obligation). If a transaction structured as a closed-end reverse mortgage transaction allows recourse against the consumer, and the annual percentage rate or the points and fees exceed those specified under <ref href="/us/cfr/t12/s226.32/a/1">§ 226.32(a)(1)</ref>, the transaction is subject to all the requirements of <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, including the limitations concerning balloon payments and negative amortization. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 33(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Default.</inline> Default is not defined by the statute or regulation, but rather by the legal obligation between the parties and state or other law. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definite term or maturity date.</inline> To meet the definition of a reverse mortgage transaction, a creditor cannot require any principal, interest, or shared appreciation or equity to be due and payable (other than in the case of default) until after the consumer's death, transfer of the dwelling, or the consumer ceases to occupy the dwelling as a principal dwelling. Some state laws require legal obligations secured by a mortgage to specify a definite maturity date or term of repayment in the instrument. An obligation may state a definite maturity date or term of repayment and still meet the definition of a reverse-mortgage transaction if the maturity date or term of repayment used would not operate to cause maturity prior to the occurrence of any of the maturity events recognized in the regulation. For example, some reverse mortgage programs specify that the final maturity date is the borrower's 150th birthday; other programs include a shorter term but provide that the term is automatically extended for consecutive periods if none of the other maturity events has yet occurred. These programs would be permissible. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">33(c) Projected total cost of credit.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 33(c)(1) Costs to consumer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs and charges to consumer—relation to finance charge.</inline> All costs and charges to the consumer that are incurred in a reverse mortgage transaction are included in the projected total cost of credit, and thus in the total annual loan cost rates, whether or not the cost or charge is a finance charge under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annuity costs.</inline> As part of the credit transaction, some creditors require or permit a consumer to purchase an annuity that immediately—or at some future time—supplements or replaces the creditor's payments. The amount paid by the consumer for the annuity is a cost to the consumer under this section, regardless of whether the annuity is purchased through the creditor or a third party, or whether the purchase is mandatory or voluntary. For example, this includes the costs of an annuity that a creditor offers, arranges, assists the consumer in purchasing, or that the creditor is aware the consumer is purchasing as a part of the transaction.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disposition costs excluded.</inline> Disposition costs incurred in connection with the sale or transfer of the property subject to the reverse mortgage are not included in the costs to the consumer under this paragraph. (However, see the definition of Val<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline> in appendix K <?page num="710"?>to the regulation to determine the effect certain disposition costs may have on the total annual loan cost rates.) </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 33(c)(2) Payments to consumer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payments upon a specified event.</inline> The projected total cost of credit should not reflect contingent payments in which a credit to the outstanding loan balance or a payment to the consumer's estate is made upon the occurrence of an event (for example, a “death benefit” payable if the consumer's death occurs within a certain period of time). Thus, the table of total annual loan cost rates required under <ref href="/us/cfr/t12/s226.33/b/2">§ 226.33(b)(2)</ref> would not reflect such payments. At its option, however, a creditor may put an asterisk, footnote, or similar type of notation in the table next to the applicable total annual loan cost rate, and state in the body of the note, apart from the table, the assumption upon which the total annual loan cost is made and any different rate that would apply if the contingent benefit were paid. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 33(c)(3) Additional creditor compensation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Shared appreciation or equity.</inline> Any shared appreciation or equity that the creditor is entitled to receive pursuant to the legal obligation must be included in the total cost of a reverse mortgage loan. For example, if a creditor agrees to a reduced interest rate on the transaction in exchange for a portion of the appreciation or equity that may be realized when the dwelling is sold, that portion is included in the projected total cost of credit. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 33(c)(4) Limitations on consumer liability.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> Creditors must include any limitation on the consumer's liability (such as a nonrecourse limit or an equity conservation agreement) in the projected total cost of credit. These limits and agreements protect a portion of the equity in the dwelling for the consumer or the consumer's estate. For example, the following are limitations on the consumer's liability that must be included in the projected total cost of credit: </p>
<p style="-uslm-sgm:P">i. A limit on the consumer's liability to a certain percentage of the projected value of the home. </p>
<p style="-uslm-sgm:P">ii. A limit on the consumer's liability to the net proceeds from the sale of the property subject to the reverse mortgage. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Uniform assumption for “net proceeds” recourse limitations.</inline> If the legal obligation between the parties does not specify a percentage for the “net proceeds” liability of the consumer, for purposes of the disclosures required by <ref href="/us/cfr/t12/s226.33">§ 226.33</ref>, a creditor must assume that the costs associated with selling the property will equal 7 percent of the projected sale price (see the definition of the Val<inline style="-uslm-sgm:E" class="-gpo-grid-5-2">n</inline> symbol under appendix K(b)(6)). </p>
<heading style="-uslm-sgm:HD2">Section 226.34—Prohibited Acts or Practices in Connection with Credit Subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">34(a) Prohibited acts or practices for loans subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(1) Home-improvement contracts.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Joint payees.</inline> If a creditor pays a contractor with an instrument jointly payable to the contractor and the consumer, the instrument must name as payee each consumer who is primarily obligated on the note. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(2) Notice to Assignee.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Subsequent sellers or assignors.</inline> Any person, whether or not the original creditor, that sells or assigns a mortgage subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> must furnish the notice of potential liability to the purchaser or assignee. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Format.</inline> While the notice of potential liability need not be in any particular format, the notice must be prominent. Placing it on the face of the note, such as with a stamp, is one means of satisfying the prominence requirement. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assignee liability.</inline> Pursuant to section 131(d) of the act, the act's general holder-in-due course protections do not apply to purchasers and assignees of loans covered by <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. For such loans, a purchaser's or other assignee's liability for all claims and defenses that the consumer could assert against the creditor is not limited to violations of the act. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(3) Refinancings within one-year period.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In the borrower's interest.</inline> The determination of whether or not a refinancing covered by <ref href="/us/cfr/t12/s226.34/a/3">§ 226.34(a)(3)</ref> is in the borrower's interest is based on the totality of the circumstances, at the time the credit is extended. A written statement by the borrower that “this loan is in my interest” alone does not meet this standard. </p>
<p style="-uslm-sgm:P">i. A refinancing would be in the borrower's interest if needed to meet the borrower's “bona fide personal financial emergency” (see generally <ref href="/us/cfr/t12/s226.23/e">§ 226.23(e)</ref> and <ref href="/us/cfr/t12/s226.31/c/1/iii">§ 226.31(c)(1)(iii)</ref>). </p>
<p style="-uslm-sgm:P">ii. In connection with a refinancing that provides additional funds to the borrower, in determining whether a loan is in the borrower's interest consideration should be given to whether the loan fees and charges are commensurate with the amount of new funds advanced, and whether the real estate-related charges are bona fide and reasonable in amount (see generally <ref href="/us/cfr/t12/s226.4/c/7">§ 226.4(c)(7)</ref>). </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of the one-year refinancing prohibition to creditors and assignees.</inline> The prohibition in <ref href="/us/cfr/t12/s226.34/a/3">§ 226.34(a)(3)</ref> applies where an extension of credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> is refinanced into another loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. The prohibition is illustrated by the following examples. Assume that Creditor A makes a loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> on January <?page num="711"?>15, 2003, secured by a first lien; this loan is assigned to Creditor B on <date date="2003-02-15">February 15, 2003</date>: </p>
<p style="-uslm-sgm:P">i. Creditor A is prohibited from refinancing the January 2003 loan (or any other loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to the same borrower) into a loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, until <date date="2004-01-15">January 15, 2004</date>. Creditor B is restricted until <date date="2004-01-15">January 15, 2004</date>, or such date prior to <date date="2004-01-15">January 15, 2004</date> that Creditor B ceases to hold or service the loan. During the prohibition period, Creditors A and B may make a subordinate lien loan that does not refinance a loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. Assume that on <date date="2003-04-01">April 1, 2003</date>, Creditor A makes but does not assign a second-lien loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. In that case, Creditor A would be prohibited from refinancing either the first-lien or second-lien loans (or any other loans to that borrower subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>) into another loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> until <date date="2004-04-01">April 1, 2004</date>. </p>
<p style="-uslm-sgm:P">ii. The loan made by Creditor A on <date date="2003-01-15">January 15, 2003</date> (and assigned to Creditor B) may be refinanced by Creditor C at any time. If Creditor C refinances this loan on <date date="2003-03-01">March 1, 2003</date> into a new loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, Creditor A is prohibited from refinancing the loan made by Creditor C (or any other loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to the same borrower) into another loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> until <date date="2004-01-15">January 15, 2004</date>. Creditor C is similarly prohibited from refinancing any loan subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to that borrower into another until <date date="2004-03-01">March 1, 2004</date>. (The limitations of <ref href="/us/cfr/t12/s226.34/a/3">§ 226.34(a)(3)</ref> no longer apply to Creditor B after Creditor C refinanced the January 2003 loan and Creditor B ceased to hold or service the loan.) </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">34(a)(4) Repayment ability.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of repayment ability rule.</inline> The <ref href="/us/cfr/t12/s226.34/a/4">§ 226.34(a)(4)</ref> prohibition against making loans without regard to consumers' repayment ability applies to mortgage loans described in <ref href="/us/cfr/t12/s226.32/a">§ 226.32(a)</ref>. In addition, the <ref href="/us/cfr/t12/s226.34/a/4">§ 226.34(a)(4)</ref> prohibition applies to higher-priced mortgage loans described in <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.35/b/1">12 CFR 226.35(b)(1)</ref>. For guidance on the application of the Board's revisions to <ref href="/us/cfr/t12/s226.34/a/4">§ 226.34(a)(4)</ref> published on <date date="2008-07-30">July 30, 2008</date>, see comment 1(d)(5)–1.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General prohibition.</inline> Section 226.34(a)(4) prohibits a creditor from extending credit subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> to a consumer based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation, including the consumer's current and reasonably expected income, employment, assets other than the collateral, current obligations, and property tax and insurance obligations. A creditor may base its determination of repayment ability on current or reasonably expected income from employment or other sources, on assets other than the collateral, or both.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other dwelling-secured obligations.</inline> For purposes of <ref href="/us/cfr/t12/s226.34/a/4">§ 226.34(a)(4)</ref>, current obligations include another credit obligation of which the creditor has knowledge undertaken prior to or at consummation of the transaction and secured by the same dwelling that secures the transaction subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> or <ref href="/us/cfr/t12/s226.35">§ 226.35</ref>. For example, where a transaction subject to <ref href="/us/cfr/t12/s226.35">§ 226.35</ref> is a first-lien transaction for the purchase of a home, a creditor must consider a “piggyback” second-lien transaction of which it has knowledge that is used to finance part of the down payment on the house.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Discounted introductory rates and non-amortizing or negatively-amortizing payments.</inline> A credit agreement may determine a consumer's initial payments using a temporarily discounted interest rate or permit the consumer to make initial payments that are non-amortizing or negatively amortizing. (Negative amortization is permissible for loans covered by <ref href="/us/cfr/t12/s226.35/a">§ 226.35(a)</ref>, but not <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>). In such cases the creditor may determine repayment ability using the assumptions provided in <ref href="/us/cfr/t12/s226.34/a/4/iv">§ 226.34(a)(4)(iv)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Repayment ability as of consummation.</inline> Section 226.34(a)(4) prohibits a creditor from disregarding repayment ability based on the facts and circumstances known to the creditor as of consummation. In general, a creditor does not violate this provision if a consumer defaults because of a significant reduction in income (for example, a job loss) or a significant obligation (for example, an obligation arising from a major medical expense) that occurs after consummation. However, if a creditor has knowledge as of consummation of reductions in income, for example, if a consumer's written application states that the consumer plans to retire within twelve months without obtaining new employment, or states that the consumer will transition from full-time to part-time employment, the creditor must consider that information.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Income, assets, and employment.</inline> Any current or reasonably expected assets or income may be considered by the creditor, except the collateral itself. For example, a creditor may use information about current or expected salary, wages, bonus pay, tips, and commissions. Employment may be full-time, part-time, seasonal, irregular, military, or self-employment. Other sources of income could include interest or dividends; retirement benefits; public assistance; and alimony, child support, or separate maintenance payments. A creditor may also take into account assets such as savings accounts or investments that the consumer can or will be able to use.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interaction with Regulation B.</inline> Section 226.34(a)(4) does not require or permit the creditor to make inquiries or verifications that would be prohibited by Regulation B, <ref href="/us/cfr/t12/p202">12 CFR part 202</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">34(a)(4)(i) Mortgage-related obligations.</inline>
<?page num="712"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage-related obligations.</inline> A creditor must include in its repayment ability analysis the expected property taxes and premiums for mortgage-related insurance required by the creditor as set forth in <ref href="/us/cfr/t12/s226.35/b/3/i">§ 226.35(b)(3)(i)</ref>, as well as similar mortgage-related expenses. Similar mortgage-related expenses include homeowners' association dues and condominium or cooperative fees.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">34(a)(4)(ii) Verification of repayment ability.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Income and assets relied on.</inline> A creditor must verify the income and assets the creditor relies on to evaluate the consumer's repayment ability. For example, if a consumer earns a salary and also states that he or she is paid an annual bonus, but the creditor only relies on the applicant's salary to evaluate repayment ability, the creditor need only verify the salary.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Income and assets—co-applicant.</inline> If two persons jointly apply for credit and both list income or assets on the application, the creditor must verify repayment ability with respect to both applicants unless the creditor relies only on the income or assets of one of the applicants in determining repayment ability.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Expected income.</inline> If a creditor relies on expected income, the expectation must be reasonable and it must be verified with third-party documents that provide reasonably reliable evidence of the consumer's expected income. For example, if the creditor relies on an expectation that a consumer will receive an annual bonus, the creditor may verify the basis for that expectation with documents that show the consumer's past annual bonuses and the expected bonus must bear a reasonable relationship to past bonuses. Similarly, if the creditor relies on a consumer's expected salary following the consumer's receipt of an educational degree, the creditor may verify that expectation with a written statement from an employer indicating that the consumer will be employed upon graduation at a specified salary.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(4)(ii)(A).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Internal Revenue Service (IRS) Form W–2.</inline> A creditor may verify a consumer's income using a consumer's IRS Form W–2 (or any subsequent revisions or similar IRS Forms used for reporting wages and tax withholding). The creditor may also use an electronic retrieval service for obtaining the consumer's W–2 information.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tax returns.</inline> A creditor may verify a consumer's income or assets using the consumer's tax return. A creditor may also use IRS Form 4506 “Request for Copy of Tax Return,” Form 4506–T “Request for Transcript of Tax Return,” or Form 8821 “Tax Information Authorization” (or any subsequent revisions or similar IRS Forms appropriate for obtaining tax return information directly from the IRS) to verify the consumer's income or assets. The creditor may also use an electronic retrieval service for obtaining tax return information.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other third-party documents that provide reasonably reliable evidence of consumer's income or assets.</inline> Creditors may verify income and assets using documents produced by third parties. Creditors may not rely on information provided orally by third parties, but may rely on correspondence from the third party, such as by letter or e-mail. The creditor may rely on any third-party document that provides reasonably reliable evidence of the consumer's income or assets. For example, creditors may verify the consumer's income using receipts from a check-cashing or remittance service, or by obtaining a written statement from the consumer's employer that states the consumer's income.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Information specific to the consumer.</inline> Creditors must verify a consumer's income or assets using information that is specific to the individual consumer. Creditors may use third-party databases that contain individual-specific data about a consumer's income or assets, such as a third-party database service used by the consumer's employer for the purpose of centralizing income verification requests, so long as the information is reasonably current and accurate. Information about average incomes for the consumer's occupation in the consumer's geographic location or information about average incomes paid by the consumer's employer, however, would not be specific to the individual consumer.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Duplicative collection of documentation.</inline> A creditor that has made a loan to a consumer and is refinancing or extending new credit to the same consumer need not collect from the consumer a document the creditor previously obtained if the creditor has no information that would reasonably lead the creditor to believe that document has changed since it was initially collected. For example, if the creditor has obtained the consumer's 2006 tax return to make a home purchase loan in May 2007, the creditor may rely on the 2006 tax return if the creditor makes a home equity loan to the same consumer in August 2007. Similarly, if the creditor has obtained the consumer's bank statement for May 2007 in making the first loan, the creditor may rely on that bank statement for that month in making the subsequent loan in August 2007.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(4)(ii)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No violation if income or assets relied on not materially greater than verifiable amounts.</inline> A creditor that does not verify income or assets used to determine repayment ability with reasonably reliable third-party documents does not violate <ref href="/us/cfr/t12/s226.34/a/4/ii">§ 226.34(a)(4)(ii)</ref> if the creditor demonstrates that the income or assets it relied upon were not materially greater than the amounts that the creditor would have been able to verify pursuant to <?page num="713"?><ref href="/us/cfr/t12/s226.34/a/4/ii">§ 226.34(a)(4)(ii)</ref>. For example, if a creditor determines a consumer's repayment ability by relying on the consumer's annual income of $40,000 but fails to obtain documentation of that amount before extending the credit, the creditor will not have violated this section if the creditor later obtains evidence that would satisfy <ref href="/us/cfr/t12/s226.34/a/4/ii/A">§ 226.34(a)(4)(ii)(A)</ref>, such as tax return information, showing that the creditor could have documented, at the time the loan was consummated, that the consumer had an annual income not materially less than $40,000.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Materially greater than.</inline> Amounts of income or assets relied on are not materially greater than amounts that could have been verified at consummation if relying on the verifiable amounts would not have altered a reasonable creditor's decision to extend credit or the terms of the credit.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(4)(ii)(C).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> A credit report may be used to verify current obligations. A credit report, however, might not reflect an obligation that a consumer has listed on an application. The creditor is responsible for considering such an obligation, but the creditor is not required to independently verify the obligation. Similarly, a creditor is responsible for considering certain obligations undertaken just before or at consummation of the transaction and secured by the same dwelling that secures the transaction (for example, a “piggy back” loan), of which the creditor knows, even if not reflected on a credit report. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 34(a)(4)–3.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">34(a)(4)(iii) Presumption of compliance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> A creditor is presumed to have complied with <ref href="/us/cfr/t12/s226.34/a/4">§ 226.34(a)(4)</ref> if the creditor follows the three underwriting procedures specified in paragraph 34(a)(4)(iii) for verifying repayment ability, determining the payment obligation, and measuring the relationship of obligations to income. The procedures for verifying repayment ability are required under paragraph 34(a)(4)(ii); the other procedures are not required but, if followed along with the required procedures, create a presumption that the creditor has complied with <ref href="/us/cfr/t12/s226.34/a/4">§ 226.34(a)(4)</ref>. The consumer may rebut the presumption with evidence that the creditor nonetheless disregarded repayment ability despite following these procedures. For example, evidence of a very high debt-to-income ratio and a very limited residual income could be sufficient to rebut the presumption, depending on all of the facts and circumstances. If a creditor fails to follow one of the non-required procedures set forth in paragraph 34(a)(4)(iii), then the creditor's compliance is determined based on all of the facts and circumstances without there being a presumption of either compliance or violation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(4)(iii)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determination of payment schedule.</inline> To retain a presumption of compliance under <ref href="/us/cfr/t12/s226.34/a/4/iii">§ 226.34(a)(4)(iii)</ref>, a creditor must determine the consumer's ability to pay the principal and interest obligation based on the maximum scheduled payment in the first seven years following consummation. In general, a creditor should determine a payment schedule for purposes of <ref href="/us/cfr/t12/s226.34/a/4/iii/B">§ 226.34(a)(4)(iii)(B)</ref> based on the guidance in the staff commentary to <ref href="/us/cfr/t12/s226.17/c/1">§ 226.17(c)(1)</ref>. Examples of how to determine the maximum scheduled payment in the first seven years are provided as follows (all payment amounts are rounded):</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balloon-payment loan; fixed interest rate.</inline> A loan in an amount of $100,000 with a fixed interest rate of 8.0 percent (no points) has a 7-year term but is amortized over 30 years. The monthly payment scheduled for 7 years is $733 with a balloon payment of remaining principal due at the end of 7 years. The creditor will retain the presumption of compliance if it assesses repayment ability based on the payment of $733.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fixed-rate loan with interest-only payment for five years.</inline> A loan in an amount of $100,000 with a fixed interest rate of 8.0 percent (no points) has a 30-year term. The monthly payment of $667 scheduled for the first 5 years would cover only the interest due. After the fifth year, the scheduled payment would increase to $772, an amount that fully amortizes the principal balance over the remaining 25 years. The creditor will retain the presumption of compliance if it assesses repayment ability based on the payment of $772.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fixed-rate loan with interest-only payment for seven years.</inline> A loan in an amount of $100,000 with a fixed interest rate of 8.0 percent (no points) has a 30-year term. The monthly payment of $667 scheduled for the first 7 years would cover only the interest due. After the seventh year, the scheduled payment would increase to $793, an amount that fully amortizes the principal balance over the remaining 23 years. The creditor will retain the presumption of compliance if it assesses repayment ability based on the interest-only payment of $667.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate loan with discount for five years.</inline> A loan in an amount of $100,000 has a 30-year term. The loan agreement provides for a fixed interest rate of 7.0 percent for an initial period of 5 years. Accordingly, the payment scheduled for the first 5 years is $665. The agreement provides that, after 5 years, the interest rate will adjust each year based on a specified index and margin. As of consummation, the sum of the index value and margin (the fully-indexed rate) is 8.0 percent. Accordingly, the payment scheduled for the remaining 25 years is $727. The creditor will retain the presumption of compliance if it assesses repayment ability based on the payment of $727.</p>
<p style="-uslm-sgm:P">v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate loan with discount for seven years.</inline> A loan in an amount of $100,000 has a 30-year term. The loan agreement provides for a fixed interest rate of 7.125 percent for <?page num="714"?>an initial period of 7 years. Accordingly, the payment scheduled for the first 7 years is $674. After 7 years, the agreement provides that the interest rate will adjust each year based on a specified index and margin. As of consummation, the sum of the index value and margin (the fully-indexed rate) is 8.0 percent. Accordingly, the payment scheduled for the remaining years is $725. The creditor will retain the presumption of compliance if it assesses repayment ability based on the payment of $674.</p>
<p style="-uslm-sgm:P">vi. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Step-rate loan.</inline> A loan in an amount of $100,000 has a 30-year term. The agreement provides that the interest rate will be 5 percent for two years, 6 percent for three years, and 7 percent thereafter. Accordingly, the payment amounts are $537 for two years, $597 for three years, and $654 thereafter. To retain the presumption of compliance, the creditor must assess repayment ability based on the payment of $654.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(a)(4)(iii)(C).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">“Income” and “debt”.</inline> To determine whether to classify particular inflows or obligations as “income” or “debt,” creditors may look to widely accepted governmental and non-governmental underwriting standards, including, for example, those set forth in the Federal Housing Administration's handbook on Mortgage Credit Analysis for Mortgage Insurance on One- to Four-Unit Mortgage Loans.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">34(a)(4)(iv) Exclusions from the presumption of compliance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> The exclusions from the presumption of compliance should be interpreted consistent with staff comments 32(d)(1)(i)–1 and 32(d)(2)–1.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Renewable balloon loan.</inline> If a creditor is unconditionally obligated to renew a balloon-payment loan at the consumer's option (or is obligated to renew subject to conditions within the consumer's control), the full term resulting from such renewal is the relevant term for purposes of the exclusion of certain balloon-payment loans. See comment 17(c)(1)–11 for a discussion of conditions within a consumer's control in connection with renewable balloon-payment loans.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 34(b) Prohibited acts or practices for dwelling-secured loans; open-end credit.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of credit extended.</inline> Where a loan is documented as open-end credit but the features and terms or other circumstances demonstrate that it does not meet the definition of open-end credit, the loan is subject to the rules for closed-end credit, including <ref href="/us/cfr/t12/s226.32">§ 226.32</ref> if the rate or fee trigger is met. In applying the triggers under <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>, the “amount financed,” including the “principal loan amount” must be determined. In making the determination, the amount of credit that would have been extended if the loan had been documented as a closed-end loan is a factual determination to be made in each case. Factors to be considered include the amount of money the consumer originally requested, the amount of the first advance or the highest outstanding balance, or the amount of the credit line. The full amount of the credit line is considered only to the extent that it is reasonable to expect that the consumer might use the full amount of credit. </p>
<heading style="-uslm-sgm:HD2">Section 226.35—Prohibited Acts or Practices in Connection With Higher-priced Mortgage Loans</heading>
<p style="-uslm-sgm:P">35(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Higher-priced mortgage loans.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 35(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Average prime offer rate.</inline> Average prime offer rates are annual percentage rates derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. Other pricing terms include commonly used indices, margins, and initial fixed-rate periods for variable-rate transactions. Relevant pricing characteristics include a consumer's credit history and transaction characteristics such as the loan-to-value ratio, owner-occupant status, and purpose of the transaction. To obtain average prime offer rates, the Board uses a survey of creditors that both meets the criteria of <ref href="/us/cfr/t12/s226.35/a/2">§ 226.35(a)(2)</ref> and provides pricing terms for at least two types of variable-rate transactions and at least two types of non-variable-rate transactions. An example of such a survey is the Freddie Mac Primary Mortgage Market Survey <sup style="-uslm-sgm:supreg;">®</sup>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Comparable transaction.</inline> A higher-priced mortgage loan is a consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by the specified margin. The table of average prime offer rates published by the Board indicates how to identify the comparable transaction.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate set.</inline> A transaction's annual percentage rate is compared to the average prime offer rate as of the date the transaction's interest rate is set (or “locked”) before consummation. Sometimes a creditor sets the interest rate initially and then re-sets it at a different level before consummation. The creditor should use the last date the interest rate is set before consummation.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Board table.</inline> The Board publishes on the Internet, in table form, average prime offer rates for a wide variety of transaction types. The Board calculates an annual percentage rate, consistent with Regulation Z (see <ref href="/us/cfr/t12/s226.22">§ 226.22</ref> and appendix J), for each transaction type for which pricing terms are available from a survey. The Board estimates annual percentage rates for other types of transactions for which direct survey data are not available based on the loan pricing terms available in the survey and other information. The Board publishes on the Internet <?page num="715"?>the methodology it uses to arrive at these estimates.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">35(b) Rules for higher-priced mortgage loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective date.</inline> For guidance on the applicability of the rules in <ref href="/us/cfr/t12/s226.35/b">§ 226.35(b)</ref>, see comment 1(d)(5)–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 35(b)(2)(ii)(C).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment change.</inline> Section 226.35(b)(2) provides that a loan subject to this section may not have a penalty described by <ref href="/us/cfr/t12/s226.32/d/6">§ 226.32(d)(6)</ref> unless certain conditions are met. Section 226.35(b)(2)(ii)(C) lists as a condition that the amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation. For examples showing whether a prepayment penalty is permitted or prohibited in connection with particular payment changes, see comment 32(d)(7)(iv)–1. Those examples, however, include a condition that <ref href="/us/cfr/t12/s226.35/b/2">§ 226.35(b)(2)</ref> does not include: the condition that, at consummation, the consumer's total monthly debt payments may not exceed 50 percent of the consumer's monthly gross income. For guidance about circumstances in which payment changes are not considered payment changes for purposes of this section, see comment 32(d)(7)(iv)–2.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Negative amortization.</inline> Section 226.32(d)(2) provides that a loan described in <ref href="/us/cfr/t12/s226.32/a">§ 226.32(a)</ref> may not have a payment schedule with regular periodic payments that cause the principal balance to increase. Therefore, the commentary to <ref href="/us/cfr/t12/s226.32/d/7/iv">§ 226.32(d)(7)(iv)</ref> does not include examples of payment changes in connection with negative amortization. The following examples show whether, under <ref href="/us/cfr/t12/s226.35/b/2">§ 226.35(b)(2)</ref>, prepayment penalties are permitted or prohibited in connection with particular payment changes, when a loan agreement permits negative amortization:</p>
<p style="-uslm-sgm:P">i. Initial payments for a variable-rate transaction consummated on <date date="2010-01-01">January 1, 2010</date> are $1,000 per month and the loan agreement permits negative amortization to occur. Under the loan agreement, the first date that a scheduled payment in a different amount may be due is <date date="2014-01-01">January 1, 2014</date> and the creditor does not have the right to change scheduled payments prior to that date even if negative amortization occurs. A prepayment penalty is permitted with this mortgage transaction provided that the other <ref href="/us/cfr/t12/s226.35/b/2">§ 226.35(b)(2)</ref> conditions are met, that is: provided that the prepayment penalty is permitted by other applicable law, the penalty expires on or before <date date="2011-12-31">December 31, 2011</date>, and the penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or its affiliate.</p>
<p style="-uslm-sgm:P">ii. Initial payments for a variable-rate transaction consummated on <date date="2010-01-01">January 1, 2010</date> are $1,000 per month and the loan agreement permits negative amortization to occur. Under the loan agreement, the first date that a scheduled payment in a different amount may be due is <date date="2014-01-01">January 1, 2014</date>, but the creditor has the right to change scheduled payments prior to that date if negative amortization occurs. A prepayment penalty is prohibited with this mortgage transaction because the payment may change within the four-year period following consummation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">35(b)(3) Escrows.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 35(b)(3)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. Section 226.35(b)(3) applies to principal dwellings, including structures that are classified as personal property under state law. For example, an escrow account must be established on a higher-priced mortgage loan secured by a first-lien on a mobile home, boat or a trailer used as the consumer's principal dwelling. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary under <ref href="/us/cfr/t12/s226.2/a/19">§§ 226.2(a)(19)</ref>, 226.2(a)(24), 226.15 and 226.23. Section 226.35(b)(3) also applies to higher-priced mortgage loans secured by a first lien on a condominium or a cooperative unit if it is in fact used as principal residence.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Administration of escrow accounts.</inline> Section 226.35(b)(3) requires creditors to establish before the consummation of a loan secured by a first lien on a principal dwelling an escrow account for payment of property taxes and premiums for mortgage-related insurance required by creditor. Section 6 of RESPA, <ref href="/us/usc/t12/s2605">12 U.S.C. 2605</ref>, and Regulation X address how escrow accounts must be administered.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Optional insurance items.</inline> Section 226.35(b)(3) does not require that escrow accounts be established for premiums for mortgage-related insurance that the creditor does not require in connection with the credit transaction, such as an earthquake insurance or debt-protection insurance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 35(b)(3)(ii)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limited exception.</inline> A creditor is required to escrow for payment of property taxes for all first lien loans secured by condominium units regardless of whether the creditors escrows insurance premiums for condominium unit.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">35(b)(3)(v) “Jumbo” loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Special threshold for “jumbo” loans.</inline> For purposes of the escrow requirement in <ref href="/us/cfr/t12/s226.35/b/3">§ 226.35(b)(3)</ref> only, the coverage threshold stated in <ref href="/us/cfr/t12/s226.35/a/1">§ 226.35(a)(1)</ref> for first-lien loans (1.5 or more percentage points greater than the average prime offer rate) does not apply to a loan with a principal obligation that exceeds the limit in effect as of the date the loan's rate is set for the maximum principal obligation eligible for purchase by Freddie Mac (“jumbo” loans). The Federal Housing Finance Agency (FHFA) establishes and adjusts the maximum principal obligation pursuant to <ref href="/us/usc/t12/s1454/a/2">12 U.S.C. 1454(a)(2)</ref> and other provisions of federal law. Adjustments to the maximum principal obligation made by FHFA apply in determining whether a mortgage loan is a “jumbo” loan to which the separate coverage threshold in <ref href="/us/cfr/t12/s226.35/b/3/v">§ 226.35(b)(3)(v)</ref> applies.
<?page num="716"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Escrow requirements only.</inline> Under <ref href="/us/cfr/t12/s226.35/b/3/v">§ 226.35(b)(3)(v)</ref>, for “jumbo” loans, the annual percentage rate threshold is 2.5 or more percentage points greater than the average prime offer rate. This threshold applies solely in determining whether a “jumbo” loan is subject to the escrow requirement of <ref href="/us/cfr/t12/s226.35/b/3">§ 226.35(b)(3)</ref>. The determination of whether “jumbo” first-lien loans are subject to the other protections in <ref href="/us/cfr/t12/s226.35">§ 226.35</ref>, such as the ability to repay requirements under <ref href="/us/cfr/t12/s226.35/b/1">§ 226.35(b)(1)</ref> and the restrictions on prepayment penalties under <ref href="/us/cfr/t12/s226.35/b/2">§ 226.35(b)(2)</ref>, is based on the 1.5 percentage point threshold stated in <ref href="/us/cfr/t12/s226.35/a/1">§ 226.35(a)(1)</ref>.</p>
<heading style="-uslm-sgm:HD2">Section 226.36—Prohibited Acts or Practices in Connection with Credit Secured by a Dwelling</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope of coverage.</inline> Sections 226.36(b) and (c) apply to closed-end consumer credit transactions secured by a consumer's principal dwelling. Sections 226.36(d) and (e) apply to closed-end consumer credit transactions secured by a dwelling. Sections 226.36(d) and (e) apply to closed-end loans secured by first or subordinate liens, and reverse mortgages that are not home-equity lines of credit under <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.36/f">§ 226.36(f)</ref> for additional restrictions on the scope of this section, and <ref href="/us/cfr/t12/s226.1/c">§§ 226.1(c)</ref> and 226.3(a) and corresponding commentary for further discussion of extensions of credit subject to Regulation Z.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mandatory compliance date for <ref href="/us/cfr/t12/s226.36/d">§§ 226.36(d)</ref> and (e).</inline> The final rules on loan originator compensation in <ref href="/us/cfr/t12/s226.36">§ 226.36</ref> apply to transactions for which the creditor receives an application on or after the effective date. For example, assume a mortgage broker takes an application on <date date="2011-03-10">March 10, 2011</date>, which the creditor receives on <date date="2011-03-25">March 25, 2011</date>. This transaction is not covered. If, however, the creditor does not receive the application until <date date="2011-04-08">April 8, 2011</date>, the transaction is covered.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effective date.</inline> For guidance on the applicability of the rules in <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>, see comment 1(d)(5)–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(a) Loan originator and mortgage broker defined.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Meaning of loan originator.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.36(a) provides that a loan originator is any person who for compensation or other monetary gain arranges, negotiates, or otherwise obtains an extension of consumer credit for another person. Thus, the term “loan originator” includes employees of a creditor as well as employees of a mortgage broker that satisfy this definition. In addition, the definition of loan originator expressly includes any creditor that satisfies the definition of loan originator but makes use of “table funding” by a third party. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 36(a)–1.ii below discussing table funding. Although consumers may sometimes arrange, negotiate, or otherwise obtain extensions of consumer credit on their own behalf, in such cases they do not do so for another person or for compensation or other monetary gain, and therefore are not loan originators under this section. (Under <ref href="/us/cfr/t12/s226.2/a/22">§ 226.2(a)(22)</ref>, the term “person” means a natural person or an organization.)</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Table funding.</inline> Table funding occurs when the creditor does not provide the funds for the transaction at consummation out of the creditor's own resources, including drawing on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> warehouse line of credit, or out of deposits held by the creditor. Accordingly, a table-funded transaction is consummated with the debt obligation initially payable by its terms to one person, but another person provides the funds for the transaction at consummation and receives an immediate assignment of the note, loan contract, or other evidence of the debt obligation. Although <ref href="/us/cfr/t12/s226.2/a/17/i/B">§ 226.2(a)(17)(i)(B)</ref> provides that a person to whom a debt obligation is initially payable on its face generally is a creditor, <ref href="/us/cfr/t12/s226.36/a/1">§ 226.36(a)(1)</ref> provides that, solely for the purposes of <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>, such a person is also considered a loan originator. The creditor is not considered a loan originator unless table funding occurs. For example, if a person closes a loan in its own name but does not fund the loan from its own resources or deposits held by it because it assigns the loan at consummation, it is considered a creditor for purposes of Regulation Z and also a loan originator for purposes of <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>. However, if a person closes a loan in its own name and draws on a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> warehouse line of credit to make the loan at consummation, it is considered a creditor, not a loan originator, for purposes of Regulation Z, including <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Servicing.</inline> The definition of “loan originator” does not apply to a loan servicer when the servicer modifies an existing loan on behalf of the current owner of the loan. The rule only applies to extensions of consumer credit and does not apply if a modification of an existing obligation's terms does not constitute a refinancing under <ref href="/us/cfr/t12/s226.20/a">§ 226.20(a)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Meaning of mortgage broker.</inline> For purposes of <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>, with respect to a particular transaction, the term “mortgage broker” refers to a loan originator who is not an employee of the creditor. Accordingly, the term “mortgage broker” includes companies that engage in the activities described in <ref href="/us/cfr/t12/s226.36/a">§ 226.36(a)</ref> and also includes employees of such companies that engage in these activities. Section 226.36(d) prohibits certain payments to a loan originator. These prohibitions apply to payments made to all loan originators, including payments made to mortgage brokers, and payments made by a company acting as a mortgage broker to its employees who are loan originators.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Meaning of creditor.</inline> For purposes of <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref> and (e), a creditor means a creditor that is not deemed to be a loan originator on the transaction under this section. Thus, a <?page num="717"?>person that closes a loan in its own name (but another person provides the funds for the transaction at consummation and receives an immediate assignment of the note, loan contract, or other evidence of the debt obligation) is deemed a loan originator, not a creditor, for purposes of <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>. However, that person is still a creditor for all other purposes of Regulation Z.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Managers and administrative staff.</inline> For purposes of <ref href="/us/cfr/t12/s226.36">§ 226.36</ref>, managers, administrative staff, and similar individuals who are employed by a creditor or loan originator but do not arrange, negotiate, or otherwise obtain an extension of credit for a consumer, and whose compensation is not based on whether any particular loan is originated, are not loan originators.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(c) Servicing practices.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 36(c)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Crediting of payments.</inline> Under <ref href="/us/cfr/t12/s226.36/c/1/i">§ 226.36(c)(1)(i)</ref>, a mortgage servicer must credit a payment to a consumer's loan account as of the date of receipt. This does not require that a mortgage servicer post the payment to the consumer's loan account on a particular date; the servicer is only required to credit the payment <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">as of</inline> the date of receipt. Accordingly, a servicer that receives a payment on or before its due date (or within any grace period), and does not enter the payment on its books or in its system until after the payment's due date (or expiration of any grace period), does not violate this rule as long as the entry does not result in the imposition of a late charge, additional interest, or similar penalty to the consumer, or in the reporting of negative information to a consumer reporting agency.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payments to be credited.</inline> Payments should be credited based on the legal obligation between the creditor and consumer. The legal obligation is determined by applicable state or other law.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date of receipt.</inline> The “date of receipt” is the date that the payment instrument or other means of payment reaches the mortgage servicer. For example, payment by check is received when the mortgage servicer receives it, not when the funds are collected. If the consumer elects to have payment made by a third-party payor such as a financial institution, through a preauthorized payment or telephone bill-payment arrangement, payment is received when the mortgage servicer receives the third-party payor's check or other transfer medium, such as an electronic fund transfer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 36(c)(1)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pyramiding of late fees.</inline> The prohibition on pyramiding of late fees in this subsection should be construed consistently with the “credit practices rule” of Regulation AA, <ref href="/us/cfr/t12/s227.15">12 CFR 227.15</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 36(c)(1)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable time.</inline> The payoff statement must be provided to the consumer, or person acting on behalf of the consumer, within a reasonable time after the request. For example, it would be reasonable under most circumstances to provide the statement within five business days of receipt of a consumer's request. This time frame might be longer, for example, when the servicer is experiencing an unusually high volume of refinancing requests.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person acting on behalf of the consumer.</inline> For purposes of <ref href="/us/cfr/t12/s226.36/c/1/iii">§ 226.36(c)(1)(iii)</ref>, a person acting on behalf of the consumer may include the consumer's representative, such as an attorney representing the individual, a non-profit consumer counseling or similar organization, or a creditor with which the consumer is refinancing and which requires the payoff statement to complete the refinancing. A servicer may take reasonable measures to verify the identity of any person acting on behalf of the consumer and to obtain the consumer's authorization to release information to any such person before the “reasonable time” period begins to run.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment requirements.</inline> The servicer may specify reasonable requirements for making payoff requests, such as requiring requests to be in writing and directed to a mailing address, e-mail address or fax number specified by the servicer or orally to a telephone number specified by the servicer, or any other reasonable requirement or method. If the consumer does not follow these requirements, a longer time frame for responding to the request would be reasonable.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accuracy of payoff statements.</inline> Payoff statements must be accurate when issued.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 36(c)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment requirements.</inline> The servicer may specify reasonable requirements for making payments in writing, such as requiring that payments be accompanied by the account number or payment coupon; setting a cut-off hour for payment to be received, or setting different hours for payment by mail and payments made in person; specifying that only checks or money orders should be sent by mail; specifying that payment is to be made in U.S. dollars; or specifying one particular address for receiving payments, such as a post office box. The servicer may be prohibited, however, from requiring payment solely by preauthorized electronic fund transfer. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> section 913 of the Electronic Fund Transfer Act, <ref href="/us/usc/t15/s1693k">15 U.S.C. 1693k</ref>.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment requirements—limitations.</inline> Requirements for making payments must be reasonable; it should not be difficult for most consumers to make conforming payments. For example, it would be reasonable to require a cut-off time of 5 p.m. for receipt of a mailed check at the location specified by the servicer for receipt of such check.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Implied guidelines for payments.</inline> In the absence of specified requirements for making payments, payments may be made at any location where the servicer conducts business; <?page num="718"?>any time during the servicer's normal business hours; and by cash, money order, draft, or other similar instrument in properly negotiable form, or by electronic fund transfer if the servicer and consumer have so agreed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(d) Prohibited payments to loan originators.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Persons covered.</inline> Section 226.36(d) prohibits any person (including the creditor) from paying compensation to a loan originator in connection with a covered credit transaction, if the amount of the payment is based on any of the transaction's terms or conditions. For example, a person that purchases a loan from the creditor may not compensate the loan originator in a manner that violates <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage brokers.</inline> The payments made by a company acting as a mortgage broker to its employees who are loan originators are subject to the section's prohibitions. For example, a mortgage broker may not pay its employee more for a transaction with a 7 percent interest rate than for a transaction with a 6 percent interest rate.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(d)(1) Payments based on transaction terms and conditions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Compensation.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> For purposes of <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref> and (e), the term “compensation” includes salaries, commissions, and any financial or similar incentive provided to a loan originator that is based on any of the terms or conditions of the loan originator's transactions. See comment 36(d)(1)–3 for examples of types of compensation that are not covered by <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref> and (e). For example, the term “compensation” includes</p>
<p style="-uslm-sgm:P">A. An annual or other periodic bonus; or</p>
<p style="-uslm-sgm:P">B. Awards of merchandise, services, trips, or similar prizes.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Name of fee.</inline> Compensation includes amounts the loan originator retains and is not dependent on the label or name of any fee imposed in connection with the transaction. For example, if a loan originator imposes a “processing fee” in connection with the transaction and retains such fee, it is deemed compensation for purposes of <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref> and (e), whether the originator expends the time to process the consumer's application or uses the fee for other expenses, such as overhead.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts for third-party charges.</inline> Compensation includes amounts the loan originator retains, but does not include amounts the originator receives as payment for <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> and reasonable third-party charges, such as title insurance or appraisals. In some cases, amounts received for payment for third-party charges may exceed the actual charge because, for example, the originator cannot determine with accuracy what the actual charge will be before consummation. In such a case, the difference retained by the originator is not deemed compensation if the third-party charge imposed on the consumer was <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> and reasonable, and also complies with state and other applicable law. On the other hand, if the originator marks up a third-party charge (a practice known as “upcharging”), and the originator retains the difference between the actual charge and the marked-up charge, the amount retained is compensation for purposes of <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref> and (e). For example</p>
<p style="-uslm-sgm:P">A. Assume a loan originator charges the consumer a $400 application fee that includes $50 for a credit report and $350 for an appraisal. Assume that $50 is the amount the creditor pays for the credit report. At the time the loan originator imposes the application fee on the consumer, the loan originator is uncertain of the cost of the appraisal because the originator may choose from appraisers that charge between $300 to $350 for appraisals. Later, the cost for the appraisal is determined to be $300 for this consumer's transaction. In this case, the $50 difference between the $400 application fee imposed on the consumer and the actual $350 cost for the credit report and appraisal is not deemed compensation for purposes of <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref> and (e), even though the $50 is retained by the loan originator.</p>
<p style="-uslm-sgm:P">B. Using the same example in comment 36(d)(1)–1.iii.A above, the $50 difference would be compensation for purposes of <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref> and (e) if the appraisers from whom the originator chooses charge fees between $250 and $300.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of compensation that is based on transaction terms or conditions.</inline> Section 226.36(d)(1) prohibits loan originator compensation that is based on the terms or conditions of the loan originator's transactions. For example, the rule prohibits compensation to a loan originator for a transaction based on that transaction's interest rate, annual percentage rate, loan-to-value ratio, or the existence of a prepayment penalty. The rule also prohibits compensation based on a factor that is a proxy for a transaction's terms or conditions. For example, a consumer's credit score or similar representation of credit risk, such as the consumer's debt-to-income ratio, is not one of the transaction's terms or conditions. However, if a loan originator's compensation varies in whole or in part with a factor that serves as a proxy for loan terms or conditions, then the originator's compensation is based on a transaction's terms or conditions. To illustrate, assume that consumer A and consumer B receive loans from the same loan originator and the same creditor. Consumer A has a credit score of 650, and consumer B has a credit score of 800. Consumer A's loan has a 7 percent interest rate, and consumer B's loan has a 6<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent interest rate because of the consumers' different credit scores. If the creditor pays the loan originator $1,500 in compensation for consumer A's loan and $1,000 in compensation for consumer B's loan because the creditor varies compensation payments in whole or in part <?page num="719"?>with a consumer's credit score, the originator's compensation would be based on the transactions' terms or conditions.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of compensation not based on transaction terms or conditions.</inline> The following are only illustrative examples of compensation methods that are permissible (unless otherwise prohibited by applicable law), and not an exhaustive list. Compensation is not based on the transaction's terms or conditions if it is based on, for example</p>
<p style="-uslm-sgm:P">i. The loan originator's overall loan volume (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> total dollar amount of credit extended or total number of loans originated), delivered to the creditor.</p>
<p style="-uslm-sgm:P">ii. The long-term performance of the originator's loans.</p>
<p style="-uslm-sgm:P">iii. An hourly rate of pay to compensate the originator for the actual number of hours worked.</p>
<p style="-uslm-sgm:P">iv. Whether the consumer is an existing customer of the creditor or a new customer.</p>
<p style="-uslm-sgm:P">v. A payment that is fixed in advance for every loan the originator arranges for the creditor (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> $600 for every loan arranged for the creditor, or $1,000 for the first 1,000 loans arranged and $500 for each additional loan arranged).</p>
<p style="-uslm-sgm:P">vi. The percentage of applications submitted by the loan originator to the creditor that result in consummated transactions.</p>
<p style="-uslm-sgm:P">vii. The quality of the loan originator's loan files (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> accuracy and completeness of the loan documentation) submitted to the creditor.</p>
<p style="-uslm-sgm:P">viii. A legitimate business expense, such as fixed overhead costs.</p>
<p style="-uslm-sgm:P">ix. Compensation that is based on the amount of credit extended, as permitted by <ref href="/us/cfr/t12/s226.36/d/1/ii">§ 226.36(d)(1)(ii)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 36(d)(1)–9 discussing compensation based on the amount of credit extended.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditor's flexibility in setting loan terms.</inline> Section 226.36(d)(1) does not limit a creditor's ability to offer a higher interest rate in a transaction as a means for the consumer to finance the payment of the loan originator's compensation or other costs that the consumer would otherwise be required to pay directly (either in cash or out of the loan proceeds). Thus, a creditor may charge a higher interest rate to a consumer who will pay fewer of the costs of the transaction directly, or it may offer the consumer a lower rate if the consumer pays more of the costs directly. For example, if the consumer pays half of the transaction costs directly, a creditor may charge an interest rate of 6 percent but, if the consumer pays none of the transaction costs directly, the creditor may charge an interest rate of 6.5 percent. Section 226.36(d)(1) also does not limit a creditor from offering or providing different loan terms to the consumer based on the creditor's assessment of the credit and other transactional risks involved. A creditor could also offer different consumers varying interest rates that include a constant interest rate premium to recoup the loan originator's compensation through increased interest paid by the consumer (such as by adding a constant 0.25 percent to the interest rate on each loan).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of modification of loan terms.</inline> Under <ref href="/us/cfr/t12/s226.36/d/1">§ 226.36(d)(1)</ref>, a loan originator's compensation may not vary based on any of a credit transaction's terms or conditions. Thus, a creditor and originator may not agree to set the originator's compensation at a certain level and then subsequently lower it in selective cases (such as where the consumer is able to obtain a lower rate from another creditor). When the creditor offers to extend a loan with specified terms and conditions (such as the rate and points), the amount of the originator's compensation for that transaction is not subject to change (increase or decrease) based on whether different loan terms are negotiated. For example, if the creditor agrees to lower the rate that was initially offered, the new offer may not be accompanied by a reduction in the loan originator's compensation.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic changes in loan originator compensation and transactions' terms and conditions.</inline> This section does not limit a creditor or other person from periodically revising the compensation it agrees to pay a loan originator. However, the revised compensation arrangement must result in payments to the loan originator that do not vary based on the terms or conditions of a credit transaction. A creditor or other person might periodically review factors such as loan performance, transaction volume, as well as current market conditions for originator compensation, and prospectively revise the compensation it agrees to pay to a loan originator. For example, assume that during the first 6 months of the year, a creditor pays $3,000 to a particular loan originator for each loan delivered, regardless of the loan terms or conditions. After considering the volume of business produced by that originator, the creditor could decide that as of July 1, it will pay $3,250 for each loan delivered by that particular originator, regardless of the loan terms or conditions. No violation occurs even if the loans made by the creditor after July 1 generally carry a higher interest rate than loans made before that date, to reflect the higher compensation.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Compensation received directly from the consumer.</inline> The prohibition in <ref href="/us/cfr/t12/s226.36/d/1">§ 226.36(d)(1)</ref> does not apply to transactions in which any loan originator receives compensation directly from the consumer, in which case no other person may provide any compensation to a loan originator, directly or indirectly, in connection with that particular transaction pursuant to <ref href="/us/cfr/t12/s226.36/d/2">§ 226.36(d)(2)</ref>. Payments to a loan originator made out of loan proceeds are considered compensation received directly from the consumer, while payments <?page num="720"?>derived from an increased interest rate are not considered compensation received directly from the consumer. However, points paid on the loan by the consumer to the creditor are not considered payments received directly from the consumer whether they are paid in cash or out of the loan proceeds. That is, if the consumer pays origination points to the creditor and the creditor compensates the loan originator, the loan originator may not also receive compensation directly from the consumer. Compensation includes amounts retained by the loan originator, but does not include amounts the loan originator receives as payment for <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bona fide</inline> and reasonable third-party charges, such as title insurance or appraisals. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 36(d)(1)–1.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Record retention.</inline> See comment 25(a)–5 for guidance on complying with the record retention requirements of <ref href="/us/cfr/t12/s226.25/a">§ 226.25(a)</ref> as they apply to <ref href="/us/cfr/t12/s226.36/d/1">§ 226.36(d)(1)</ref>.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of credit extended.</inline> A loan originator's compensation may be based on the amount of credit extended, subject to certain conditions. Section 226.36(d)(1) does not prohibit an arrangement under which a loan originator is paid compensation based on a percentage of the amount of credit extended, provided the percentage is fixed and does not vary with the amount of credit extended. However, compensation that is based on a fixed percentage of the amount of credit extended may be subject to a minimum and/or maximum dollar amount, as long as the minimum and maximum dollar amounts do not vary with each credit transaction. For example</p>
<p style="-uslm-sgm:P">i. A creditor may offer a loan originator 1 percent of the amount of credit extended for all loans the originator arranges for the creditor, but not less than $1,000 or greater than $5,000 for each loan.</p>
<p style="-uslm-sgm:P">ii. A creditor may <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">not</inline> offer a loan originator 1 percent of the amount of credit extended for loans of $300,000 or more, 2 percent of the amount of credit extended for loans between $200,000 and $300,000, and 3 percent of the amount of credit extended for loans of $200,000 or less.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(d)(2) Payments by persons other than consumer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Compensation in connection with a particular transaction.</inline> Under <ref href="/us/cfr/t12/s226.36/d/2">§ 226.36(d)(2)</ref>, if any loan originator receives compensation directly from a consumer in a transaction, no other person may provide any compensation to a loan originator, directly or indirectly, in connection with that particular credit transaction. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 36(d)(1)–7 discussing compensation received directly from the consumer. The restrictions imposed under <ref href="/us/cfr/t12/s226.36/d/2">§ 226.36(d)(2)</ref> relate only to payments, such as commissions, that are specific to, and paid solely in connection with, the transaction in which the consumer has paid compensation directly to a loan originator. Thus, payments by a mortgage broker company to an employee in the form of a salary or hourly wage, which is not tied to a specific transaction, do not violate <ref href="/us/cfr/t12/s226.36/d/2">§ 226.36(d)(2)</ref> even if the consumer directly pays a loan originator a fee in connection with a specific credit transaction. However, if any loan originator receives compensation directly from the consumer in connection with a specific credit transaction, neither the mortgage broker company nor an employee of the mortgage broker company can receive compensation from the creditor in connection with that particular credit transaction.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Compensation received directly from a consumer.</inline> Under Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), a yield spread premium paid by a creditor to the loan originator may be characterized on the RESPA disclosures as a “credit” that will be applied to reduce the consumer's settlement charges, including origination fees. A yield spread premium disclosed in this manner is not considered to be received by the loan originator directly from the consumer for purposes of <ref href="/us/cfr/t12/s226.36/d/2">§ 226.36(d)(2)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(d)(3) Affiliates.</inline>
</p>
<p style="-uslm-sgm:P">1. For purposes of <ref href="/us/cfr/t12/s226.36/d">§ 226.36(d)</ref>, affiliates are treated as a single “person.” The term “affiliate” is defined in <ref href="/us/cfr/t12/s226.32/b/2">§ 226.32(b)(2)</ref>. For example, assume a parent company has two mortgage lending subsidiaries. Under <ref href="/us/cfr/t12/s226.36/d/1">§ 226.36(d)(1)</ref>, subsidiary “A” could not pay a loan originator greater compensation for a loan with an interest rate of 8 percent than it would pay for a loan with an interest rate of 7 percent. If the loan originator may deliver loans to both subsidiaries, they must compensate the loan originator in the same manner. Accordingly, if the loan originator delivers the loan to subsidiary “B” and the interest rate is 8 percent, the originator must receive the same compensation that would have been paid by subsidiary A for a loan with a rate of either 7 or 8 percent.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(e) Prohibition on steering.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Compensation.</inline> See comment 36(d)(1)–1 for guidance on compensation that is subject to <ref href="/us/cfr/t12/s226.36/e">§ 226.36(e)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 36(e)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Steering.</inline> For purposes of <ref href="/us/cfr/t12/s226.36/e">§ 226.36(e)</ref>, directing or “steering” a consumer to consummate a particular credit transaction means advising, counseling, or otherwise influencing a consumer to accept that transaction. For such actions to constitute steering, the consumer must actually consummate the transaction in question. Thus, <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref> does not address the actions of a loan originator if the consumer does not actually obtain a loan through that loan originator.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibited conduct.</inline> Under <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref>, a loan originator may not direct or steer a consumer to consummate a transaction based on the fact that the loan originator <?page num="721"?>would increase the amount of compensation that the loan originator would receive for that transaction compared to other transactions, unless the consummated transaction is in the consumer's interest.</p>
<p style="-uslm-sgm:P">i. In determining whether a consummated transaction is in the consumer's interest, that transaction must be compared to other possible loan offers available through the originator, if any, and for which the consumer was likely to qualify, at the time that transaction was offered to the consumer. Possible loan offers are available through the loan originator if they could be obtained from a creditor with which the loan originator regularly does business. Section 226.36(e)(1) does not require a loan originator to establish a business relationship with any creditor with which the loan originator does not already do business. To be considered a possible loan offer available through the loan originator, an offer need not be extended by the creditor; it need only be an offer that the creditor likely would extend upon receiving an application from the applicant, based on the creditor's current credit standards and its current rate sheets or other similar means of communicating its current credit terms to the loan originator. An originator need not inform the consumer about a potential transaction if the originator makes a good faith determination that the consumer is not likely to qualify for it.</p>
<p style="-uslm-sgm:P">ii. Section 226.36(e)(1) does not require a loan originator to direct a consumer to the transaction that will result in a creditor paying the least amount of compensation to the originator. However, if the loan originator reviews possible loan offers available from a significant number of the creditors with which the originator regularly does business, and the originator directs the consumer to the transaction that will result in the least amount of creditor-paid compensation for the loan originator, the requirements of <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref> are deemed to be satisfied. In the case where a loan originator directs the consumer to the transaction that will result in a greater amount of creditor-paid compensation for the loan originator, <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref> is not violated if the terms and conditions on that transaction compared to the other possible loan offers available through the originator, and for which the consumer likely qualifies, are the same. A loan originator who is an employee of the creditor on a transaction may not obtain compensation that is based on the transaction's terms or conditions pursuant to <ref href="/us/cfr/t12/s226.36/d/1">§ 226.36(d)(1)</ref>, and compliance with that provision by such a loan originator also satisfies the requirements of <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref> for that transaction with the creditor. However, if a creditor's employee acts as a broker by forwarding a consumer's application to a creditor <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">other than</inline> the loan originator's employer, such as when the employer does not offer any loan products for which the consumer would qualify, the loan originator is not an employee of the creditor in that transaction and is subject to <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref> if the originator is compensated for arranging the loan with the other creditor.</p>
<p style="-uslm-sgm:P">iii. See the commentary under <ref href="/us/cfr/t12/s226.36/e/3">§ 226.36(e)(3)</ref> for additional guidance on what constitutes a “significant number of creditors with which a loan originator regularly does business” and guidance on the determination about transactions for which “the consumer likely qualifies.”</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> Assume a loan originator determines that a consumer likely qualifies for a loan from Creditor A that has a fixed interest rate of 7 percent, but the loan originator directs the consumer to a loan from Creditor B having a rate of 7.5 percent. If the loan originator receives more in compensation from Creditor B than the amount that would have been paid by Creditor A, the prohibition in <ref href="/us/cfr/t12/s226.36/e">§ 226.36(e)</ref> is violated unless the higher-rate loan is in the consumer's interest. For example, a higher-rate loan might be in the consumer's interest if the lower-rate loan has a prepayment penalty, or if the lower-rate loan requires the consumer to pay more in up-front charges that the consumer is unable or unwilling to pay or finance as part of the loan amount.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(e)(2) Permissible transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbors.</inline> A loan originator that satisfies <ref href="/us/cfr/t12/s226.36/e/2">§ 226.36(e)(2)</ref> is deemed to comply with <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref>. A loan originator that does not satisfy <ref href="/us/cfr/t12/s226.36/e/2">§ 226.36(e)(2)</ref> is not subject to any presumption regarding the originator's compliance or noncompliance with <ref href="/us/cfr/t12/s226.36/e/1">§ 226.36(e)(1)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Minimum number of loan options.</inline> To obtain the safe harbor, <ref href="/us/cfr/t12/s226.36/e/2">§ 226.36(e)(2)</ref> requires that the loan originator present loan options that meet the criteria in <ref href="/us/cfr/t12/s226.36/e/3/i">§ 226.36(e)(3)(i)</ref> for each type of transaction in which the consumer expressed an interest. As required by <ref href="/us/cfr/t12/s226.36/e/3/ii">§ 226.36(e)(3)(ii)</ref>, the loan originator must have a good faith belief that the options presented are loans for which the consumer likely qualifies. If the loan originator is not able to form such a good faith belief for loan options that meet the criteria in <ref href="/us/cfr/t12/s226.36/e/3/i">§ 226.36(e)(3)(i)</ref> for a given type of transaction, the loan originator may satisfy <ref href="/us/cfr/t12/s226.36/e/2">§ 226.36(e)(2)</ref> by presenting all loans for which the consumer likely qualifies and that meet the other requirements in <ref href="/us/cfr/t12/s226.36/e/3">§ 226.36(e)(3)</ref> for that given type of transaction. A loan originator may present to the consumer any number of loan options, but presenting a consumer more than four loan options for each type of transaction in which the consumer expressed an interest and for which the consumer likely qualifies would not likely help the consumer make a meaningful choice.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">36(e)(3) Loan options presented.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Significant number of creditors.</inline> A significant number of the creditors with which a <?page num="722"?>loan originator regularly does business is three or more of those creditors. If the loan originator regularly does business with fewer than three creditors, the originator is deemed to comply by obtaining loan options from all the creditors with which it regularly does business. Under <ref href="/us/cfr/t12/s226.36/e/3/i">§ 226.36(e)(3)(i)</ref>, the loan originator must obtain loan options from a significant number of creditors with which the loan originator regularly does business, but the loan originator need not present loan options from all such creditors to the consumer. For example, if three loans available from one of the creditors with which the loan originator regularly does business satisfy the criteria in <ref href="/us/cfr/t12/s226.36/e/3/i">§ 226.36(e)(3)(i)</ref>, presenting those and no options from any other creditor satisfies that section.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditors with which loan originator regularly does business.</inline> To qualify for the safe harbor in <ref href="/us/cfr/t12/s226.36/e/2">§ 226.36(e)(2)</ref>, the loan originator must obtain and review loan options from a significant number of the creditors with which the loan originator regularly does business. For this purpose, a loan originator regularly does business with a creditor if</p>
<p style="-uslm-sgm:P">i. There is a written agreement between the originator and the creditor governing the originator's submission of mortgage loan applications to the creditor;</p>
<p style="-uslm-sgm:P">ii. The creditor has extended credit secured by a dwelling to one or more consumers during the current or previous calendar month based on an application submitted by the loan originator; or</p>
<p style="-uslm-sgm:P">iii. The creditor has extended credit secured by a dwelling twenty-five or more times during the previous twelve calendar months based on applications submitted by the loan originator. For this purpose, the previous twelve calendar months begin with the calendar month that precedes the month in which the loan originator accepted the consumer's application.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lowest interest rate.</inline> To qualify under the safe harbor in <ref href="/us/cfr/t12/s226.36/e/2">§ 226.36(e)(2)</ref>, for each type of transaction in which the consumer has expressed an interest, the loan originator must present the consumer with loan options that meet the criteria in <ref href="/us/cfr/t12/s226.36/e/3/i">§ 226.36(e)(3)(i)</ref>. The criteria are: The loan with the lowest interest rate; the loan with the lowest total dollar amount for discount points and origination points or fees; and a loan with the lowest interest rate without negative amortization, a prepayment penalty, a balloon payment in the first seven years of the loan term, shared equity, or shared appreciation, or, in the case of a reverse mortgage, a loan without a prepayment penalty, shared equity, or shared appreciation. To identify the loan with the lowest interest rate, for any loan that has an initial rate that is fixed for at least five years, the loan originator shall use the initial rate that would be in effect at consummation. For a loan with an initial rate that is not fixed for at least five years</p>
<p style="-uslm-sgm:P">i. If the interest rate varies based on changes to an index, the originator shall use the fully-indexed rate that would be in effect at consummation without regard to any initial discount or premium.</p>
<p style="-uslm-sgm:P">ii. For a step-rate loan, the originator shall use the highest rate that would apply during the first five years.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transactions for which the consumer likely qualifies.</inline> To qualify under the safe harbor in <ref href="/us/cfr/t12/s226.36/e/2">§ 226.36(e)(2)</ref>, the loan originator must have a good faith belief that the loan options presented to the consumer pursuant to <ref href="/us/cfr/t12/s226.36/e/3">§ 226.36(e)(3)</ref> are transactions for which the consumer likely qualifies. The loan originator's belief that the consumer likely qualifies should be based on information reasonably available to the loan originator at the time the loan options are presented. In making this determination, the loan originator may rely on information provided by the consumer, even if it subsequently is determined to be inaccurate. For purposes of <ref href="/us/cfr/t12/s226.36/e/3">§ 226.36(e)(3)</ref>, a loan originator is not expected to know all aspects of each creditor's underwriting criteria. But pricing or other information that is routinely communicated by creditors to loan originators is considered to be reasonably available to the loan originator, for example, rate sheets showing creditors' current pricing and the required minimum credit score or other eligibility criteria.</p>
<heading style="-uslm-sgm:HD2">Section 226.39—Mortgage transfer disclosures.</heading>
<p style="-uslm-sgm:P">39(a) Scope.</p>
<p style="-uslm-sgm:P">Paragraph 39(a)(1).</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Covered persons.</inline> The disclosure requirements of this section apply to any “covered person” that becomes the legal owner of an existing mortgage loan, whether through a purchase, or other transfer or assignment, regardless of whether the person also meets the definition of a “creditor” in Regulation Z. The fact that a person purchases or acquires mortgage loans and provides the disclosures under this section does not by itself make that person a “creditor” as defined in the regulation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acquisition of legal title.</inline> To become a “covered person” subject to this section, a person must become the owner of an existing mortgage loan by acquiring legal title to the debt obligation.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Partial interest.</inline> A person may become a covered person by acquiring a partial interest in the mortgage loan. If the original creditor transfers a partial interest in the loan to one or more persons, all such transferees are covered persons under this section.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Joint acquisitions.</inline> All persons that jointly acquire legal title to the loan are covered persons under this section, and under <ref href="/us/cfr/t12/s226.39/b/5">§ 226.39(b)(5)</ref>, a single disclosure must be provided on behalf of all such covered persons. <?page num="723"?>Multiple persons are deemed to jointly acquire legal title to the loan if each acquires a partial interest in the loan pursuant to the same agreement or by otherwise acting in concert. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 39(b)(5)–1 and 39(d)(1)(ii)–1 regarding the disclosure requirements for multiple persons that jointly acquire a loan.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliates.</inline> An acquiring party that is a separate legal entity from the transferor must provide the disclosures required by this section even if the parties are affiliated entities.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exclusions.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Beneficial interest.</inline> Section 226.39 does not apply to a party that acquires only a beneficial interest or a security interest in the loan, or to a party that assumes the credit risk without acquiring legal title to the loan. For example, an investor that acquires mortgage-backed securities, pass-through certificates, or participation interests and does not acquire legal title in the underlying mortgage loans is not covered by this section.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan servicers.</inline> Pursuant to TILA Section 131(f)(2), the servicer of a mortgage loan is not the owner of the obligation for purposes of this section if the servicer holds title to the loan as a result of the assignment of the obligation to the servicer solely for the administrative convenience of the servicer in servicing the obligation.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mergers, corporate acquisitions, or reorganizations.</inline> Disclosures are required under this section when, as a result of a merger, corporate acquisition, or reorganization, the ownership of a mortgage loan is transferred to a different legal entity.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 39(a)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mortgage transactions covered.</inline> Section 226.39 applies to closed-end or open-end consumer credit transactions secured by the principal dwelling of a consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">39(b) Disclosure required.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Generally.</inline> A covered person must mail or deliver the disclosures required by this section on or before the 30th calendar day following the date of transfer, unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies. For example, if a covered person acquires a mortgage loan on March 15, the disclosure must be mailed or delivered on or before April 14.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">39(b)(1) Form of disclosure.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combining disclosures.</inline> The disclosures under this section can be combined with other materials or disclosures, including the transfer of servicing notices required by the Real Estate Settlement Procedure Act (<ref href="/us/usc/t12/s2601">12 U.S.C. 2601</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) so long as the combined disclosure satisfies the timing and other requirements of this section.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">39(b)(4) Multiple transfers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Single disclosure for multiple transfers.</inline> A mortgage loan might be acquired by a covered person and subsequently transferred to another entity that is also a covered person required to provide the disclosures under this section. In such cases, a single disclosure may be provided on behalf of both covered persons instead of providing two separate disclosures if the disclosure satisfies the timing and content requirements applicable to each covered person. For example, if a covered person acquires a loan on March 15 with the intent to assign the loan to another entity on April 30, the covered person could mail the disclosure on or before April 14 to provide the required information for both entities and indicate when the subsequent transfer is expected to occur.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Estimating the date.</inline> When a covered person provides the disclosure required by this section that also describes a subsequent transfer, the date of the subsequent transfer may be estimated when the exact date is unknown at the time the disclosure is made. Information is unknown if it is not reasonably available to the covered person at the time the disclosure is made. The “reasonably available” standard requires that the covered person, acting in good faith, exercise due diligence in obtaining information. The covered person normally may rely on the representations of other parties in obtaining information. The covered person might make the disclosure using an estimated date even though the covered person knows that more precise information will be available in the future. For example, a covered person may provide a disclosure on March 31 stating that it acquired the loan on March 15 and that a transfer to another entity is expected to occur “on or around” April 30, even if more precise information will be available by April 14.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Duty to comply.</inline> Even though one covered person provides the disclosures for another covered person, each has a duty to ensure that disclosures related to its acquisition are accurate and provided in a timely manner unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">39(b)(5) Multiple covered person.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Single disclosure required.</inline> If multiple covered persons jointly acquire the loan, a single disclosure must be provided on behalf of all covered persons instead of providing separate disclosures. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 39(a)(1)–2(ii) regarding a joint acquisition of legal title, and comment 39(d)(1)(ii)–1 regarding the disclosure requirements for multiple persons that jointly acquire a loan. If multiple covered persons jointly acquire the loan and complete the acquisition on separate dates, a single disclosure must be provided on behalf of all persons on or before the 30th day following the earliest acquisition date. For examples, if covered persons A and B enter into an agreement with the original creditor to jointly acquire the loan, and complete the acquisition on March 15 and March 25, respectively, a single disclosure must be provided on behalf of both persons on or before April 14. If the two acquisition dates are <?page num="724"?>more than 30 days apart, a single disclosure must be provided on behalf of both persons on or before the 30th day following the earlier acquisition date, even though one person has not completed its acquisition. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 39(b)(4)–2 regarding use of an estimated date of transfer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Single disclosure not required.</inline> If multiple covered persons each acquire a partial interest in the loan pursuant to separate and unrelated agreements and not jointly, each covered person has a duty to ensure that disclosures related to its acquisition are accurate and provided in a timely manner unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies. The parties may, but are not required to, provide a single disclosure that satisfies the timing and content requirements applicable to each covered person.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing requirements.</inline> A single disclosure provided on behalf of multiple covered persons must satisfy the timing and content requirements applicable to each covered person unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Duty to comply.</inline> Even though one covered person provides the disclosures for another covered person, each has a duty to ensure that disclosures related to its acquisition are accurate and provided in a timely manner unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 39(c)(1)–2, 39(c)(3)–1 and 39(c)(3)–2 regarding transfers of a partial interest in the mortgage loan.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">39(c) Exceptions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 39(c)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transfer of all interest.</inline> A covered person is not required to provide the disclosures required by this section if it sells, assigns or otherwise transfers all of its interest in the mortgage loan on or before the 30th calendar day following the date that it acquired the loan. For example, if covered person A acquires the loan on March 15 and subsequently transfers all of its interest in the loan to covered person B on April 1, person A is not required to provide the disclosures required by this section. Person B, however, must provide the disclosures required by this section unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transfer of partial interests.</inline> A covered person that subsequently transfers a partial interest in the loan is required to provide the disclosures required by this section if the covered person retains a partial interest in the loan on the 30th calendar day after it acquired the loan, unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies. For example, if covered person A acquires the loan on March 15 and subsequently transfers fifty percent of its interest in the loan to covered person B on April 1, person A is required to provide the disclosures under this section if it retains a partial interest in the loan on April 14. Person B in this example must also provide the disclosures required under this section unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies. Either person A or person B could provide the disclosure on behalf of both of them if the disclosure satisfies the timing and content requirements applicable to each of them. In this example, a single disclosure for both covered persons would have to be provided on or before April 14 to satisfy the timing requirements for person A's acquisition of the loan on March 15. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 39(b)(4)–1 regarding a single disclosure for multiple transfers.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 39(c)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Repurchase agreements.</inline> The original creditor or owner of the mortgage loan might sell, assign or otherwise transfer legal title to the loan to secure temporary business financing under an agreement that obligates the original creditor or owner to repurchase the loan. The covered person that acquires the loan in connection with such a repurchase agreement is not required to provide disclosures under this section. However, if the transferor does not repurchase the mortgage loan, the acquiring party must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intermediary parties.</inline> The exception in <ref href="/us/cfr/t12/s226.39/c/2">§ 226.39(c)(2)</ref> applies regardless of whether the repurchase arrangement involves an intermediary party. For example, legal title to the loan may transfer from the original creditor to party A through party B as an intermediary. If the original creditor is obligated to repurchase the loan, neither party A nor party B is required to provide the disclosures under this section. However, if the original creditor does not repurchase the loan, party A must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records unless another exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 39(c)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acquisition of partial interests.</inline> This exception applies if the covered person acquires only a partial interest in the loan, and there is no change in the agent or person authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments. If, as a result of the transfer of a partial interest in the loan, a different agent or party is authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments, the disclosures under this section must be provided.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">i. A covered person is not required to provide the disclosures under this section if it acquires a partial interest in the loan from the original creditor who remains authorized to receive the notice of the right to rescind and resolve issues concerning the consumer's payments after the transfer.</p>
<p style="-uslm-sgm:P">ii. The original creditor transfers fifty percent of its interest in the loan to covered <?page num="725"?>person A. Person A does not provide the disclosures under this section because the exception in <ref href="/us/cfr/t12/s226.39/c/3">§ 226.39(c)(3)</ref> applies. The creditor then transfers the remaining fifty percent of its interest in the loan to covered person B and does not retain any interest in the loan. Person B must provide the disclosures under this section.</p>
<p style="-uslm-sgm:P">iii. The original creditor transfers fifty percent of its interest in the loan to covered person A and also authorizes party X as its agent to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. Since there is a change in an agent or party authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments, person A is required to provide the disclosures under this section. Person A then transfers all of its interest in the loan to covered person B. Person B is not required to provide the disclosures under this section if the original creditor retains a partial interest in the loan and party X retains the same authority.</p>
<p style="-uslm-sgm:P">iv. The original creditor transfers all of its interest in the loan to covered person A. Person A provides the disclosures under this section and notifies the consumer that party X is authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. Person A then transfers fifty percent of its interest in the loan to covered person B. Person B is not required to provide the disclosures under this section if person A retains a partial interest in the loan and party X retains the same authority.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">39(d) Content of required disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identifying the loan.</inline> The disclosures required by this section must identify the loan that was acquired or transferred. The covered person has flexibility in determining what information to provide for this purpose and may use any information that would reasonably inform a consumer which loan was acquired or transferred. For example, the covered person may identify the loan by stating</p>
<p style="-uslm-sgm:P">i. The address of the mortgaged property along with the account number or loan number previously disclosed to the consumer, which may appear in a truncated format;</p>
<p style="-uslm-sgm:P">ii. The account number alone, or other identifying number, if that number has been previously provided to the consumer, such as on a statement that the consumer receives monthly; or</p>
<p style="-uslm-sgm:P">iii. The date on which the credit was extended and the original amount of the loan or credit line.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 39(d)(1).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identification of covered person.</inline> Section 226.39(d)(1) requires a covered person to provide its name, address, and telephone number. The party identified must be the covered person who owns the mortgage loan, regardless of whether another party services the loan or is the covered person's agent. In addition to providing its name, address and telephone number, the covered person may, at its option, provide an address for receiving electronic mail or an internet Web site address, but is not required to do so.</p>
<heading style="-uslm-sgm:HD3">39(d)(1)(i)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple transfers, single disclosure.</inline> If a mortgage loan is acquired by a covered person and subsequently transferred to another covered person, a single disclosure may be provided on behalf of both covered persons instead of providing two separate disclosures as long as the disclosure satisfies the timing and content requirements applicable to each covered person. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 39(b)(4)–1 regarding multiple transfers. A single disclosure for multiple transfers must state the name, address, and telephone number of each covered person unless <ref href="/us/cfr/t12/s226.39/d/1/ii">§ 226.39(d)(1)(ii)</ref> applies.</p>
<heading style="-uslm-sgm:HD3">39(d)(1)(ii)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple covered persons, single disclosure.</inline> If multiple covered persons jointly acquire the loan, a single disclosure must be provided on behalf of all covered persons instead of providing separate disclosures. The single disclosure must provide the name, address, and telephone number of each covered person unless <ref href="/us/cfr/t12/s226.39/d/1/ii">§ 226.39(d)(1)(ii)</ref> applies and one of the covered persons has been authorized in accordance with <ref href="/us/cfr/t12/s226.39/d/3">§ 226.39(d)(3)</ref> of this section to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. In such cases, the information required by <ref href="/us/cfr/t12/s226.39/d/1">§ 226.39(d)(1)</ref> may be provided only for that covered person.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple covered persons, multiple disclosures.</inline> If multiple covered persons each acquire a partial interest in the loan in separate transactions and not jointly, each covered person must comply with the disclosure requirements of this section unless an exception in <ref href="/us/cfr/t12/s226.39/c">§ 226.39(c)</ref> applies. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 39(a)(1)–2(ii) regarding a joint acquisition of legal title, and comment 39(b)(5)–2 regarding the disclosure requirements for multiple covered persons.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 39(d)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identifying agents.</inline> Under <ref href="/us/cfr/t12/s226.39/d/3">§ 226.39(d)(3)</ref>, the covered person must provide the name, address and telephone number for the agent or other party having authority to receive the notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. If multiple persons are identified under this paragraph, the disclosure shall provide the name, address and telephone number for each and indicate the extent to which the authority of each person differs. Section 226.39(d)(3) does not require that a covered person designate an agent or <?page num="726"?>other party, but if the consumer cannot contact the covered person for these purposes, the disclosure must provide the name, address and telephone number for an agent or other party that can address these matters. If an agent or other party is authorized to receive the notice of the right to rescind and resolve issues concerning the consumer's payments on the loan, the disclosure can state that the consumer may contact that agent regarding any questions concerning the consumer's account without specifically mentioning rescission or payment issues. However, if multiple agents are listed on the disclosure, the disclosure shall state the extent to which the authority of each agent differs by indicating if only one of the agents is authorized to receive notice of the right to rescind, or only one of the agents is authorized to resolve issues concerning payments.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other contact information.</inline> The covered person may also provide an agent's electronic mail address or internet Web site address, but is not required to do so.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 39(d)(4).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Where recorded.</inline> Section 226.39(d)(4) requires the covered person to disclose where transfer of ownership of the debt to the covered person is recorded if it has been recorded in public records. Alternatively, the disclosure can state that the transfer of ownership of the debt has not been recorded in public records at the time the disclosure is provided, if that is the case, or the disclosure can state where the transfer may later be recorded. An exact address is not required and it would be sufficient, for example, to state that the transfer of ownership is recorded in the office of public land records or the recorder of deeds office for the county or local jurisdiction where the property is located.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">39(e) Optional disclosures.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Generally.</inline> Section 226.39(e) provides that covered persons may, at their option, include additional information about the mortgage transaction that they consider relevant or helpful to consumers. For example, the covered person may choose to inform consumers that the location where they should send mortgage payments has not changed. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 39(b)(1)–1 regarding combined disclosures.</p>
<heading style="-uslm-sgm:HD2">Section 226.42—Valuation Independence</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(a) Scope.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open- and closed-end credit.</inline> Section 226.42 applies to both open-end and closed-end transactions secured by the consumer's principal dwelling.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer's principal dwelling.</inline> Section 226.42 applies only if the dwelling that will secure a consumer credit transaction is the principal dwelling of the consumer who obtains credit.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(b) Definitions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(b)(1</inline>).</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of covered persons.</inline> “Covered persons” include creditors, mortgage brokers, appraisers, appraisal management companies, real estate agents, and other persons that provide “settlement services” as defined under the Real Estate Settlement Procedures Act and implementing regulations. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/usc/t12/s2602/3">12 U.S.C. 2602(3)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of persons not covered.</inline> The following persons are not “covered persons” (unless, of course, they are creditors with respect to a covered transaction or perform “settlement services” in connection with a covered transaction)</p>
<p style="-uslm-sgm:P">i. The consumer who obtains credit through a covered transaction.</p>
<p style="-uslm-sgm:P">ii. A person secondarily liable for a covered transaction, such as a guarantor.</p>
<p style="-uslm-sgm:P">iii. A person that resides in or will reside in the consumer's principal dwelling but will not be liable on the covered transaction, such as a non-obligor spouse.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(b)(2).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal dwelling.</inline> The term “principal dwelling” has the same meaning under <ref href="/us/cfr/t12/s226.42/b">§ 226.42(b)</ref> as under <ref href="/us/cfr/t12/s226.2/a/24">§§ 226.2(a)(24)</ref>, 226.15(a), and 226.23(a). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 2(a)(24)–3, 15(a)–5, and 23(a)–3.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(b)(3).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Valuation.</inline> A “valuation” is an estimate of value prepared by a natural person, such as an appraisal report prepared by an appraiser or an estimate of market value prepared by a real estate agent. The term includes photographic or other information included with a written estimate of value. A “valuation” includes an estimate provided or viewed electronically, such as an estimate transmitted via electronic mail or viewed using a computer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automated model or system.</inline> A “valuation” does not include an estimate of value produced exclusively using an automated model or system. However, a “valuation” includes an estimate of value developed by a natural person based in part on an estimate of value produced using an automated model or system.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Estimate.</inline> An estimate of the value of the consumer's principal dwelling includes an estimate of a range of values for the consumer's principal dwelling.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(c) Valuation for consumer's principal dwelling.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(c)(1) Coercion.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State law.</inline> The terms “coercion,” “extortion,” “inducement,” “bribery,” “intimidation,” “compensation,” “instruction,” and “collusion” have the meanings given to them by applicable state law or contract. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.2/b/3">§ 226.2(b)(3)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Purpose.</inline> A covered person does not violate <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref> if the person does not engage in an act or practice set forth in <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref> for the purpose of causing the value assigned to the consumer's principal dwelling to be based on a factor other than <?page num="727"?>the independent judgment of a person that prepares valuations. For example, requesting that a person that prepares a valuation take certain actions, such as consider additional, appropriate property information, does not violate <ref href="/us/cfr/t12/s226.42/c">§ 226.42(c)</ref>, because such request does not supplant the independent judgment of the person that prepares a valuation. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.42/c/3/i">§ 226.42(c)(3)(i)</ref>. A covered person also may provide incentives, such as additional compensation, to a person that prepares valuations or performs valuation management functions under <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref>, as long as the covered person does not cause or attempt to cause the value assigned to the consumer's principal dwelling to be based on a factor other than the independent judgment of the person that prepares valuations.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person that prepares valuations.</inline> For purposes of <ref href="/us/cfr/t12/s226.42">§ 226.42</ref>, the term “valuation” includes an estimate of value regardless of whether it is an appraisal prepared by a state-certified or -licensed appraiser. See comment 42(b)(3)–1. A person that prepares valuations may or may not be a state-licensed or state-certified appraiser. Thus a person violates <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref> by engaging in prohibited acts or practices directed towards any person that prepares or may prepare a valuation of the consumer's principal dwelling for a covered transaction. For example, a person violates <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref> by seeking to coerce a real estate agent to assign a value to the consumer's principal dwelling based on a factor other than the independent judgment of the real estate agent, in connection with a covered transaction.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Indirect acts or practices.</inline> Section 226.42(c)(1) prohibits both direct and indirect attempts to cause the value assigned to the consumer's principal dwelling to be based on a factor other than the independent judgment of the person that prepares the valuation, through coercion and certain other acts and practices. For example, a creditor violates <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref> if the creditor attempts to cause the value an appraiser engaged by an appraisal management company assigns to the consumer's principal dwelling to be based on a factor other than the appraiser's independent judgment, by threatening to withhold future business from a title company affiliated with the appraisal management company unless the appraiser assigns a value to the dwelling that meets or exceeds a minimum threshold.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(c)(1)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability of examples.</inline> Section 226.42(c)(1)(i) provides examples of coercion of a person that prepares valuations. However, <ref href="/us/cfr/t12/s226.42/c/1/i">§ 226.42(c)(1)(i)</ref> also applies to coercion of a person that performs valuation management functions or its affiliate. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref>; comment 42(c)(1)–4.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Specific value or predetermined threshold.</inline> As used in the examples of actions prohibited under <ref href="/us/cfr/t12/s226.42/c/1">§ 226.42(c)(1)</ref>, a “specific value” and a “predetermined threshold” include a predetermined minimum, maximum, or range of values. Further, although the examples assume a covered person's prohibited actions are designed to cause the value assigned to the consumer's principal dwelling to equal or exceed a certain amount, the rule applies equally to cases where a covered person's prohibited actions are designed to cause the value assigned to the dwelling to be below a certain amount.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(c)(2) Mischaracterization of value.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(c)(2)(i) Misrepresentation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Opinion of value.</inline> Section 226.42(c)(2)(i) prohibits a person that performs valuations from misrepresenting the value of the consumer's principal dwelling in a valuation. Such person misrepresents the value of the consumer's principal dwelling by assigning a value to such dwelling that does not reflect the person's opinion of the value of such dwelling. For example, an appraiser misrepresents the value of the consumer's principal dwelling if the appraiser estimates that the value of such dwelling is $250,000 applying the standards required by the Uniform Standards of Professional Appraisal Standards but assigns a value of $300,000 to such dwelling in a Uniform Residential Appraisal Report.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(c)(2)(iii) Inducement of mischaracterization.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inducement.</inline> A covered person may not induce a person to materially misrepresent the value of the consumer's principal dwelling in a valuation or to falsify or alter a valuation. For example, a loan originator may not coerce a loan underwriter to alter an appraisal report to increase the value assigned to the consumer's principal dwelling.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(d) Prohibition on conflicts of interest.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(d)(1)(i) In general.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibited interest in the property.</inline> A person preparing a valuation or performing valuation management functions for a covered transaction has a prohibited interest in the property under paragraph (d)(1)(i) if the person has any ownership or reasonably foreseeable ownership interest in the property. For example, a person who seeks a mortgage to purchase a home has a reasonably foreseeable ownership interest in the property securing the mortgage, and therefore is not permitted to prepare the valuation or perform valuation management functions for that mortgage transaction under paragraph (d)(1)(i).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibited interest in the transaction.</inline> A person preparing a valuation or performing valuation management functions has a prohibited interest in the transaction under paragraph (d)(1)(i) if that person or an affiliate of that person also serves as a loan officer of the creditor, mortgage broker, real estate broker, or other settlement service provider for the transaction and the conditions under paragraph (d)(4) are not satisfied. A <?page num="728"?>person also has a prohibited interest in the transaction if the person is compensated or otherwise receives financial or other benefits based on whether the transaction is consummated. Under these circumstances, the person is not permitted to prepare the valuation or perform valuation management functions for that transaction under paragraph (d)(1)(i).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(d)(1)(ii) Employees and affiliates of creditors; providers of multiple settlement services.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Employees and affiliates of creditors.</inline> In general, a creditor may use employees or affiliates to prepare a valuation or perform valuation management functions without violating paragraph (d)(1)(i). However, whether an employee or affiliate has a direct or indirect interest in the property or transaction that creates a prohibited conflict of interest under paragraph (d)(1)(i) depends on the facts and circumstances of a particular case, including the structure of the employment or affiliate relationship.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Providers of multiple settlement services.</inline> In general, a person who prepares a valuation or perform valuation management functions for a covered transaction may perform another settlement service for the same transaction, or the person's affiliate may perform another settlement service, without violating paragraph (d)(1)(i). However, whether the person has a direct or indirect interest in the property or transaction that creates a prohibited conflict of interest under paragraph (d)(1)(i) depends on the facts and circumstances of a particular case.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(d)(2) Employees and affiliates of creditors with assets of more than $250 million for both of the past two calendar years.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbor.</inline> A person who a prepares valuation or performs valuation management functions for a covered transaction and is an employee or affiliate of the creditor will not be deemed to have an interest prohibited under paragraph (d)(1)(i) on the basis of the employment or affiliate relationship with the creditor if the conditions in paragraph (d)(2) are satisfied. Even if the conditions in paragraph (d)(2) are satisfied, however, the person may have a prohibited conflict of interest on other grounds, such as if the person performs a valuation for a purchase-money mortgage transaction in which the person is the buyer or seller of the subject property. Thus, in general, in any covered transaction in which the creditor had assets of more than $250 million for both of the past two years, the creditor may use its own employee or affiliate to prepare a valuation or perform valuation management functions for a particular transaction, as long as the conditions described in paragraph (d)(2) are satisfied. If the conditions in paragraph (d)(2) are not satisfied, whether a person preparing a valuation or performing valuation management functions has violated paragraph (d)(1)(i) depends on all of the facts and circumstances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(d)(2)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibition on reporting to a person who is part of the creditor's loan production function.</inline> To qualify for the safe harbor under paragraph (d)(2), the person preparing a valuation or performing valuation management functions may not report to a person who is part of the creditor's loan production function (as defined in paragraph (d)(5)(i) and comment 42(d)(5)(i)–1). For example, if a person preparing a valuation is directly supervised or managed by a loan officer or other person in the creditor's loan production function, or by a person who is directly supervised or managed by a loan officer, the condition under paragraph (d)(2)(ii) is not met.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibition on reporting to a person whose compensation is based on the transaction closing.</inline> To qualify for the safe harbor under paragraph (d)(2), the person preparing a valuation or performing valuation management functions may not report to a person whose compensation is based on the closing of the transaction to which the valuation relates. For example, assume an appraisal management company performs valuation management functions for a transaction in which the creditor is an affiliate of the appraisal management company. If the employee of the appraisal management company who is in charge of valuation management functions for that transaction is supervised by a person who earns a commission or bonus based on the percentage of closed transactions for which the appraisal management company provides valuation management functions, the condition under paragraph (d)(2)(ii) is not met.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(d)(2)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Direct or indirect involvement in selection of person who prepares a valuation.</inline> In any covered transaction, the safe harbor under paragraph (d)(2) is available if, among other things, no employee, officer or director in the creditor's loan production function (as defined in paragraph (d)(4)(ii) and comment 42(d)(4)(ii)–1) is directly or indirectly involved in selecting, retaining, recommending or influencing the selection of the person to prepare a valuation or perform valuation management functions, or to be included in or excluded from a list or panel of approved persons who prepare valuations or perform valuation management functions. For example, if the person who selects the person to prepare the valuation for a covered transaction is supervised by an employee of the creditor who also supervises loan officers, the condition in paragraph (d)(2)(iii) is not met.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(d)(3) Employees and affiliates of creditors with assets of $250 million or less for either of the past two calendar years.</inline>
<?page num="729"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbor.</inline> A person who prepares a valuation or performs valuation management functions for a covered transaction and is an employee or affiliate of the creditor will not be deemed to have interest prohibited under paragraph (d)(1)(i) on the basis of the employment or affiliate relationship with the creditor if the conditions in paragraph (d)(3) are satisfied. Even if the conditions in paragraph (d)(3) are satisfied, however, the person may have a prohibited conflict of interest on other grounds, such as if the person performs a valuation for a purchase-money mortgage transaction in which the person is the buyer or seller of the subject property. Thus, in general, in any covered transaction in which the creditor had assets of $250 million or less for either of the past two calendar years, the creditor may use its own employee or affiliate to prepare a valuation or perform valuation management functions for a particular transaction, as long as the conditions described in paragraph (d)(3) are satisfied. If the conditions in paragraph (d)(3) are not satisfied, whether a person preparing valuations or performing valuation management functions has violated paragraph (d)(1)(i) depends on all of the facts and circumstances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(d)(4) Providers of multiple settlement services.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(d)(4)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbor in transactions in which the creditor had assets of more than $250 million for both of the past two calendar years.</inline> A person preparing a valuation or performing valuation management functions in addition to performing another settlement service for the same transaction, or whose affiliate performs another settlement service for the transaction, will not be deemed to have interest prohibited under paragraph (d)(1)(i) as a result of the person or the person's affiliate performing another settlement service if the conditions in paragraph (d)(4)(i) are satisfied. Even if the conditions in paragraph (d)(4)(i) are satisfied, however, the person may have a prohibited conflict of interest on other grounds, such as if the person performs a valuation for a purchase-money mortgage transaction in which the person is the buyer or seller of the subject property. Thus, in general, in any covered transaction with a creditor that had assets of more than $250 million for the past two years, a person preparing a valuation or performing valuation management functions, or its affiliate, may provide another settlement service for the same transaction, as long as the conditions described in paragraph (d)(4)(i) are satisfied. If the conditions in paragraph (d)(4)(i) are not satisfied, whether a person preparing valuations or performing valuation management functions has violated paragraph (d)(1)(i) depends on all of the facts and circumstances.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reporting.</inline> The safe harbor under paragraph (d)(4)(i) is available if the condition specified in paragraph (d)(2)(ii), among others, is met. Paragraph (d)(2)(ii) prohibits a person preparing a valuation or performing valuation management functions from reporting to a person whose compensation is based on the closing of the transaction to which the valuation relates. For example, assume an appraisal management company performs both valuation management functions and title services, including providing title insurance, for the same covered transaction. If the appraisal management company employee in charge of valuation management functions for the transaction is supervised by the title insurance agent in the transaction, whose compensation depends in whole or in part on whether title insurance is sold at the loan closing, the condition in paragraph (d)(2)(ii) is not met.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(d)(4)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbor in transactions in which the creditor had assets of $250 million or less for either of the past two calendar years.</inline> A person preparing a valuation or performing valuation management functions in addition to performing another settlement service for the same transaction, or whose affiliate performs another settlement service for the transaction, will not be deemed to have an interest prohibited under paragraph (d)(1)(i) as a result of the person or the person's affiliate performing another settlement service if the conditions in paragraph (d)(4)(ii) are satisfied. Even if the conditions in paragraph (d)(4)(ii) are satisfied, however, the person may have a prohibited conflict of interest on other grounds, such as if the person performs a valuation for a purchase-money mortgage transaction in which the person is the buyer or seller of the subject property. Thus, in general, in any covered transaction in which the creditor had assets of $250 million or less for either of the past two years, a person preparing a valuation or performing valuation management functions, or its affiliate, may provide other settlement services for the same transaction, as long as the conditions described in paragraph (d)(4)(ii) are satisfied. If the conditions in paragraph (d)(4)(ii) are not satisfied, whether a person preparing valuations or performing valuation management functions has violated paragraph (d)(1)(i) depends on all of the facts and circumstances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(d)(5) Definitions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(d)(5)(i).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan production function.</inline> One condition of the safe harbors under paragraphs (d)(2) and (d)(4)(i), involving transactions in which the creditor had assets of more than $250 million for both of the past two calendar years, is that the person who prepares a valuation or performs valuation management functions must report to a person who is not part of the creditor's “loan production <?page num="730"?>function.” A creditor's “loan production function” includes retail sales staff, loan officers, and any other employee of the creditor with responsibility for taking a loan application, offering or negotiating loan terms or whose compensation is based on loan processing volume. A person is not considered part of a creditor's loan production function solely because part of the person's compensation includes a general bonus not tied to specific transactions or a specific percentage of transactions closing, or a profit sharing plan that benefits all employees. A person solely responsible for credit administration or risk management is also not considered part of a creditor's loan production function. Credit administration and risk management includes, for example, loan underwriting, loan closing functions (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> loan documentation), disbursing funds, collecting mortgage payments and otherwise servicing the loan (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> escrow management and payment of taxes), monitoring loan performance, and foreclosure processing.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(e) When extension of credit prohibited.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable diligence.</inline> A creditor will be deemed to have acted with reasonable diligence under <ref href="/us/cfr/t12/s226.42/e">§ 226.42(e)</ref> if the creditor extends credit based on a valuation other than the valuation subject to the restriction in <ref href="/us/cfr/t12/s226.42/e">§ 226.42(e)</ref>. A creditor need not obtain a second valuation to document that the creditor has acted with reasonable diligence to determine that the valuation does not materially misstate or misrepresent the value of the consumer's principal dwelling, however. For example, assume an appraiser notifies a creditor before consummation that a loan originator attempted to cause the value assigned to the consumer's principal dwelling to be based on a factor other than the appraiser's independent judgment, through coercion. If the creditor reasonably determines and documents that the appraisal does not materially misstate or misrepresent the value of the consumer's principal dwelling, for purposes of <ref href="/us/cfr/t12/s226.42/e">§ 226.42(e)</ref>, the creditor may extend credit based on the appraisal.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(f) Customary and reasonable compensation.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(f)(1) Requirement to provide customary and reasonable compensation to fee appraisers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agents of the creditor.</inline> Whether a person is an agent of the creditor is determined by applicable law; however, a “fee appraiser” as defined in paragraph (f)(4)(i) is not an agent of the creditor for purposes of paragraph (f), and therefore is not required to pay other fee appraisers customary and reasonable compensation under paragraph (f).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Geographic market.</inline> For purposes of paragraph (f), the “geographic market of the property being appraised” means the geographic market relevant to compensation levels for appraisal services. Depending on the facts and circumstances, the relevant geographic market may be a state, metropolitan statistical area (MSA), metropolitan division, area outside of an MSA, county, or other geographic area. For example, assume that fee appraisers who normally work only in County A generally accept $400 to appraise an attached single-family property in County A. Assume also that <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">very few or no</inline> fee appraisers who work only in contiguous County B will accept a rate comparable to $400 to appraise an attached single-family property in County A. The relevant geographic market for an attached single-family property in County A may reasonably be defined as County A. On the other hand, assume that fee appraisers who normally work only in County A generally accept $400 to appraise an attached single-family property in County A. Assume also that <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">many</inline> fee appraisers who normally work only in contiguous County B will accept a rate comparable to $400 to appraise an attached single-family property in County A. The relevant geographic market for an attached single-family property in County A may reasonably be defined to include both County A and County B.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Failure to perform contractual obligations.</inline> Paragraph (f)(1) does not prohibit a creditor or its agent from withholding compensation from a fee appraiser for failing to meet contractual obligations, such as failing to provide the appraisal report or violating state or federal appraisal laws in performing the appraisal.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agreement that fee is “customary and reasonable.”</inline> A document signed by a fee appraiser indicating that the appraiser agrees that the fee paid to the appraiser is “customary and reasonable” does not by itself create a presumption of compliance with <ref href="/us/cfr/t12/s226.42/f">§ 226.42(f)</ref> or otherwise satisfy the requirement to pay a fee appraiser at a customary and reasonable rate.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Volume-based discounts.</inline> Section 226.42(f)(1) does not prohibit a fee appraiser and a creditor (or its agent) from agreeing to compensation based on transaction volume, so long as the compensation is customary and reasonable. For example, assume that a fee appraiser typically receives $300 for appraisals from creditors with whom it does business; the fee appraiser, however, agrees to reduce the fee to $280 for a particular creditor, in exchange for a minimum number of assignments from the creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(f)(2) Presumption of compliance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> A creditor and its agent are presumed to comply with paragraph (f)(1) if the creditor or its agent meets the conditions specified in paragraph (f)(2) in determining the compensation paid to a fee appraiser. These conditions are not requirements for compliance but, if met, create a presumption that the creditor or its agent has complied with <ref href="/us/cfr/t12/s226.42/f/1">§ 226.42(f)(1)</ref>. A person may rebut this presumption with evidence that the amount of compensation paid to a fee appraiser was not customary and reasonable for reasons unrelated to the conditions in <?page num="731"?>paragraph (f)(2)(i) or (f)(2)(ii). If a creditor or its agent does not meet one of the non-required conditions set forth in paragraph (f)(2), the creditor's and its agent's compliance with paragraph (f)(1) is determined based on all of the facts and circumstances without a presumption of either compliance or violation.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(f)(2)(i) Presumption of compliance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Two-step process for determining customary and reasonable rates.</inline> Paragraph (f)(2)(i) sets forth a two-step process for a creditor or its agent to determine the amount of compensation that is customary and reasonable in a given transaction. First, the creditor or its agent must identify recent rates paid for comparable appraisal services in the relevant geographic market. Second, once recent rates have been identified, the creditor or its agent must review the factors listed in paragraph (f)(2)(i)(A)–(F) and make any appropriate adjustments to the rates to ensure that the amount of compensation is reasonable.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Identifying recent rates.</inline> Whether rates may reasonably be considered “recent” depends on the facts and circumstances. Generally, “recent” rates would include rates charged within one year of the creditor's or its agent's reliance on this information to qualify for the presumption of compliance under paragraph (f)(2). For purposes of the presumption of compliance under paragraph (f)(2), a creditor or its agent may gather information about recent rates by using a reasonable method that provides information about rates for appraisal services in the geographic market of the relevant property; a creditor or its agent may, but is not required to, use or perform a fee survey.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Accounting for factors.</inline> Once recent rates in the relevant geographic market have been identified, the creditor or its agent must review the factors listed in paragraph (f)(2)(i)(A)–(F) to determine the appropriate rate for the current transaction. For example, if the recent rates identified by the creditor or its agent were solely for appraisal assignments in which the scope of work required consideration of two comparable properties, but the current transaction required an appraisal that considered three comparable properties, the creditor or its agent might reasonably adjust the rate by an amount that accounts for the increased scope of work, in addition to making any other appropriate adjustments based on the remaining factors.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(f)(2)(i)(A).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Type of property.</inline> The type of property may include, for example, detached or attached single-family property, condominium or cooperative unit, or manufactured home.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(f)(2)(i)(B).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope of work.</inline> The scope of work may include, for example, the type of inspection (such as exterior only or both interior and exterior) or number of comparables required for the appraisal.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(f)(2)(i)(D).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fee appraiser qualifications.</inline> The fee appraiser qualifications may include, for example, a state license or certification in accordance with the minimum criteria issued by the Appraisal Qualifications Board of the Appraisal Foundation, or completion of continuing education courses on effective appraisal methods and related topics.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Membership in professional appraisal organization.</inline> Paragraph 42(f)(2)(i)(D) does not override state or federal laws prohibiting the exclusion of an appraiser from consideration for an assignment solely by virtue of membership or lack of membership in any particular appraisal organization. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See, e.g.,</inline> <ref href="/us/cfr/t12/s225.66/a">12 CFR 225.66(a)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(f)(2)(i)(E).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fee appraiser experience and professional record.</inline> The fee appraiser's level of experience may include, for example, the fee appraiser's years of service as a state-licensed or state-certified appraiser, or years of service appraising properties in a particular geographical area or of a particular type. The fee appraiser's professional record may include, for example, whether the fee appraiser has a past record of suspensions, disqualifications, debarments, or judgments for waste, fraud, abuse or breach of legal or professional standards.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(f)(2)(i)(F).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fee appraiser work quality.</inline> The fee appraiser's work quality may include, for example, the past quality of appraisals performed by the appraiser based on the written performance and review criteria of the creditor or agent of the creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 42(f)(2)(ii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Restraining trade.</inline> Under <ref href="/us/cfr/t12/s226.42/f/2/ii/A">§ 226.42(f)(2)(ii)(A)</ref>, creditor or its agent would not qualify for the presumption of compliance under paragraph (f)(2) if it engaged in any acts to restrain trade such as entering into a price fixing or market allocation agreement that affect the compensation of fee appraisers. For example, if appraisal management company A and appraisal management company B agreed to compensate fee appraisers at no more than a specific rate or range of rates, neither appraisal management company would qualify for the presumption of compliance. Likewise, if appraisal management company A and appraisal management company B agreed that appraisal management company A would limit its business to a certain portion of the relevant geographic market and appraisal management company B would limit its business to a different portion of the relevant geographic market, and as a result each appraisal management company unilaterally set the fees paid to fee appraisers in their respective portions of the market, neither appraisal management company would <?page num="732"?>qualify for the presumption of compliance under paragraph (f)(2).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acts of monopolization.</inline> Under <ref href="/us/cfr/t12/s226.42/f/2/ii/B">§ 226.42(f)(2)(ii)(B)</ref>, a creditor or its agent would not qualify for the presumption of compliance under paragraph (f)(2) if it engaged in any act of monopolization such as restricting entry into the relevant geographic market or causing any person to leave the relevant geographic market, resulting in anticompetitive effects that affect the compensation paid to fee appraisers. For example, if only one appraisal management company exists or is predominant in a particular market area, that appraisal management company might not qualify for the presumption of compliance if it entered into exclusivity agreements with all creditors in the market or all fee appraisers in the market, such that other appraisal management companies had to leave or could not enter the market. Whether this behavior would be considered an anticompetitive act that affects the compensation paid to fee appraisers depends on all of the facts and circumstances, including applicable law.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(f)(3) Alternative presumption of compliance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> A creditor and its agent are presumed to comply with paragraph (f)(1) if the creditor or its agent determine the compensation paid to a fee appraiser based on information about customary and reasonable rates that satisfies the conditions in paragraph (f)(3) for that information. Reliance on information satisfying the conditions in paragraph (f)(3) is not a requirement for compliance with paragraph (f)(1), but creates a presumption that the creditor or its agent has complied. A person may rebut this presumption with evidence that the rate of compensation paid to a fee appraiser by the creditor or its agent is not customary and reasonable based on facts or information other than third-party information satisfying the conditions of this paragraph (f)(3). If a creditor or its agent does not rely on information that meets the conditions in paragraph (f)(3), the creditor's and its agent's compliance with paragraph (f)(1) is determined based on all of the facts and circumstances without a presumption of either compliance or violation.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Geographic market.</inline> The meaning of “geographic market” for purposes of paragraph (f) is explained in comment (f)(1)–1.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Recent rates.</inline> Whether rates may reasonably be considered “recent” depends on the facts and circumstances. Generally, “recent” rates would include rates charged within one year of the creditor's or its agent's reliance on this information to qualify for the presumption of compliance under paragraph (f)(3).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(f)(4) Definitions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(f)(4)(i) Fee appraiser.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Organization.</inline> The term “organization” in paragraph 42(d)(4)(i)(B) includes a corporation, partnership, proprietorship, association, cooperative, or other business entity and does not include a natural person.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(g) Mandatory reporting.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">42(g)(1) Reporting required.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable basis.</inline> A person reasonably believes that an appraiser has materially failed to comply with the Uniform Standards of Professional Appraisal Practice (USPAP) established by the Appraisal Standards Board of the Appraisal Foundation (as defined in <ref href="/us/usc/t12/s3350/9">12 U.S.C. 3350(9)</ref>) or ethical or professional requirements for appraisers under applicable state or federal statutes or regulations if the person possesses knowledge or information that would lead a reasonable person in the same circumstances to conclude that the appraiser has materially failed to comply with USPAP or such statutory or regulatory requirements.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Material failure to comply.</inline> For purposes of <ref href="/us/cfr/t12/s226.42/g/1">§ 226.42(g)(1)</ref>, a material failure to comply is one that is likely to affect the value assigned to the consumer's principal dwelling. The following are examples of a material failure to comply with USPAP or ethical or professional requirements</p>
<p style="-uslm-sgm:P">i. Mischaracterizing the value of the consumer's principal dwelling in violation of <ref href="/us/cfr/t12/s226.42/c/2/i">§ 226.42(c)(2)(i)</ref>.</p>
<p style="-uslm-sgm:P">ii. Performing an assignment in a grossly negligent manner, in violation of a rule under USPAP.</p>
<p style="-uslm-sgm:P">iii. Accepting an appraisal assignment on the condition that the appraiser will report a value equal to or greater than the purchase price for the consumer's principal dwelling, in violation of a rule under USPAP.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other matters.</inline> Section 226.42(g)(1) does not require reporting of a matter that is not material under <ref href="/us/cfr/t12/s226.42/g/1">§ 226.42(g)(1)</ref>, for example</p>
<p style="-uslm-sgm:P">i. An appraiser's disclosure of confidential information in violation of applicable state law.</p>
<p style="-uslm-sgm:P">ii. An appraiser's failure to maintain errors and omissions insurance in violation of applicable state law.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of covered persons.</inline> “Covered persons” include creditors, mortgage brokers, appraisers, appraisal management companies, real estate agents, and other persons that provide “settlement services” as defined under the Real Estate Settlement Procedures Act and implementing regulations. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/usc/t12/s2602/3">12 U.S.C. 2602(3)</ref>; <ref href="/us/cfr/t12/s226.42/b/1">§ 226.42(b)(1)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of persons not covered.</inline> The following persons are not “covered persons” (unless, of course, they are creditors with respect to a covered transaction or perform “settlement services” in connection with a covered transaction)</p>
<p style="-uslm-sgm:P">i. The consumer who obtains credit through a covered transaction.</p>
<p style="-uslm-sgm:P">ii. A person secondarily liable for a covered transaction, such as a guarantor.
<?page num="733"?></p>
<p style="-uslm-sgm:P">iii. A person that resides in or will reside in the consumer's principal dwelling but will not be liable on the covered transaction, such as a non-obligor spouse.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraiser.</inline> For purposes of <ref href="/us/cfr/t12/s226.42/g/1">§ 226.42(g)(1)</ref>, an “appraiser” is a natural person who provides opinions of the value of dwellings and is required to be licensed or certified under the laws of the state in which the consumer's principal dwelling is located or otherwise is subject to the jurisdiction of the appraiser certifying and licensing agency for that state. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/usc/t12/s3350/1">12 U.S.C. 3350(1)</ref>.</p>
<heading style="-uslm-sgm:HD2">Section 226.43—Appraisals for Higher-Risk Mortgage Loans</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(a) Definitions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(a)(1) Certified or licensed appraiser.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">USPAP.</inline> The Uniform Standards of Professional Appraisal Practice (USPAP) are established by the Appraisal Standards Board of the Appraisal Foundation (as defined in <ref href="/us/usc/t12/s3350/9">12 U.S.C. 3350(9)</ref>). Under <ref href="/us/cfr/t12/s226.43/a/1">§ 226.43(a)(1)</ref>, the relevant USPAP standards are those found in the edition of USPAP in effect at the time the appraiser signs the appraiser's certification.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraiser's certification.</inline> The appraiser's certification refers to the certification that must be signed by the appraiser for each appraisal assignment. This requirement is specified in USPAP Standards Rule 2–3.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">FIRREA title XI and implementing regulations.</inline> The relevant regulations are those prescribed under section 1110 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), as amended (<ref href="/us/usc/t12/s3339">12 U.S.C. 3339</ref>), that relate to an appraiser's development and reporting of the appraisal in effect at the time the appraiser signs the appraiser's certification. Paragraph (3) of FIRREA section 1110 (<ref href="/us/usc/t12/s3339/3">12 U.S.C. 3339(3)</ref>), which relates to the review of appraisals, is not relevant for determining whether an appraiser is a certified or licensed appraiser under <ref href="/us/cfr/t12/s226.43/a/1">§ 226.43(a)(1)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(a)(3) Higher-priced mortgage loan.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal dwelling.</inline> The term “principal dwelling” has the same meaning under <ref href="/us/cfr/t12/s226.43/a/3">§ 226.43(a)(3)</ref> as under <ref href="/us/cfr/t12/s1026.2/a/24">12 CFR 1026.2(a)(24)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the Official Staff Interpretations to the Bureau's Regulation Z (Supplement I to Part 1026), comment 2(a)(24)–3.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Average prime offer rate.</inline> For guidance on average prime offer rates, see the Official Staff Interpretations to the Bureau's Regulation Z, comments 35(a)(2)–1 and –3.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Comparable transaction.</inline> For guidance on determining the average prime offer rate for comparable transactions, see the Official Staff Interpretations to the Bureau's Regulation Z, comments 35(a)(1)–1 and 35(a)(2)–2.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate set.</inline> For guidance on the date the annual percentage rate is set, see the Official Staff Interpretations to the Bureau's Regulation Z, comment 35(a)(1)–2.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Threshold for “jumbo” loans.</inline> For guidance on determining whether a transaction's principal balance exceeds the limit in effect as of the date the transaction's rate is set for the maximum principal obligation eligible for purchase by Freddie Mac, see the Official Staff Interpretations to the Bureau's Regulation Z, comment 35(a)(1)–3.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(b) Exemptions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Compliance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).</inline> Section 226.43(b) provides exemptions solely from the requirements of <ref href="/us/cfr/t12/s226.43/c">§ 226.43(c)</ref> through (f). Institutions subject to the requirements of FIRREA and its implementing regulations that make a loan qualifying for an exemption under <ref href="/us/cfr/t12/s226.43/b">§ 226.43(b)</ref> must still comply with appraisal and evaluation requirements under FIRREA and its implementing regulations.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(1)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualified mortgage criteria.</inline> Under <ref href="/us/cfr/t12/s226.43/b/1">§ 226.43(b)(1)</ref>, a loan is exempt from the appraisal requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref> if either:</p>
<p style="-uslm-sgm:P">i. The loan is—(1) subject to the ability-to-repay requirements of the Bureau of Consumer Financial Protection (Bureau) in <ref href="/us/cfr/t12/s1026.43">12 CFR 1026.43</ref> as a “covered transaction” (defined in <ref href="/us/cfr/t12/s1026.43/b/1">12 CFR 1026.43(b)(1)</ref>) and (2) a qualified mortgage pursuant to the Bureau's rules or, for loans insured, guaranteed, or administered by the U.S. Department of Housing and Urban Development (HUD), U.S. Department of Veterans Affairs (VA), U.S. Department of Agriculture (USDA), or Rural Housing Service (RHS), a qualified mortgage pursuant to applicable rules prescribed by those agencies (but only once such rules are in effect; otherwise, the Bureau's definition of a qualified mortgage applies to those loans); or</p>
<p style="-uslm-sgm:P">ii. The loan is—(1) not subject to the Bureau's ability-to-repay requirements in <ref href="/us/cfr/t12/s1026.43">12 CFR 1026.43</ref> as a “covered transaction” (defined in <ref href="/us/cfr/t12/s1026.43/b/1">12 CFR 1026.43(b)(1)</ref>), but (2) meets the criteria for a qualified mortgage in the Bureau's rules or, for loans insured, guaranteed, or administered by HUD, VA, USDA, or RHS, meets the criteria for a qualified mortgage in the applicable rules prescribed by those agencies (but only once such rules are in effect; otherwise, the Bureau's criteria for a qualified mortgage applies to those loans). To explain further, loans enumerated in <ref href="/us/cfr/t12/s1026.43/a">12 CFR 1026.43(a)</ref> are not “covered transactions” under the Bureau's ability-to-repay requirements in <ref href="/us/cfr/t12/s1026.43">12 CFR 1026.43</ref>, and thus cannot be qualified mortgages (entitled to a rebuttable presumption or safe harbor of compliance with the ability-to-repay requirements of <ref href="/us/cfr/t12/s1026.43">12 CFR 1026.43</ref>, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see, e.g.,</inline> <ref href="/us/cfr/t12/s1026.43/e/1">12 CFR 1026.43(e)(1)</ref>). These include an extension of credit made pursuant to a program administered by a Housing Finance Agency, as defined under <ref href="/us/cfr/t24/s266.5">24 CFR 266.5</ref>, or pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s1026.43/a/3/iv">12 CFR 1026.43(a)(3)(iv)</ref> and (vi). <?page num="734"?>They also include extensions of credit made by a creditor identified in <ref href="/us/cfr/t12/s1026.43/a/3/v">12 CFR 1026.43(a)(3)(v)</ref>. However, these loans are eligible for the exemption in <ref href="/us/cfr/t12/s226.43/b/1">§ 226.43(b)(1)</ref> if they meet the Bureau's qualified mortgage criteria in <ref href="/us/cfr/t12/s1026.43/e/2">§ 1026.43(e)(2)</ref>, (4), (5), or (6) or <ref href="/us/cfr/t12/s1026.43/f">§ 1026.43(f)</ref> (including limits on when loans must be consummated) or, for loans that are insured, guaranteed, or administered by HUD, VA, USDA, or RHS, in applicable rules prescribed by those agencies (but only once such rules are in effect; otherwise, the Bureau's criteria for a qualified mortgage applies to those loans). For example, assume that HUD has prescribed rules to define loans insured under its programs that are qualified mortgages and those rules are in effect. Assume further that a creditor designated as a Community Development Financial Institution, as defined under <ref href="/us/cfr/t12/s1805.104/h">12 CFR 1805.104(h)</ref>, originates a loan insured by the Federal Housing Administration, which is a part of HUD. The loan is not a “covered transaction” and thus is not a qualified mortgage. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s1026.43/a/3/v/A">12 CFR 1026.43(a)(3)(v)(A)</ref> and (b)(1). Nonetheless, the transaction is eligible for an exemption from the appraisal requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref> if it meets the qualified mortgage criteria in HUD's rules. Nothing in <ref href="/us/cfr/t12/s226.43/b/1">§ 226.43(b)(1)</ref> alters the definition of a qualified mortgage under regulations of the Bureau, HUD, VA, USDA, or RHS.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(2)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Threshold amount.</inline> For purposes of <ref href="/us/cfr/t12/s226.43/b/2">§ 226.43(b)(2)</ref>, the threshold amount in effect during a particular period is the amount stated in comment 43(b)(2)–3 for that period. The threshold amount is adjusted effective January 1 of each year by any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W) that was in effect on the preceding June 1. Comment 43(b)(2)–3 will be amended to provide the threshold amount for the upcoming year after the annual percentage change in the CPI–W that was in effect on June 1 becomes available. Any increase in the threshold amount will be rounded to the nearest $100 increment. For example, if the annual percentage increase in the CPI–W would result in a $950 increase in the threshold amount, the threshold amount will be increased by $1,000. However, if the annual percentage increase in the CPI–W would result in a $949 increase in the threshold amount, the threshold amount will be increased by $900.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No increase in the CPI–W.</inline> If the CPI–W in effect on June 1 does not increase from the CPI–W in effect on June 1 of the previous year, the threshold amount effective the following January 1 through December 31 will not change from the previous year. When this occurs, for the years that follow, the threshold is calculated based on the annual percentage change in the CPI–W applied to the dollar amount that would have resulted, after rounding, if decreases and any subsequent increases in the CPI–W had been taken into account.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Net increases.</inline> If the resulting amount calculated, after rounding, is greater than the current threshold, then the threshold effective January 1 the following year will increase accordingly.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Net decreases.</inline> If the resulting amount calculated, after rounding, is equal to or less than the current threshold, then the threshold effective January 1 the following year will not change, but future increases will be calculated based on the amount that would have resulted.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Threshold.</inline> For purposes of <ref href="/us/cfr/t12/s226.43/b/2">§ 226.43(b)(2)</ref>, the threshold amount in effect during a particular period is the amount stated below for that period.</p>
<p style="-uslm-sgm:P">i. From <date date="2014-01-18">January 18, 2014</date>, through <date date="2014-12-31">December 31, 2014</date>, the threshold amount is $25,000.</p>
<p style="-uslm-sgm:P">ii. From <date date="2015-01-01">January 1, 2015</date>, through <date date="2015-12-31">December 31, 2015</date>, the threshold amount is $25,500.</p>
<p style="-uslm-sgm:P">iii. From <date date="2016-01-01">January 1, 2016</date>, through <date date="2016-12-31">December 31, 2016</date>, the threshold amount is $25,500.</p>
<p style="-uslm-sgm:P">iv. From <date date="2017-01-01">January 1, 2017</date>, through <date date="2017-12-31">December 31, 2017</date>, the threshold amount is $25,500.
</p>
<p style="-uslm-sgm:P">v. From <date date="2018-01-01">January 1, 2018</date>, through <date date="2018-12-31">December 31, 2018</date>, the threshold amount is $26,000.
</p>
<p style="-uslm-sgm:P">vi. From <date date="2019-01-01">January 1, 2019</date>, through <date date="2019-12-31">December 31, 2019</date>, the threshold amount is $26,700.
</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying for exemption—in general.</inline> A transaction is exempt under <ref href="/us/cfr/t12/s226.43/b/2">§ 226.43(b)(2)</ref> if the creditor makes an extension of credit at consummation that is equal to or below the threshold amount in effect at the time of consummation.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualifying for exemption—subsequent changes.</inline> A transaction does not meet the condition for an exemption under <ref href="/us/cfr/t12/s226.43/b/2">§ 226.43(b)(2)</ref> merely because it is used to satisfy and replace an existing exempt loan, unless the amount of the new extension of credit is equal to or less than the applicable threshold amount. For example, assume a closed-end loan that qualified for a <ref href="/us/cfr/t12/s226.43/b/2">§ 226.43(b)(2)</ref> exemption at consummation in year one is refinanced in year ten and that the new loan amount is greater than the threshold amount in effect in year ten. In these circumstances, the creditor must comply with all of the applicable requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref> with respect to the year ten transaction if the original loan is satisfied and replaced by the new loan, unless another exemption from the requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref> applies. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.43/b">§ 226.43(b)</ref> and (d)(7).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(3)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Secured by a mobile home.</inline> For purposes of the exemption in <ref href="/us/cfr/t12/s226.43/b/3">§ 226.43(b)(3)</ref>, a mobile home does not include a manufactured home, as defined in <ref href="/us/cfr/t12/s226.43/a/3">§ 226.43(a)(3)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(4)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Construction-to-permanent loans.</inline> Section 226.43 does not apply to a transaction to finance the initial construction of a dwelling. This exclusion applies to a construction-only <?page num="735"?>loan as well as to the construction phase of a construction-to-permanent loan. Section 226.43 does apply, however, to permanent financing that replaces a construction loan, whether the permanent financing is extended by the same or a different creditor, unless the permanent financing is otherwise exempt from the requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.43/b">§ 226.43(b)</ref>. When a construction loan may be permanently financed by the same creditor, the general disclosure requirements for closed-end credit pursuant to Regulation Z (<ref href="/us/cfr/t12/s1026.17">12 CFR 1026.17</ref>) provide that the creditor may give either one combined disclosure for both the construction financing and the permanent financing, or a separate set of disclosures for each of the two phases as though they were two separate transactions. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s1026.17/c/6/ii">12 CFR 1026.17(c)(6)(ii)</ref> and the Official Staff Interpretations to the Bureau's Regulation Z, comment 17(c)(6)–2. Which disclosure option a creditor elects under <ref href="/us/cfr/t12/s1026.17/c/6/ii">§ 1026.17(c)(6)(ii)</ref> does not affect the determination of whether the permanent phase of the transaction is subject to <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>. When the creditor discloses the two phases as separate transactions, the annual percentage rate for the permanent phase must be compared to the average prime offer rate for a transaction that is comparable to the permanent financing to determine coverage under <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>. When the creditor discloses the two phases as a single transaction, a single annual percentage rate, reflecting the appropriate charges from both phases, must be calculated for the transaction in accordance with <ref href="/us/cfr/t12/s226.43/a/3">§ 226.43(a)(3)</ref> and appendix D to <ref href="/us/cfr/t12/p1026">12 CFR part 1026</ref>. The annual percentage rate must be compared to the average prime offer rate for a transaction that is comparable to the permanent financing to determine coverage under <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>. If the transaction is determined to be a higher-priced mortgage loan not otherwise exempt under <ref href="/us/cfr/t12/s226.43/b">§ 226.43(b)</ref>, only the permanent phase is subject to the requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financing initial construction.</inline> The exemption for construction loans in <ref href="/us/cfr/t12/s226.43/b/4">§ 226.43(b)(4)</ref> applies to temporary financing of the construction of a dwelling that will be replaced by permanent financing once construction is complete. The exemption does not apply, for example, to loans to finance the purchase of manufactured homes that have not been or are in the process of being built when the financing obtained by the consumer at that time is permanent. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.43/b/8">§ 226.43(b)(8)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(7)(i)(A)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Same credit risk holder.</inline> The requirement that the holder of the credit risk on the existing obligation and the refinancing be the same applies to situations in which an entity bears the financial responsibility for the default of a loan by either holding the loan in its portfolio or guaranteeing payments of principal and any interest to investors in a mortgage-backed security in which the loan is pooled. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.43/a/4">§ 226.43(a)(4)</ref> (defining “credit risk”). For example, a credit risk holder could be a bank that bears the credit risk on the existing obligation by holding the loan in the bank's portfolio. Another example of a credit risk holder would be a government-sponsored enterprise that bears the risk of default on a loan by guaranteeing the payment of principal and any interest on a loan to investors in a mortgage-backed security. The holder of credit risk under <ref href="/us/cfr/t12/s226.43/b/7/i/A">§ 226.43(b)(7)(i)(A)</ref> does not mean individual investors in a mortgage-backed security or providers of private mortgage insurance.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Same credit risk holder—illustrations.</inline>
</p>
<p style="-uslm-sgm:P">Illustrations of the credit risk holder of the existing obligation continuing to be the credit risk holder of the refinancing include, but are not limited to, the following:</p>
<p style="-uslm-sgm:P">i. The existing obligation is held in the portfolio of a bank, thus the bank holds the credit risk. The bank arranges to refinance the loan and also will hold the refinancing in its portfolio. If the refinancing otherwise meets the requirements for an exemption under <ref href="/us/cfr/t12/s226.43/b/7">§ 226.43(b)(7)</ref>, the transaction will qualify for the exemption because the credit risk holder is the same for the existing obligation and the refinance transaction. In this case, the exemption would apply regardless of whether the bank arranged to refinance the loan directly or indirectly, such as through the servicer or subservicer on the existing obligation.</p>
<p style="-uslm-sgm:P">ii. The existing obligation is held in the portfolio of a government-sponsored enterprise (GSE), thus the GSE holds the credit risk. The existing obligation is then refinanced by the servicer of the loan and immediately transferred to the GSE. The GSE pools the refinancing in a mortgage-backed security guaranteed by the GSE, thus the GSE holds the credit risk on the refinance loan. If the refinance transaction otherwise meets the requirements for an exemption under <ref href="/us/cfr/t12/s226.43/b/7">§ 226.43(b)(7)</ref>, the transaction will qualify for the exemption because the credit risk holder is the same for the existing obligation and the refinance transaction. In this case, the exemption would apply regardless of whether the existing obligation was refinanced by the servicer or subservicer on the existing obligation (acting as a “creditor” under <ref href="/us/cfr/t12/s1026.2/a/17">§ 1026.2(a)(17)</ref>) or by a different creditor.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Forward commitments.</inline> A creditor may make a mortgage loan that will be sold or otherwise transferred pursuant to an agreement that has been entered into at or before the time the transaction is consummated. Such an agreement is sometimes known as a “forward commitment.” A refinance loan does not satisfy the requirement of <ref href="/us/cfr/t12/s226.43/b/7/i/A">§ 226.43(b)(7)(i)(A)</ref> if the loan will be acquired pursuant to a forward commitment, such that the credit risk on the refinance loan will transfer to a person who did not hold the credit risk on the existing obligation.
<?page num="736"?></p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(7)</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(7)(ii)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Regular periodic payments.</inline> Under <ref href="/us/cfr/t12/s226.43/b/7/ii">§ 226.43(b)(7)(ii)</ref>, the regular periodic payments on the refinance loan must not: result in an increase of the principal balance (negative amortization); allow the consumer to defer repayment of principal (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see</inline> <ref href="/us/cfr/t12/s1026.43">12 CFR 1026.43</ref> and the Official Staff Interpretations to the Bureau's Regulation Z, comment 43(e)(2)(i)–2); or result in a balloon payment. Thus, the terms of the legal obligation must require the consumer to make payments of principal and interest on a monthly or other periodic basis that will repay the loan amount over the loan term. Except for payments resulting from any interest rate changes after consummation in an adjustable-rate or step-rate mortgage, the periodic payments must be substantially equal. For an explanation of the term “substantially equal,” see <ref href="/us/cfr/t12/s1026.43">12 CFR 1026.43</ref> and the Official Staff Interpretations to the Bureau's Regulation Z, comment 43(c)(5)(i)–4. In addition, a single-payment transaction is not a refinancing meeting the requirements of <ref href="/us/cfr/t12/s226.43/b/7">§ 226.43(b)(7)</ref> because it does not require “regular periodic payments.”</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(b)(7)(iii)</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible use of proceeds.</inline> The exemption for a refinancing under <ref href="/us/cfr/t12/s226.43/b/7">§ 226.43(b)(7)</ref> is available only if the proceeds from the refinancing are used exclusively for the existing obligation and amounts attributed solely to the costs of the refinancing. The existing obligation includes the unpaid principal balance of the existing first lien loan, any earned unpaid finance charges, and any other lawful charges related to the existing loan. For guidance on the meaning of refinancing costs, see <ref href="/us/cfr/t12/s1026.23">12 CFR 1026.23</ref>, the Official Staff Interpretations to the Bureau's Regulations Z, comment 23(f)–4. If the proceeds of a refinancing are used for other purposes, such as to pay off other liens or to provide additional cash to the consumer for discretionary spending, the transaction does not qualify for the exemption for a refinancing under <ref href="/us/cfr/t12/s226.43/b/7">§ 226.43(b)(7)</ref> from the appraisal requirements in <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>.</p>
<p style="-uslm-sgm:P">For applications received on or after <date date="2015-07-18">July 18, 2015</date></p>
<heading style="-uslm-sgm:HD3">Paragraph 43(b)(8)</heading>
<heading style="-uslm-sgm:HD3">Paragraph 43(b)(8)(i)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Secured by new manufactured home and land—physical visit of the interior.</inline> A transaction secured by a new manufactured home and land is subject to the requirements of <ref href="/us/cfr/t12/s226.43/c">§ 226.43(c)</ref> through (f) except for the requirement in <ref href="/us/cfr/t12/s226.43/c/1">§ 226.43(c)(1)</ref> that the appraiser conduct a physical inspection of the interior of the property. Thus, for example, a creditor of a loan secured by a new manufactured home and land could comply with <ref href="/us/cfr/t12/s226.43/c/1">§ 226.43(c)(1)</ref> by obtaining an appraisal conducted by a state-certified or -licensed appraiser based on plans and specifications for the new manufactured home and an inspection of the land on which the property will be sited, as well as any other information necessary for the appraiser to complete the appraisal assignment in conformity with the Uniform Standards of Professional Appraisal Practice and the requirements of FIRREA and any implementing regulations.</p>
<heading style="-uslm-sgm:HD3">Paragraph 43(b)(8)(ii)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Secured by a manufactured home and not land.</inline> Section 226.43(b)(8)(ii) applies to a higher-priced mortgage loan secured by a manufactured home and not land, regardless of whether the home is titled as realty by operation of State law.</p>
<heading style="-uslm-sgm:HD3">Paragraph 43(b)(8)(ii)(B)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Independent.</inline> A cost service provider from which the creditor obtains a manufactured home unit cost estimate under <ref href="/us/cfr/t12/s226.43/b/8/ii/B">§ 226.43(b)(8)(ii)(B)</ref> is “independent” if that person is not affiliated with the creditor in the transaction, such as by common corporate ownership, and receives no direct or indirect financial benefits based on whether the transaction is consummated.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjustments.</inline> The requirement that the cost estimate be from an independent cost service provider does not prohibit a creditor from providing a cost estimate that reflects adjustments to account for factors such as special features, condition or location. However, the requirement that the estimate be obtained from an independent cost service provider means that any adjustments to the estimate must be based on adjustment factors available as part of the independent cost service used, with associated values that are determined by the independent cost service.</p>
<heading style="-uslm-sgm:HD3">Paragraph 43(b)(8)(ii)(C)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest in the property.</inline> A person has a direct or indirect in the property if, for example, the person has any ownership or reasonably foreseeable ownership interest in the manufactured home. To illustrate, a person who seeks a loan to purchase the manufactured home to be valued has a reasonably foreseeable ownership interest in the property.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest in the transaction.</inline> A person has a direct or indirect interest in the transaction if, for example, the person or an affiliate of that person also serves as a loan officer of the creditor or otherwise arranges the credit transaction, or is the retail dealer of the manufactured home. A person also has a prohibited interest in the transaction if the person is compensated or otherwise receives financial or other benefits based on whether the transaction is consummated.
<?page num="737"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Training in valuing manufactured homes.</inline> Training in valuing manufactured homes includes, for example, successfully completing a course in valuing manufactured homes offered by a State or national appraiser association or receiving job training from an employer in the business of valuing manufactured homes.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Manufactured home valuation—example.</inline> A valuation in compliance with <ref href="/us/cfr/t12/s226.43/b/8/ii/C">§ 226.43(b)(8)(ii)(C)</ref> would include, for example, an appraisal of the manufactured home in accordance with the appraisal requirements for a manufactured home classified as personal property under the Title I Manufactured Home Loan Insurance Program of the U.S. Department of Housing and Urban Development, pursuant to section 2(b)(10) of the National Housing Act, <ref href="/us/usc/t12/s1703/b/10">12 U.S.C. 1703(b)(10)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(c) Appraisals required.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(c)(1) In general.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written appraisal—electronic transmission.</inline> To satisfy the requirement that the appraisal be “written,” a creditor may obtain the appraisal in paper form or via electronic transmission.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(c)(2) Safe harbor.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbor.</inline> A creditor that satisfies the safe harbor conditions in <ref href="/us/cfr/t12/s226.43/c/2/i">§ 226.43(c)(2)(i)</ref> through (iv) complies with the appraisal requirements of <ref href="/us/cfr/t12/s226.43/c/1">§ 226.43(c)(1)</ref>. A creditor that does not satisfy the safe harbor conditions in <ref href="/us/cfr/t12/s226.43/c/2/i">§ 226.43(c)(2)(i)</ref> through (iv) does not necessarily violate the appraisal requirements of <ref href="/us/cfr/t12/s226.43/c/1">§ 226.43(c)(1)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraiser's certification.</inline> For purposes of <ref href="/us/cfr/t12/s226.43/c/2">§ 226.43(c)(2)</ref>, the appraiser's certification refers to the certification specified in item 9 of appendix N. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 43(a)(1)–2.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(c)(2)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Confirming elements in the appraisal.</inline> To confirm that the elements in appendix N to this part are included in the written appraisal, a creditor need not look beyond the face of the written appraisal and the appraiser's certification.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d) Additional appraisal for certain higher-priced mortgage loans.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acquisition.</inline> For purposes of <ref href="/us/cfr/t12/s226.43/d">§ 226.43(d)</ref>, the terms “acquisition” and “acquire” refer to the acquisition of legal title to the property pursuant to applicable State law, including by purchase.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(1) In general.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal from a previous transaction.</inline> An appraisal that was previously obtained in connection with the seller's acquisition or the financing of the seller's acquisition of the property does not satisfy the requirements to obtain two written appraisals under <ref href="/us/cfr/t12/s226.43/d/1">§ 226.43(d)(1)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">90-day, 180-day calculation.</inline> The time periods described in <ref href="/us/cfr/t12/s226.43/d/1/i">§ 226.43(d)(1)(i)</ref> and (ii) are calculated by counting the day after the date on which the seller acquired the property, up to and including the date of the consumer's agreement to acquire the property that secures the transaction. For example, assume that the creditor determines that date of the consumer's acquisition agreement is <date date="2012-10-15">October 15, 2012</date>, and that the seller acquired the property on <date date="2012-04-17">April 17, 2012</date>. The first day to be counted in the 180-day calculation would be <date date="2012-04-18">April 18, 2012</date>, and the last day would be <date date="2012-10-15">October 15, 2012</date>. In this case, the number of days from April 17 would be 181, so an additional appraisal is not required.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date seller acquired the property.</inline> For purposes of <ref href="/us/cfr/t12/s226.43/d/1/i">§ 226.43(d)(1)(i)</ref> and (ii), the date on which the seller acquired the property is the date on which the seller became the legal owner of the property pursuant to applicable State law.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date of the consumer's agreement to acquire the property.</inline> For the date of the consumer's agreement to acquire the property under <ref href="/us/cfr/t12/s226.43/d/1/i">§ 226.43(d)(1)(i)</ref> and (ii), the creditor should use the date on which the consumer and the seller signed the agreement provided to the creditor by the consumer. The date on which the consumer and the seller signed the agreement might not be the date on which the consumer became contractually obligated under State law to acquire the property. For purposes of <ref href="/us/cfr/t12/s226.43/d/1/i">§ 226.43(d)(1)(i)</ref> and (ii), a creditor is not obligated to determine whether and to what extent the agreement is legally binding on both parties. If the dates on which the consumer and the seller signed the agreement differ, the creditor should use the later of the two dates.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Price at which the seller acquired the property.</inline> The price at which the seller acquired the property refers to the amount paid by the seller to acquire the property. The price at which the seller acquired the property does not include the cost of financing the property.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Price the consumer is obligated to pay to acquire the property.</inline> The price the consumer is obligated to pay to acquire the property is the price indicated on the consumer's agreement with the seller to acquire the property. The price the consumer is obligated to pay to acquire the property from the seller does not include the cost of financing the property. For purposes of <ref href="/us/cfr/t12/s226.43/d/1/i">§ 226.43(d)(1)(i)</ref> and (ii), a creditor is not obligated to determine whether and to what extent the agreement is legally binding on both parties. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 43(d)(1)–4.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(2) Different certified or licensed appraisers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Independent appraisers.</inline> The requirements that a creditor obtain two separate appraisals under <ref href="/us/cfr/t12/s226.43/d/1">§ 226.43(d)(1)</ref>, and that each appraisal be conducted by a different licensed or certified appraiser under <ref href="/us/cfr/t12/s226.43/d/2">§ 226.43(d)(2)</ref>, indicate that the two appraisals must be conducted independently of each other. If the two certified or licensed appraisers are affiliated, such as by being employed by the same appraisal firm, then whether they have conducted the appraisal independently of each <?page num="738"?>other must be determined based on the facts and circumstances of the particular case known to the creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(3) Relationship to general appraisal requirements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Safe harbor.</inline> When a creditor is required to obtain an additional appraisal under § 226(d)(1), the creditor must comply with the requirements of both <ref href="/us/cfr/t12/s226.43/c/1">§ 226.43(c)(1)</ref> and <ref href="/us/cfr/t12/s226.43/d/2">§ 226.43(d)(2)</ref> through (5) for that appraisal. The creditor complies with the requirements of <ref href="/us/cfr/t12/s226.43/c/1">§ 226.43(c)(1)</ref> for the additional appraisal if the creditor meets the safe harbor conditions in <ref href="/us/cfr/t12/s226.43/c/2">§ 226.43(c)(2)</ref> for that appraisal.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(4) Required analysis in the additional appraisal.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Determining acquisition dates and prices used in the analysis of the additional appraisal.</inline> For guidance on identifying the date on which the seller acquired the property, see comment 43(d)(1)–3. For guidance on identifying the date of the consumer's agreement to acquire the property, see comment 43(d)(1)–4. For guidance on identifying the price at which the seller acquired the property, see comment 43(d)(1)–5. For guidance on identifying the price the consumer is obligated to pay to acquire the property, see comment 43(d)(1)–6.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(5) No charge for additional appraisal.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees and mark-ups.</inline> The creditor is prohibited from charging the consumer for the performance of one of the two appraisals required under <ref href="/us/cfr/t12/s226.43/d/1">§ 226.43(d)(1)</ref>, including by imposing a fee specifically for that appraisal or by marking up the interest rate or any other fees payable by the consumer in connection with the higher-priced mortgage loan.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(6) Creditor's determination of prior sale date and price.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(6)(i) In general.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Estimated sales price.</inline> If a written source document describes the seller's acquisition price in a manner that indicates that the price described is an estimated or assumed amount and not the actual price, the creditor should look at an alternative document to satisfy the reasonable diligence standard in determining the price at which the seller acquired the property.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable diligence—oral statements insufficient.</inline> Reliance on oral statements of interested parties, such as the consumer, seller, or mortgage broker, does not constitute reasonable diligence under <ref href="/us/cfr/t12/s226.43/d/6/i">§ 226.43(d)(6)(i)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lack of information and conflicting information—two appraisals required.</inline> If a creditor is unable to demonstrate that the requirement to obtain two appraisals under <ref href="/us/cfr/t12/s226.43/d/1">§ 226.43(d)(1)</ref> does not apply, the creditor must obtain two written appraisals before extending a higher-priced mortgage loan subject to the requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 43(d)(6)(ii)–1. For example:</p>
<p style="-uslm-sgm:P">i. Assume a creditor orders and reviews the results of a title search, which shows that a prior sale occurred between 91 and 180 days ago, but not the price paid in that sale. Thus, based on the title search, the creditor would not be able to determine whether the price the consumer is obligated to pay under the consumer's acquisition agreement is more than 20 percent higher than the seller's acquisition price, pursuant to <ref href="/us/cfr/t12/s226.43/d/1/ii">§ 226.43(d)(1)(ii)</ref>. Before extending a higher-priced mortgage loan subject to the appraisal requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>, the creditor must either: perform additional diligence to ascertain the seller's acquisition price and, based on this information, determine whether two written appraisals are required; or obtain two written appraisals in compliance with <ref href="/us/cfr/t12/s226.43/d">§ 226.43(d)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 43(d)(6)(ii)–1.</p>
<p style="-uslm-sgm:P">ii. Assume a creditor reviews the results of a title search indicating that the last recorded purchase was more than 180 days before the consumer's agreement to acquire the property. Assume also that the creditor subsequently receives a written appraisal indicating that the seller acquired the property between 91 and 180 days before the consumer's agreement to acquire the property. In this case, unless one of these sources is clearly wrong on its face, the creditor would not be able to determine whether the seller acquired the property within 180 days of the date of the consumer's agreement to acquire the property from the seller, pursuant to <ref href="/us/cfr/t12/s226.43/d/1/ii">§ 226.43(d)(1)(ii)</ref>. Before extending a higher-priced mortgage loan subject to the appraisal requirements of <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>, the creditor must either: (1) Perform additional diligence to ascertain the seller's acquisition date and, based on this information, determine whether two written appraisals are required; or (2) obtain two written appraisals in compliance with <ref href="/us/cfr/t12/s226.43/d">§ 226.43(d)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 43(d)(6)(ii)–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(6)(ii) Inability to determine prior sales date or price—modified requirements for additional appraisal.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Required analysis.</inline> In general, the additional appraisal required under <ref href="/us/cfr/t12/s226.43/d/1">§ 226.43(d)(1)</ref> should include an analysis of the factors listed in <ref href="/us/cfr/t12/s226.43/d/4/i">§ 226.43(d)(4)(i)</ref> through (iii). However, if, following reasonable diligence, a creditor cannot determine whether the conditions in <ref href="/us/cfr/t12/s226.43/d/1/i">§ 226.43(d)(1)(i)</ref> or (ii) are present due to a lack of information or conflicting information, the required additional appraisal must include the analyses required under <ref href="/us/cfr/t12/s226.43/d/4/i">§ 226.43(d)(4)(i)</ref> through (iii) only to the extent that the information necessary to perform the analyses is known. For example, assume that a creditor is able, following reasonable diligence, to determine that the date on which the seller acquired the property occurred between 91 and 180 days prior to the date of the consumer's agreement to acquire <?page num="739"?>the property. However, the creditor is unable, following reasonable diligence, to determine the price at which the seller acquired the property. In this case, the creditor is required to obtain an additional written appraisal that includes an analysis under <ref href="/us/cfr/t12/s226.43/d/4/ii">§ 226.43(d)(4)(ii)</ref> and (iii) of the changes in market conditions and any improvements made to the property between the date the seller acquired the property and the date of the consumer's agreement to acquire the property. However, the creditor is not required to obtain an additional written appraisal that includes analysis under <ref href="/us/cfr/t12/s226.43/d/4/i">§ 226.43(d)(4)(i)</ref> of the difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay to acquire the property.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(d)(7) Exemptions from the additional appraisal requirement.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(d)(7)(iii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Non-profit entity.</inline> For purposes of <ref href="/us/cfr/t12/s226.43/d/7/iii">§ 226.43(d)(7)(iii)</ref>, a “non-profit entity” is a person with a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986 (<ref href="/us/usc/t12/s501/c/3">12 U.S.C. 501(c)(3)</ref>).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paragraph 43(d)(7)(viii).</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bureau table of rural counties.</inline> The Bureau publishes on its Web site a table of rural counties under <ref href="/us/cfr/t12/s226.43/d/7/viii">§ 226.43(d)(7)(viii)</ref> for each calendar year by the end of the calendar year. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Official Staff Interpretations to the Bureau's Regulation Z, comment 35(b)(2)(iv)–1. A property securing an HPML subject to <ref href="/us/cfr/t12/s226.43">§ 226.43</ref> is in a rural county under <ref href="/us/cfr/t12/s226.43/d/7/viii">§ 226.43(d)(7)(viii)</ref> if the county in which the property is located is on the table of rural counties most recently published by the Bureau. For example, for a transaction occurring in 2015, assume that the Bureau most recently published a table of rural counties at the end of 2014. The property securing the transaction would be located in a rural county for purposes of <ref href="/us/cfr/t12/s226.43/d/7/viii">§ 226.43(d)(7)(viii)</ref> if the county is on the table of rural counties published by the Bureau at the end of 2014.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(e) Required disclosure.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(e)(1) In general.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple applicants.</inline> When two or more consumers apply for a loan subject to this section, the creditor is required to give the disclosure to only one of the consumers.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appraisal independence requirements not affected.</inline> Nothing in the text of the consumer notice required by <ref href="/us/cfr/t12/s226.43/e/1">§ 226.43(e)(1)</ref> should be construed to affect, modify, limit, or supersede the operation of any legal, regulatory, or other requirements or standards relating to independence in the conduct of appraisers or restrictions on the use of borrower-ordered appraisals by creditors.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(f) Copy of appraisals.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(f)(1) In general.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple applicants.</inline> When two or more consumers apply for a loan subject to this section, the creditor is required to give the copy of each required appraisal to only one of the consumers.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(f)(2) Timing.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">“Provide.”</inline> For purposes of the requirement to provide a copy of the appraisal within a specified time under <ref href="/us/cfr/t12/s226.43/f/2">§ 226.43(f)(2)</ref>, “provide” means “deliver.” Delivery occurs three business days after mailing or delivering the copies to the last-known address of the applicant, or when evidence indicates actual receipt by the applicant (which, in the case of electronic receipt, must be based upon consent that complies with the E-Sign Act), whichever is earlier.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No waiver.</inline> Regulation B, <ref href="/us/cfr/t12/s1002.14/a/1">12 CFR 1002.14(a)(1)</ref>, allowing the consumer to waive the requirement that the appraisal copy be provided three business days before consummation, does not apply to higher-priced mortgage loans subject to <ref href="/us/cfr/t12/s226.43">§ 226.43</ref>. A consumer of a higher-priced mortgage loan subject to <ref href="/us/cfr/t12/s226.43">§ 226.43</ref> may not waive the timing requirement to receive a copy of the appraisal under <ref href="/us/cfr/t12/s226.43/f/2">§ 226.43(f)(2)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">43(f)(4) No charge for copy of appraisal.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees and mark-ups.</inline> The creditor is prohibited from charging the consumer for any copy of an appraisal required to be provided under <ref href="/us/cfr/t12/s226.43/f/1">§ 226.43(f)(1)</ref>, including by imposing a fee specifically for a required copy of an appraisal or by marking up the interest rate or any other fees payable by the consumer in connection with the higher-priced mortgage loan.</p>
<heading style="-uslm-sgm:HD1">Subpart F—Special Rules for Private Education Loans</heading>
<heading style="-uslm-sgm:HD2">Section 226.46—Special Disclosure Requirements for Private Education Loans</heading>
<heading style="-uslm-sgm:HD2">46(a) Coverage</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> This subpart applies to all private education loans as defined in <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref>. Coverage under this subpart is optional for certain extensions of credit that do not meet the definition of “private education loan” because the credit is not extended, in whole or in part, for “postsecondary educational expenses” defined in <ref href="/us/cfr/t12/s226.46/b/3">§ 226.46(b)(3)</ref>. If a transaction is not covered and a creditor opts to comply with any section of this subpart, the creditor must comply with all applicable sections of this subpart. If a transaction is not covered and a creditor opts not to comply with this subpart, the creditor must comply with all applicable requirements under <ref href="/us/cfr/t12/s226.17">§§ 226.17</ref> and 226.18. Compliance with this subpart is optional for an extension of credit for expenses incurred after graduation from a law, medical, dental, veterinary, or other graduate school and related to relocation, study for a bar or other examination, participation in an internship or residency program, or similar purposes. However, if any part of such loan is used for postsecondary educational expenses <?page num="740"?>as defined in <ref href="/us/cfr/t12/s226.46/b/3">§ 226.46(b)(3)</ref>, then compliance with Subpart F is mandatory not optional.</p>
<heading style="-uslm-sgm:HD2">46(b) Definitions</heading>
<heading style="-uslm-sgm:HD2">46(b)(1) Covered Educational Institution</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> A covered educational institution includes any educational institution that meets the definition of an institution of higher education in <ref href="/us/cfr/t12/s226.46/b/2">§ 226.46(b)(2)</ref>. An institution is also a covered educational institution if it otherwise meets the definition of an institution of higher education, except for its lack of accreditation. Such an institution may include, for example, a university or community college. It may also include an institution, whether accredited or unaccredited, offering instruction to prepare students for gainful employment in a recognized profession, such as flying, culinary arts, or dental assistance. A covered educational institution does not include elementary or secondary schools.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agent.</inline> For purposes of <ref href="/us/cfr/t12/s226.46/b/1">§ 226.46(b)(1)</ref>, the term agent means an institution-affiliated organization as defined by section 151 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1019">20 U.S.C 1019</ref>) or an officer or employee of an institution-affiliated organization. Under section 151 of the Higher Education Act, an institution-affiliated organization means any organization that is directly or indirectly related to a covered institution and is engaged in the practice of recommending, promoting, or endorsing education loans for students attending the covered institution or the families of such students. An institution-affiliated organization may include an alumni organization, athletic organization, foundation, or social, academic, or professional organization, of a covered institution, but does not include any creditor with respect to any private education loan made by that creditor.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">46(b)(2) Institution of higher education.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> An institution of higher education includes any institution that meets the definitions contained in sections 101 and 102 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1001–1002">20 U.S.C. 1001–1002</ref>) and implementing Department of Education regulations (<ref href="/us/cfr/t34/p600">34 CFR 600</ref>). Such an institution may include, for example, a university or community college. It may also include an institution offering instruction to prepare students for gainful employment in a recognized profession, such as flying, culinary arts, or dental assistance. An institution of higher education does not include elementary or secondary schools.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">46(b)(3) Postsecondary educational expenses.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The examples listed in <ref href="/us/cfr/t12/s226.46/b/3">§ 226.46(b)(3)</ref> are illustrative only. The full list of postsecondary educational expenses is contained in section 472 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1087ll">20 U.S.C. 1087ll</ref>).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">46(b)(4) Preferred lender arrangement.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The term “preferred lender arrangement” is defined in section 151 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1019">20 U.S.C 1019</ref>). The term refers to an arrangement or agreement between a creditor and a covered educational institution (or an institution-affiliated organization as defined by section 151 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1019">20 U.S.C 1019</ref>)) under which a creditor provides private education loans to consumers for students attending the covered educational institution and the covered educational institution recommends, promotes, or endorses the private education loan products of the creditor. It does not include arrangements or agreements with respect to Federal Direct Stafford/Ford loans, or Federal PLUS loans made under the Federal PLUS auction pilot program.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">46(b)(5) Private education loan.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Extended expressly for postsecondary educational expenses.</inline> A private education loan is one that is extended expressly for postsecondary educational expenses. The term includes loans extended for postsecondary educational expenses incurred while a student is enrolled in a covered educational institution as well as loans extended to consolidate a consumer's pre-existing private education loans.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple-purpose loans.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> A private education loan may include an extension of credit not excluded under <ref href="/us/cfr/t12/s226.46/b/5">§ 226.46(b)(5)</ref> that the consumer may use for multiple purposes including, but not limited to, postsecondary educational expenses. If the consumer expressly indicates that the proceeds of the loan will be used to pay for postsecondary educational expenses by indicating the loan's purpose on an application, the loan is a private education loan.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> A creditor generally will not know before an application is received whether the consumer intends to use the loan for postsecondary educational expenses. For this reason, the creditor need not provide the disclosures required by <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref> on or with the application or solicitation for a loan that may be used for multiple purposes. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.47/d/1/i">§ 226.47(d)(1)(i)</ref>. However, if the consumer expressly indicates that the proceeds of the loan will be used to pay for postsecondary educational expenses, the creditor must comply with <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> and (c) and <ref href="/us/cfr/t12/s226.48">§ 226.48</ref>. For purposes of the required disclosures, the creditor must calculate the disclosures based on the entire amount of the loan, even if only a part of the proceeds is intended for postsecondary educational expenses. The creditor may rely solely on a check-box, or a purpose line, on a loan application to determine whether or not the applicant intends to use loan proceeds for postsecondary educational expenses.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> The creditor must comply only if the extension of credit also meets the other parts of the definition of private education loan. For example, if the creditor uses a single application form for both open-end <?page num="741"?>and closed-end credit, and the consumer applies for open-end credit to be used for postsecondary educational expenses, the extension of credit is not covered. Similarly, if the consumer indicates the extension of credit will be used for educational expenses that are not postsecondary educational expenses, such as elementary or secondary educational expenses, the extension of credit is not covered. These examples are only illustrative, not exhaustive.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Short-term loans.</inline> Some covered educational institutions offer loans to students with terms of 90 days or less to assist the student in paying for educational expenses, usually while the student waits for other funds to be disbursed. Under <ref href="/us/cfr/t12/s226.46/b/5/iv/A">§ 226.46(b)(5)(iv)(A)</ref> such loans are not considered private education loans, even if interest is charged on the credit balance. (Because these loans charge interest, they are not covered by the exception under <ref href="/us/cfr/t12/s226.46/b/5/iv/B">§ 226.46(b)(5)(iv)(B)</ref>.) However, these loans are extensions of credit subject to the requirements of <ref href="/us/cfr/t12/s226.17">§§ 226.17</ref> and 18. The legal agreement may provide that repayment is required when the consumer or the educational institution receives certain funds. If, under the terms of the legal obligation, repayment of the loan is required when the certain funds are received by the consumer or the educational institution (such as by deposit into the consumer's or educational institution's account), the disclosures should be based on the creditor's estimate of the time the funds will be delivered.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Billing plans.</inline> Some covered educational institutions offer billing plans that permit a consumer to make payments in installments. Such plans are not considered private education loans, if an interest rate will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the plan is payable in more than four installments. However, such plans may be extensions of credit subject to the requirements of <ref href="/us/cfr/t12/s226.17">§§ 226.17</ref> and 18.</p>
<heading style="-uslm-sgm:HD2">46(c) Form of Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Form of disclosures—relation to other sections.</inline> Creditors must make the disclosures required under this subpart in accordance with <ref href="/us/cfr/t12/s226.46/c">§ 226.46(c)</ref>. Section 226.46(c)(2) requires that the disclosures be grouped together and segregated from everything else. In complying with this requirement, creditors may follow the rules in <ref href="/us/cfr/t12/s226.17">§ 226.17</ref>, except where specifically provided otherwise. For example, although <ref href="/us/cfr/t12/s226.17/b">§ 226.17(b)</ref> requires creditors to provide only one set of disclosures before consummation of the transaction, <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> and (c) require that the creditor provide the disclosures under <ref href="/us/cfr/t12/s226.18">§ 226.18</ref> both upon approval and after the consumer accepts the loan.</p>
<heading style="-uslm-sgm:HD2">Paragraph 46(c)(3)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application and solicitation disclosures—electronic disclosures.</inline> If the disclosures required under <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref> are provided electronically, they must be provided on or with the application or solicitation reply form. Electronic disclosures are deemed to be on or with an application or solicitation if they meet one of the following conditions:</p>
<p style="-uslm-sgm:P">i. They automatically appear on the screen when the application or solicitation reply form appears;</p>
<p style="-uslm-sgm:P">ii. They are located on the same Web “page” as the application or solicitation reply form without necessarily appearing on the initial screen, if the application or reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable; or</p>
<p style="-uslm-sgm:P">iii. They are posted on a Web site and the application or solicitation reply form is linked to the disclosures in a manner that prevents the consumer from by passing the disclosures before submitting the application or reply form.</p>
<heading style="-uslm-sgm:HD2">46(d) Timing of Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Receipt of disclosures.</inline> Under <ref href="/us/cfr/t12/s226.46/d/4">§ 226.46(d)(4)</ref>, if the creditor places the disclosures in the mail, the consumer is considered to have received them three business days after they are mailed. For purposes of <ref href="/us/cfr/t12/s226.46/d/4">§ 226.46(d)(4)</ref>, “business day” means all calendar days except Sundays and the legal public holidays referred to in <ref href="/us/cfr/t12/s226.2/a/6">§ 226.2(a)(6)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 2(a)(6)–2. For example, if the creditor places the disclosures in the mail on Thursday, June 4, the disclosures are considered received on Monday, June 8.</p>
<heading style="-uslm-sgm:HD2">Paragraph 46(d)(1)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Invitations to apply.</inline> A creditor may contact a consumer who has not been pre-selected for a private education loan about taking out a loan (whether by direct mail, telephone, or other means) and invite the consumer to complete an application. Such a contact does not meet the definition of solicitation, nor is it covered by this subpart, unless the contact itself includes the following:</p>
<p style="-uslm-sgm:P">i. An application form in a direct mailing, electronic communication or a single application form as a “take-one” (in racks in public locations, for example);</p>
<p style="-uslm-sgm:P">ii. An oral application in a telephone contact; or</p>
<p style="-uslm-sgm:P">iii. An application in an in-person contact.</p>
<heading style="-uslm-sgm:HD2">Paragraph 46(d)(2)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Timing.</inline> The creditor must provide the disclosures required by <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> at the time the creditor provides to the consumer any notice that the loan has been approved. However, nothing in this section prevents the <?page num="742"?>creditor from communicating to the consumer that additional information is required from the consumer before approval may be granted. In such a case, a creditor is not required to provide the disclosures at that time. If the creditor communicates notice of approval to the consumer by mail, the disclosures must be mailed at the same time as the notice of approval. If the creditor communicates notice of approval by telephone, the creditor must place the disclosures in the mail within three business days of the telephone call. If the creditor communicates notice of approval in electronic form, the creditor may provide the disclosures in electronic form. If the creditor has complied with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) the creditor may provide the disclosures solely in electronic form; otherwise, the creditor must place the disclosures in the mail within three business days of the communication.</p>
<heading style="-uslm-sgm:HD2">46(g) Effect of subsequent events</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Approval disclosures.</inline> Inaccuracies in the disclosures required under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> are not violations if attributable to events occurring after disclosures are made, although creditors are restricted under <ref href="/us/cfr/t12/s226.48/c/2">§ 226.48(c)(2)</ref> from making certain changes to the loan's rate or terms after the creditor provides an approval disclosure to a consumer. Since creditors are required provide the final disclosures under <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref>, they need not make new approval disclosures in response to an event that occurs after the creditor delivers the required approval disclosures, except as specified under <ref href="/us/cfr/t12/s226.48/c/4">§ 226.48(c)(4)</ref>. For example, at the time the approval disclosures are provided, the creditor may not know the precise disbursement date of the loan funds and must provide estimated disclosures based on the best information reasonably available and labelled as an estimate. If, after the approval disclosures are provided, the creditor learns from the educational institution the precise disbursement date, new approval disclosures would not be required, unless specifically required under <ref href="/us/cfr/t12/s226.48/c/4">§ 226.48(c)(4)</ref> if other changes are made. Similarly, the creditor may not know the precise amounts of each loan to be consolidated in a consolidation loan transaction and information about the precise amounts would not require new approval disclosures, unless specifically required under <ref href="/us/cfr/t12/s226.48/c/4">§ 226.48(c)(4)</ref> if other changes are made.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Final disclosures.</inline> Inaccuracies in the disclosures required under <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref> are not violations if attributable to events occurring after disclosures are made. For example, if the consumer initially chooses to defer payment of principal and interest while enrolled in a covered educational institution, but later chooses to make payments while enrolled, such a change does not make the original disclosures inaccurate.</p>
<heading style="-uslm-sgm:HD2">Section 226.47—Content of Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">As applicable.</inline> The disclosures required by this subpart need be made only as applicable, unless specifically required otherwise. The creditor need not provide any disclosure that is not applicable to a particular transaction. For example, in a transaction consolidating private education loans, or in transactions under <ref href="/us/cfr/t12/s226.46/a">§ 226.46(a)</ref> for which compliance with this subpart is optional, the creditor need not disclose the information under <ref href="/us/cfr/t12/s226.47/a/6">§§ 226.47(a)(6)</ref>, and (b)(4), and any other information otherwise required to be disclosed under this subpart that is not applicable to the transaction. Similarly, creditors making loans to consumers where the student is not attending an institution of higher education, as defined in <ref href="/us/cfr/t12/s226.46/b/2">§ 226.46(b)(2)</ref>, need not provide the disclosures regarding the self-certification form in <ref href="/us/cfr/t12/s226.47/a/8">§ 226.47(a)(8)</ref>.</p>
<heading style="-uslm-sgm:HD2">47(a) Application or Solicitation Disclosures</heading>
<heading style="-uslm-sgm:HD2">Paragraph 47(a)(1)(i)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rates actually offered.</inline> The disclosure may state only those rates that the creditor is actually prepared to offer. For example, a creditor may not disclose a very low interest rate that will not in fact be offered at any time. For a loan with variable interest rates, the ranges of rates will be considered actually offered if:</p>
<p style="-uslm-sgm:P">i. For disclosures in applications or solicitations sent by direct mail, the rates were in effect within 60 days before mailing;</p>
<p style="-uslm-sgm:P">ii. For disclosures in applications or solicitations in electronic form, the rates were in effect within 30 days before the disclosures are sent to a consumer, or for disclosures made on an Internet Web site, within 30 days before being viewed by the public;</p>
<p style="-uslm-sgm:P">iii. For disclosures in printed applications or solicitations made available to the general public, the rates were in effect within 30 days before printing; or</p>
<p style="-uslm-sgm:P">iv. For disclosures provided orally in telephone applications or solicitations, the rates are currently available at the time the disclosures are provided.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Creditworthiness and other factors.</inline> If the rate will depend, at least in part, on a later determination of the consumer's creditworthiness or other factors, the disclosure must include a statement that the rate for which the consumer may qualify at approval will depend on the consumer's creditworthiness and other factors. The creditor may, but is not required to, specify any additional factors that it will use to determine the interest rate. For example, if the creditor will determine the interest rate based on information in the consumer's or co-signer's credit report and the type of school the consumer <?page num="743"?>attends, the creditor may state, “Your interest rate will be based on your credit history and other factors (co-signer credit and school type).”</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rates applicable to the loan.</inline> For a variable-rate private education loan, the disclosure of the interest rate or range of rates must reflect the rate or rates calculated based on the index and margin that will be used to make interest rate adjustments for the loan. The creditor may provide a description of the index and margin or range of margins used to make interest rate adjustments, including a reference to a source, such as a newspaper, where the consumer may look up the index.</p>
<heading style="-uslm-sgm:HD2">Paragraph 47(a)(1)(iii)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Coverage.</inline> The interest rate is considered variable if the terms of the legal obligation allow the creditor to increase the interest rate originally disclosed to the consumer and the requirements of section 226.47(a)(1)(iii) apply to all such transactions. The provisions do not apply to increases resulting from delinquency (including late payment), default, assumption, or acceleration.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitations.</inline> The creditor must disclose how often the rate may change and any limit on the amount that the rate may increase at any one time. The creditor must also disclose any maximum rate over the life of the transaction. If the legal obligation between the parties does specify a maximum rate, the creditor must disclose any legal limits in the nature of usury or rate ceilings under state or Federal statutes or regulations. However, if the applicable maximum rate is in the form of a legal limit, such as a state's usury cap (rather than a maximum rate specified in the legal obligation between the parties), the creditor must disclose that the maximum rate is determined by applicable law. The creditor must also disclose that the consumer's actual rate may be higher or lower than the initial rates disclosed under <ref href="/us/cfr/t12/s226.47/a/1/i">§ 226.47(a)(1)(i)</ref>, if applicable.</p>
<heading style="-uslm-sgm:HD2">Paragraph 47(a)(1)(iv)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Co-signer or guarantor—changes in applicable interest rate.</inline> The creditor must state whether the interest rate typically will be higher if the loan is not co-signed or guaranteed by a third party. The creditor is required to provide a statement of the effect on the interest rate and is not required to provide a numerical estimate of the effect on the interest rate. For example, a creditor may state: “Rates are typically higher without a co-signer.”</p>
<heading style="-uslm-sgm:HD2">47(a)(2) Fees and Default or Late Payment Costs</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees or range of fees.</inline> The creditor must itemize fees required to obtain the private education loan. The creditor must give a single dollar amount for each fee, unless the fee is based on a percentage, in which case a percentage must be stated. If the exact amount of the fee is not known at the time of disclosure, the creditor may disclose the dollar amount or percentage for each fee as an estimated range.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees required to obtain the private education loan.</inline> The creditor must itemize the fees that the consumer must pay to obtain the private education loan. Fees disclosed include all finance charges under <ref href="/us/cfr/t12/s226.4">§ 226.4</ref>, such as loan origination fees, credit report fees, and fees charged upon entering repayment, as well as fees not considered finance charges but required to obtain credit, such as application fees that are charged whether or not credit is extended. Fees disclosed include those paid by the consumer directly to the creditor and fees paid to third parties by the creditor on the consumer's behalf. Creditors are not required to disclose fees that apply if the consumer exercises an option under the loan agreement after consummation, such as fees for deferment, forbearance, or loan modification.</p>
<heading style="-uslm-sgm:HD2">47(a)(3) Repayment Terms</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan term.</inline> The term of the loan is the maximum period of time during which regularly scheduled payments of principal and interest will be due on the loan.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment deferral options—general.</inline> The creditor must describe the options that the consumer has under the loan agreement to defer payment on the loan. When there is no deferment option provided for the loan, the creditor must disclose that fact. Payment deferral options required to be disclosed include options for immediate deferral of payments, such as when the student is currently enrolled at a covered educational institution. The description may include of the length of the maximum initial in-school deferment period, the types of payments that may be deferred, and a description of any payments that are required during the deferment period. The creditor may, but need not, disclose any conditions applicable to the deferment option, such as that deferment is permitted only while the student is continuously enrolled in school. If payment deferral is not an option while the student is enrolled in school, the creditor may disclose that the consumer must begin repayment upon disbursement of the loan and that the consumer may not defer repayment while enrolled in school. If the creditor offers payment deferral options that may apply during the repayment period, such as an option to defer payments if the student returns to school to pursue an additional degree, the creditor must include a statement referring the consumer to the contract document or promissory note for more information.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment deferral options—in school deferment.</inline> For each payment deferral option <?page num="744"?>applicable while the student is enrolled at a covered educational institution the creditor must disclose whether interest will accrue while the student is enrolled at a covered educational institution and, if interest does accrue, whether payment of interest may be deferred and added to the principal balance.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Combination with cost estimate disclosure.</inline> The disclosures of the loan term under <ref href="/us/cfr/t12/s226.47/a/3/i">§ 226.47(a)(3)(i)</ref> and of the payment deferral options applicable while the student is enrolled at a covered educational institution under <ref href="/us/cfr/t12/s226.47/a/3/ii">§§ 226.47(a)(3)(ii)</ref> and (iii) may be combined with the disclosure of cost estimates required in <ref href="/us/cfr/t12/s226.47/a/4">§ 226.47(a)(4)</ref>. For example, the creditor may describe each payment deferral option in the same chart or table that provides the cost estimates for each payment deferral option. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Appendix H–21.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bankruptcy limitations.</inline> The creditor may comply with <ref href="/us/cfr/t12/s226.47/a/3/iv">§ 226.47(a)(3)(iv)</ref> by disclosing the following statement: “If you file for bankruptcy you may still be required to pay back this loan.”</p>
<heading style="-uslm-sgm:HD2">47(a)(4) Cost Estimates</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Total cost of the loan.</inline> For purposes of <ref href="/us/cfr/t12/s226.47/a/4">§ 226.47(a)(4)</ref>, the creditor must calculate the example of the total cost of the loan in accordance with the rules in <ref href="/us/cfr/t12/s226.18/h">§ 226.18(h)</ref> for calculating the loan's total of payments.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Basis for estimates.</inline> i. The creditor must calculate the total cost estimate by determining all finance charges that would be applicable to loans with the highest rate of interest required to be disclosed under <ref href="/us/cfr/t12/s226.47/a/1/i">§ 226.47(a)(1)(i)</ref>. For example, if a creditor charges a range of origination fees from 0% to 3%, but the 3% origination fee would apply to loans with the highest initial rate, the lender must assume the 3% origination fee is charged. The creditor must base the total cost estimate on a total loan amount that includes all prepaid finance charges and results in a $10,000 amount financed. For example, if the prepaid finance charges are $600, the creditor must base the estimate on a $10,600 total loan amount and an amount financed of $10,000. The example must reflect an amount provided of $10,000. If the creditor only offers a particular private education loan for less than $10,000, the creditor may assume a loan amount that results in a $5,000 amount financed for that loan.</p>
<p style="-uslm-sgm:P">ii. If a prepaid finance charge is determined as a percentage of the amount financed, for purposes of the example, the creditor should assume that the fee is determined as a percentage of the total loan amount, even if this is not the creditor's usual practice. For example, suppose the consumer requires a disbursement of $10,000 and the creditor charges a 3% origination fee. In order to calculate the total cost example, the creditor must determine the loan amount that will result in a $10,000 amount financed after the 3% fee is assessed. In this example, the resulting loan amount would be $10,309.28. Assessing the 3% origination fee on the loan amount of $10,309.28 results in an origination fee of $309.28, which is withheld from the loan funds disbursed to the consumer. The principal loan amount of $10,309.28 minus the prepaid finance charge of $309.28 results in an amount financed of $10,000.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculated for each option to defer interest payments.</inline> The example must include an estimate of the total cost of the loan for each in-school deferral option disclosed in <ref href="/us/cfr/t12/s226.47/a/3/iii">§ 226.47(a)(3)(iii)</ref>. For example, if the creditor provides the consumer with the option to begin making principal and interest payments immediately, to defer principal payments but begin making interest-only payments immediately, or to defer all principal and interest payments while in school, the creditor is required to disclose three estimates of the total cost of the loan, one for each deferral option. If the creditor adds accrued interest to the loan balance (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> interest is capitalized), the estimate of the total loan cost should be based on the capitalization method that the creditor actually uses for the loan. For instance, for each deferred payment option where the creditor would capitalize interest on a quarterly basis, the total loan cost must be calculated assuming interest capitalizes on a quarterly basis.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferment period assumptions.</inline> Creditors may use either of the following two methods for estimating the duration of in-school deferment periods:</p>
<p style="-uslm-sgm:P">i. For loan programs intended for educational expenses of undergraduate students, the creditor may assume that the consumer defers payments for a four-year matriculation period, plus the loan's maximum applicable grace period, if any. For all other loans, the creditor may assume that the consumer defers for a two-year matriculation period, plus the maximum applicable grace period, if any, or the maximum time the consumer may defer payments under the loan program, whichever is shorter.</p>
<p style="-uslm-sgm:P">ii. Alternatively, if the creditor knows that the student will be enrolled in a program with a standard duration, the creditor may assume that the consumer defers payments for the full duration of the program (plus any grace period). For example, if a creditor makes loans intended for students enrolled in a four-year medical school degree program, the creditor may assume that the consumer defers payments for four years plus the loan's maximum applicable grace period, if any. However, the creditor may not modify the disclosure to correspond to a particular student's situation. For example, even if the creditor knows that a student will be a second-year medical school student, the creditor must assume a four-year deferral period.
<?page num="745"?></p>
<heading style="-uslm-sgm:HD2">47(a)(6)(ii)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Terms of Federal student loans.</inline> The creditor must disclose the interest rates available under each program under title IV of the Higher Education Act of 1965 and whether the rates are fixed or variable, as prescribed in the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1077a">20 U.S.C. 1077a</ref>). Where the fixed interest rate for a loan varies by statute depending on the date of disbursement or receipt of application, the creditor must disclose only the interest rate as of the time the disclosure is provided.</p>
<heading style="-uslm-sgm:HD2">47(a)(6)(iii)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Web site address.</inline> The creditor must include with this disclosure an appropriate U.S. Department of Education Web site address such as “Federalstudentaid.ed.gov.”</p>
<heading style="-uslm-sgm:HD2">47(b) Approval Disclosures</heading>
<heading style="-uslm-sgm:HD2">47(b)(1) Interest Rate</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable rate disclosures.</inline> The interest rate is considered variable if the terms of the legal obligation allow the creditor to increase the interest rate originally disclosed to the consumer. The provisions do not apply to increases resulting from delinquency (including late payment), default, assumption, or acceleration. In addition to disclosing the information required under <ref href="/us/cfr/t12/s226.47/b/ii">§§ 226.47(b)(ii)</ref> and (iii), the creditor must disclose the information required under <ref href="/us/cfr/t12/s226.18/f/1/i">§§ 226.18(f)(1)(i)</ref> and (iii)—the circumstances under which the rate may increase and the effect of an increase, respectively. The creditor is required to disclose the maximum monthly payment based on the maximum possible rate in <ref href="/us/cfr/t12/s226.47/b/3/viii">§ 226.47(b)(3)(viii)</ref>, and the creditor need not disclose a separate example of the payment terms that would result from an increase under <ref href="/us/cfr/t12/s226.18/f/1/iv">§ 226.18(f)(1)(iv)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitations on rate adjustments.</inline> The creditor must disclose how often the rate may change and any limit on the amount that the rate may increase at any one time. The creditor must also disclose any maximum rate over the life of the transaction. If the legal obligation between the parties does provide a maximum rate, the creditor must disclose any legal limits in the nature of usury or rate ceilings under state or Federal statutes or regulations. However, if the applicable maximum rate is in the form of a legal limit, such as a State's usury cap (rather than a maximum rate specified in the legal obligation between the parties), the creditor must disclose that the maximum rate is determined by applicable law. Compliance with <ref href="/us/cfr/t12/s226.18/f/1/ii">§ 226.18(f)(1)(ii)</ref> (requiring disclosure of any limitations on the increase of the interest rate) does not necessarily constitute compliance with this section. Specifically, this section requires that if there are no limitations on interest rate increases, the creditor must disclose that fact. By contrast, comment 18(f)(1)(ii)–1 states that if there are no limitations the creditor need not disclose that fact. In addition, under this section, limitations on rate increases include, rather than exclude, legal limits in the nature of usury or rate ceilings under state or Federal statutes or regulations.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rates applicable to the loan.</inline> For a variable-rate loan, the disclosure of the interest rate must reflect the index and margin that will be used to make interest rate adjustments for the loan. The creditor may provide a description of the index and margin or range of margins used to make interest rate adjustments, including a reference to a source, such as a newspaper, where the consumer may look up the index.</p>
<heading style="-uslm-sgm:HD2">Paragraph 47(b)(2)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees and default or late payment costs.</inline> Creditors may follow the commentary for <ref href="/us/cfr/t12/s226.47/a/2">§ 226.47(a)(2)</ref> in complying with <ref href="/us/cfr/t12/s226.47/b/2">§ 226.47(b)(2)</ref>. Creditors must disclose the late payment fees required to be disclosed under <ref href="/us/cfr/t12/s226.18/l">§ 226.18(l)</ref> as part of the disclosure required under <ref href="/us/cfr/t12/s226.47/b/2/ii">§ 226.47(b)(2)(ii)</ref>. If the creditor includes the itemization of the amount financed under <ref href="/us/cfr/t12/s226.18/c/1">§ 226.18(c)(1)</ref>, any fees disclosed as part of the itemization need not be separately disclosed elsewhere.</p>
<heading style="-uslm-sgm:HD2">47(b)(3) Repayment Terms</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Principal amount.</inline> The principal amount must equal what the face amount of the note would be as of the time of approval, and it must be labeled “Total Loan Amount.” <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> Appendix H–18. This amount may be different from the “principal loan amount” used to calculate the amount financed under comment 18(b)(3)–1, because the creditor has the option under that comment of using a “principal loan amount” that is different from the face amount of the note. If the creditor elects to provide an itemization of the amount financed under <ref href="/us/cfr/t12/s226.18/c/1">§ 226.18(c)(1)</ref> the creditor need not disclose the amount financed elsewhere.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan term.</inline> The term of the loan is the maximum period of time during which regularly scheduled payments of principal and interest are due on the loan.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payment deferral options applicable to the consumer.</inline> Creditors may follow the commentary for <ref href="/us/cfr/t12/s226.47/a/3/ii">§ 226.47(a)(3)(ii)</ref> in complying with <ref href="/us/cfr/t12/s226.47/b/3/iii">§ 226.47(b)(3)(iii)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Payments required during enrollment.</inline> Required payments that must be disclosed include payments of interest and principal, interest only, or other payments that the consumer must make during the time that the student is enrolled. Compliance with <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref> constitutes compliance with <ref href="/us/cfr/t12/s226.47/b/3/iv">§ 226.47(b)(3)(iv)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bankruptcy limitations.</inline> The creditor may comply with <ref href="/us/cfr/t12/s226.47/b/3/vi">§ 226.47(b)(3)(vi)</ref> by disclosing <?page num="746"?>the following statement: “If you file for bankruptcy you may still be required to pay back this loan.”</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">An estimate of the total amount for repayment.</inline> The creditor must disclose an estimate of the total amount for repayment at two interest rates:</p>
<p style="-uslm-sgm:P">i. The interest rate in effect on the date of approval. Compliance with the total of payments disclosure requirement of <ref href="/us/cfr/t12/s226.18/h">§ 226.18(h)</ref> constitutes compliance with this requirement.</p>
<p style="-uslm-sgm:P">ii. The maximum possible rate of interest applicable to the loan or, if the maximum rate cannot be determined, a rate of 25%. If the legal obligation between the parties specifies a maximum rate of interest, the creditor must calculate the total amount for repayment based on that rate. If the legal obligation does not specify a maximum rate but a usury or rate ceiling under State or Federal statutes or regulations applies, the creditor must use that rate. If a there is no maximum rate in the legal obligation or under a usury or rate ceiling, the creditor must base the disclosure on a rate of 25% and must disclose that there is no maximum rate and that the total amount for repayment disclosed under <ref href="/us/cfr/t12/s226.47/b/3/vii/B">§ 226.47(b)(3)(vii)(B)</ref> is an estimate and will be higher if the applicable interest rate increases.</p>
<p style="-uslm-sgm:P">iii. If terms of the legal obligation provide a limitation on the amount that the interest rate may increase at any one time, the creditor may reflect the effect of the interest rate limitation in calculating the total cost example. For example, if the legal obligation provides that the interest rate may not increase by more than three percentage points each year, the creditor may assume that the rate increases by three percentage points each year until it reaches that maximum possible rate, or if a maximum rate cannot be determined, an interest rate of 25%.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">The maximum monthly payment.</inline> The creditor must disclose the maximum payment that the consumer could be required to make under the loan agreement, calculated using the maximum rate of interest applicable to the loan, or if the maximum rate cannot be determined, a rate of 25%. The creditor must determine and disclose the maximum rate of interest in accordance with comments 47(b)(3)–6.ii and 47(b)(3)–6.iii. In addition, if a maximum rate cannot be determined, the creditor must state that there is no maximum rate and that the monthly payment amounts disclosed under <ref href="/us/cfr/t12/s226.47/b/3/viii">§ 226.47(b)(3)(viii)</ref> are estimates and will be higher if the applicable interest rate increases.</p>
<heading style="-uslm-sgm:HD2">47(b)(4) Alternatives to Private Education Loans</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Creditors may use the guidance provided in the commentary for <ref href="/us/cfr/t12/s226.47/a/6">§ 226.47(a)(6)</ref> in complying with <ref href="/us/cfr/t12/s226.47/b/4">§ 226.47(b)(4)</ref>.</p>
<heading style="-uslm-sgm:HD2">47(b)(5) Rights of the Consumer</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice of acceptance period.</inline> The disclosure that the consumer may accept the terms of the loan until the acceptance period under <ref href="/us/cfr/t12/s226.48/c/1">§ 226.48(c)(1)</ref> has expired must include the specific date on which the acceptance period expires and state that the consumer may accept the terms of the loan until that date. Under <ref href="/us/cfr/t12/s226.48/c/1">§ 226.48(c)(1)</ref>, the date on which the acceptance period expires is based on when the consumer receives the disclosures. If the creditor mails the disclosures, the consumer is considered to have received them three business days after the creditor places the disclosures in the mail <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.46/d/4">§ 226.46(d)(4)</ref>. If the creditor provides an acceptance period longer than the minimum 30 calendar days, the disclosure must reflect the later date. The disclosure must also specify the method or methods by which the consumer may communicate acceptance.</p>
<heading style="-uslm-sgm:HD2">47(c) Final Disclosures</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice of right to cancel.</inline> The disclosure of the right to cancel must include the specific date on which the three-day cancellation period expires and state that the consumer has a right to cancel by that date. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 48(d)–1 and 2. For example, if the disclosures were mailed to the consumer on Friday, June 1, and the consumer is deemed to receive them on Tuesday, June 5, the creditor could state: “You have a right to cancel this transaction, without penalty, by midnight on <date date="2009-06-08">June 8, 2009</date>. No funds will be disbursed to you or to your school until after this time. You may cancel by calling us at 800–XXX–XXXX.” If the creditor permits cancellation by mail, the statement must specify that the consumer's mailed request will be deemed timely if placed in the mail not later than the cancellation date specified on the disclosure. The disclosure must also specify the method or methods by which the consumer may cancel.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">More conspicuous.</inline> The statement of the right to cancel must be more conspicuous than any other disclosure required under this section except for the finance charge, the interest rate, and the creditor's identity. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.46/c/2/iii">§ 226.46(c)(2)(iii)</ref>. The statement will be deemed to be made more conspicuous if it is segregated from other disclosures, placed near or at the top of the disclosure document, and highlighted in relation to other required disclosures. For example, the statement may be outlined with a prominent, noticeable box; printed in contrasting color; printed in larger type, bold print, or different type face; underlined; or set off with asterisks.</p>
<heading style="-uslm-sgm:HD2">Section 226.48—Limitations on Private Education Loans</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Co-branding—definition of marketing.</inline> The prohibition on co-branding in <ref href="/us/cfr/t12/s226.48/a">§§ 226.48(a)</ref> and <?page num="747"?>(b) applies to the marketing of private education loans. The term marketing includes any advertisement under <ref href="/us/cfr/t12/s226.2/a/2">§ 226.2(a)(2)</ref>. In addition, the term marketing includes any document provided by the creditor to the consumer related to a specific transaction, such as an application or solicitation, a promissory note or a contract provided to the consumer. For example, prominently displaying the name of the educational institution at the top of the application form or promissory note without mentioning the name of the creditor, such as by naming the loan product the “University of ABC Loan,” would be prohibited.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Implied endorsement.</inline> A suggestion that a private education loan is offered or made by the covered educational institution instead of by the creditor is included in the prohibition on implying that the covered educational institution endorses the private education loan under <ref href="/us/cfr/t12/s226.48/a/1">§ 226.48(a)(1)</ref>. For example, naming the loan the “University of ABC Loan,” suggests that the loan is offered by the educational institution. However, the use of a creditor's full name, even if that name includes the name of a covered educational institution, does not imply endorsement. For example, a credit union whose name includes the name of a covered educational institution is not prohibited from using its own name. In addition, the authorized use of a state seal by a state or an institution of higher education in the marketing of state education loan products does not imply endorsement.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Disclosure.</inline> i. A creditor is considered to have complied with <ref href="/us/cfr/t12/s226.48/a/2">§ 226.48(a)(2)</ref> if the creditor's marketing contains a clear and conspicuous statement, equally prominent and closely proximate to the reference to the covered educational institution, using the name of the creditor and the name of the covered educational institution that the covered educational institution does not endorse the creditor's loans and that the creditor is not affiliated with the covered educational institution. For example, “[Name of creditor]'s loans are not endorsed by [name of school] and [name of creditor] is not affiliated with [name of school].” The statement is considered to be equally prominent and closely proximate if it is the same type size and is located immediately next to or directly above or below the reference to the educational institution, without any intervening text or graphical displays.</p>
<p style="-uslm-sgm:P">ii. A creditor is considered to have complied with <ref href="/us/cfr/t12/s226.48/b">§ 226.48(b)</ref> if the creditor's marketing contains a clear and conspicuous statement, equally prominent and closely proximate to the reference to the covered educational institution, using the name of the creditor's loan or loan program, the name of the covered educational institution, and the name of the creditor, that the creditor's loans are not offered or made by the covered educational institution, but are made by the creditor. For example, “[Name of loan or loan program] is not being offered or made by [name of school], but by [name of creditor].” The statement is considered to be equally prominent and closely proximate if it is the same type size and is located immediately next to or directly above or below the reference to the educational institution, without any intervening text or graphical displays.</p>
<heading style="-uslm-sgm:HD2">Paragraph 48(c)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">30 day acceptance period.</inline> The creditor must provide the consumer with at least 30 calendar days from the date the consumer receives the disclosures required under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> to accept the terms of the loan. The creditor may provide the consumer with a longer period of time. If the creditor places the disclosures in the mail, the consumer is considered to have received them three business days after they are mailed under <ref href="/us/cfr/t12/s226.46/d/4">§ 226.46(d)(4)</ref>. For purposes of determining when a consumer receives mailed disclosures, “business day” means all calendar days except Sundays and the legal public holidays referred to in <ref href="/us/cfr/t12/s226.2/a/6">§ 226.2(a)(6)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 46(d)–1. The consumer may accept the loan at any time before the end of the 30 day period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Method of acceptance.</inline> The creditor must specify a method or methods by which the consumer can accept the loan at any time within the 30-day acceptance period. The creditor may require the consumer to communicate acceptance orally or in writing. Acceptance may also be communicated electronically, but electronic communication must not be the only means provided for the consumer to communicate acceptance unless the creditor has provided the approval disclosure electronically in compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E–Sign Act) (<ref href="/us/usc/t15">15 U.S.C. </ref>§ 7001 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). If acceptance by mail is allowed, the consumer's communication of acceptance is considered timely if placed in the mail within the 30-day period.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibition on changes to rates and terms.</inline> The prohibition on changes to the rates and terms of the loan applies to changes that affect those terms that are required to be disclosed under <ref href="/us/cfr/t12/s226.47/b">§§ 226.47(b)</ref> and (c). The creditor is permitted to make changes that do not affect any of the terms disclosed to the consumer under those sections.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible changes to rates and terms—re-disclosure not required.</inline> Creditors are not required to consummate a loan where the extension of credit would be prohibited by law or where the creditor has reason to believe that the consumer has committed fraud. A creditor may make changes to the rate based on adjustments to the index used for the loan and changes that will unequivocally <?page num="748"?>benefit the consumer. For example, a creditor is permitted to reduce the interest rate or lower the amount of a fee. A creditor may also reduce the loan amount based on a certification or other information received from a covered educational institution or from the consumer indicating that the student's cost of attendance has decreased or the amount of other financial aid has increased. A creditor may also withdraw the loan approval based on a certification or other information received from a covered educational institution or from the consumer indicating that the student is not enrolled in the institution. For these changes permitted by <ref href="/us/cfr/t12/s226.48/c/3">§ 226.48(c)(3)</ref>, the creditor is not required to provide a new set of approval disclosures required under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> or provide the consumer with a new 30-day acceptance period under <ref href="/us/cfr/t12/s226.48/c/1">§ 226.48(c)(1)</ref>. The creditor must provide the final disclosures under <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible changes to rates and terms—school certification.</inline> If the creditor reduces the loan amount based on information that the student's cost of attendance has decreased or the amount of other financial aid has increased, the creditor may make certain corresponding changes to the rate and terms. The creditor may change the rate or terms to those that the consumer would have received if the consumer had applied for the reduced loan amount. For example, assume a consumer applies for, and is approved for, a $10,000 loan at a 7% interest rate. However, after the consumer receives the approval disclosures, the consumer's school certifies that the consumer's financial need is only $8,000. The creditor may reduce the loan amount for which the consumer is approved to $8,000. The creditor may also, for example, increase the interest rate on the loan to 7.125%, but only if the consumer would have received a rate of 7.125% if the consumer had originally applied for an $8,000 loan.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible changes to rates and terms—re-disclosure required.</inline> A creditor may make changes to the interest rate or terms to accommodate a request from a consumer. For example, assume a consumer applies for a $10,000 loan and is approved for the $10,000 amount at an interest rate of 6%. After the creditor has provided the approval disclosures, the consumer's financial need increases, and the consumer requests to a loan amount of $15,000. In this situation, the creditor is permitted to offer a $15,000 loan, and to make any other changes such as raising the interest rate to 7%, in response to the consumer's request. The creditor must provide a new set of disclosures under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref> and provide the consumer with 30 days to accept the offer under <ref href="/us/cfr/t12/s226.48/c">§ 226.48(c)</ref> for the $15,000 loan offered in response to the consumer's request. However, because the consumer may choose not to accept the offer for the $15,000 loan at the higher interest rate, the creditor may not withdraw or change the rate or terms of the offer for the $10,000 loan, except as permitted under <ref href="/us/cfr/t12/s226.48/c/3">§ 226.48(c)(3)</ref>, unless the consumer accepts the $15,000 loan.</p>
<heading style="-uslm-sgm:HD2">Paragraph 48(d)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Right to cancel.</inline> If the creditor mails the disclosures, the disclosures are considered received by the consumer three business days after the disclosures were mailed. For purposes of determining when the consumer receives the disclosures, the term “business day” is defined as all calendar days except Sunday and the legal public holidays referred to in <ref href="/us/cfr/t12/s226.2/a/6">§ 226.2(a)(6)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.46/d/4">§ 226.46(d)(4)</ref>. The consumer has three business days from the date on which the disclosures are deemed received to cancel the loan. For example, if the creditor places the disclosures in the mail on Thursday, June 4, the disclosures are considered received on Monday, June 8. The consumer may cancel any time before midnight Thursday, June 11. The creditor may provide the consumer with more time to cancel the loan than the minimum three business days required under this section. If the creditor provides the consumer with a longer period of time in which to cancel the loan, the creditor may disburse the funds three business days after the consumer has received the disclosures required under this section, but the creditor must honor the consumer's later timely cancellation request.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Method of cancellation.</inline> The creditor must specify a method or methods by which the consumer may cancel. For example, the creditor may require the consumer to communicate cancellation orally or in writing. Cancellation may also be communicated electronically, but electronic communication must not be the only means by which the consumer may cancel unless the creditor provided the final disclosure electronically in compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E–Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). If the creditor allows cancellation by mail, the creditor must specify an address or the name and address of an agent of the creditor to receive notice of cancellation. The creditor must wait to disburse funds until it is reasonably satisfied that the consumer has not canceled. For example, the creditor may satisfy itself by waiting a reasonable time after expiration of the cancellation period to allow for delivery of a mailed notice. The creditor may also satisfy itself by obtaining a written statement from the consumer, which must be provided to and signed by the consumer only at the end of the three-day period, that the right has not been exercised.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cancellation without penalty.</inline> The creditor may not charge the consumer a fee for exercising the right to cancel under <ref href="/us/cfr/t12/s226.48/d">§ 226.48(d)</ref>. The prohibition extends only to fees charged <?page num="749"?>specifically for canceling the loan. The creditor is not required to refund fees, such as an application fee, that are charged to all consumers whether or not the consumer cancels the loan.</p>
<heading style="-uslm-sgm:HD2">Paragraph 48(e)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.48(e) requires that the creditor obtain the self-certification form, signed by the consumer, before consummating the private education loan. The rule applies only to private education loans that will be used for the postsecondary educational expenses of a student while that student is attending an institution of higher education as defined in <ref href="/us/cfr/t12/s226.46/b/2">§ 226.46(b)(2)</ref>. It does not apply to all covered educational institutions. The requirement applies even if the student is not currently attending an institution of higher education, but will use the loan proceeds for postsecondary educational expenses while attending such institution. For example, a creditor is required to obtain the form before consummating a private education loan provided to a high school senior for expenses to be incurred during the consumer's first year of college. This provision does not require that the creditor obtain the self-certification form in instances where the loan is not intended for a student attending an institution of higher education, such as when the consumer is consolidating loans after graduation. Section 155(a)(2) of the Higher Education Act of 1965 provides that the form shall be made available to the consumer by the relevant institution of higher education. However, <ref href="/us/cfr/t12/s226.48/e">§ 226.48(e)</ref> provides flexibility to institutions of higher education and creditors as to how the completed self-certification form is provided to the lender. The creditor may receive the form directly from the consumer, or the creditor may receive the form from the consumer through the institution of higher education. In addition, the creditor may provide the form, and the information the consumer will require to complete the form, directly to the consumer.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic signature.</inline> Under Section 155(a)(2) of the Higher Education Act of 1965, the institution of higher education may provide the self-certification form to the consumer in written or electronic form. Under Section 155(a)(5) of the Higher Education Act of 1965, the form may be signed electronically by the consumer. A creditor may accept the self-certification form from the consumer in electronic form. A consumer's electronic signature is considered valid if it meets the requirements issued by the Department of Education under Section 155(a)(5) of the Higher Education Act of 1965.</p>
<heading style="-uslm-sgm:HD2">Paragraph 48(f)</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.48(f) does not specify the format in which creditors must provide the required information to the covered educational institution. Creditors may choose to provide only the required information or may provide copies of the form or forms the lender uses to comply with <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref>. A creditor is only required to provide the required information if the creditor is aware that it is a party to a preferred lender arrangement. For example, if a creditor is placed on a covered educational institution's preferred lender list without the creditor's knowledge, the creditor is not required to comply with <ref href="/us/cfr/t12/s226.48/f">§ 226.48(f)</ref>.</p>
<heading style="-uslm-sgm:HD1">Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students</heading>
<heading style="-uslm-sgm:HD2"><ref href="/us/cfr/t12/s226.51">§ 226.51</ref>—Ability To Pay</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">51(a) General rule.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">51(a)(1) Consideration of ability to pay.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consideration of additional factors.</inline> Section 226.51(a) requires a card issuer to consider a consumer's independent ability to make the required minimum periodic payments under the terms of an account based on the consumer's independent income or assets and current obligations. The card issuer may also consider consumer reports, credit scores, and other factors, consistent with Regulation B (<ref href="/us/cfr/t12/p202">12 CFR part 202</ref>).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Ability to pay as of application or consideration of increase.</inline> A card issuer complies with <ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref> if it bases its determination regarding a consumer's independent ability to make the required minimum periodic payments on the facts and circumstances known to the card issuer at the time the consumer applies to open the credit card account or when the card issuer considers increasing the credit line on an existing account.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit line increase.</inline> When a card issuer considers increasing the credit line on an existing account, <ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref> applies whether the consideration is based upon a request of the consumer or is initiated by the card issuer.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Income and assets.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sources of information.</inline> For purposes of <ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref>, a card issuer may consider the consumer's income and assets based on</p>
<p style="-uslm-sgm:P">A. Information provided by the consumer in connection with the credit card account under an open-end (not home-secured) consumer credit plan;</p>
<p style="-uslm-sgm:P">B. Information provided by the consumer in connection with any other financial relationship the card issuer or its affiliates have with the consumer (subject to any applicable information-sharing rules);</p>
<p style="-uslm-sgm:P">C. Information obtained through third parties (subject to any applicable information-sharing rules); and</p>
<p style="-uslm-sgm:P">D. Information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates a consumer's income and assets.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Income and assets of persons liable for debts incurred on account.</inline> For purposes of <?page num="750"?><ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref>, a card issuer may consider any current or reasonably expected income and assets of the consumer or consumers who are applying for a new account and will be liable for debts incurred on that account. Similarly, when a card issuer is considering whether to increase the credit limit on an existing account, the card issuer may consider any current or reasonably expected income and assets of the consumer or consumers who are accountholders and are liable for debts incurred on that account. A card issuer may also consider any current or reasonably expected income and assets of a cosigner or guarantor who is or will be liable for debts incurred on the account. However, a card issuer may not use the income and assets of an authorized user or other person who is not liable for debts incurred on the account to satisfy the requirements of <ref href="/us/cfr/t12/s226.51">§ 226.51</ref>, unless a Federal or State statute or regulation grants a consumer who is liable for debts incurred on the account an ownership interest in such income and assets. Information about current or reasonably expected income and assets includes, for example, information about current or expected salary, wages, bonus pay, tips, and commissions. Employment may be full-time, part-time, seasonal, irregular, military, or self-employment. Other sources of income could include interest or dividends, retirement benefits, public assistance, alimony, child support, or separate maintenance payments. A card issuer may also take into account assets such as savings accounts or investments.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Household income and assets.</inline> Consideration of information regarding a consumer's household income does not by itself satisfy the requirement in <ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref> to consider the consumer's independent ability to pay. For example, if a card issuer requests on its application forms that applicants provide their “household income,” the card issuer may not rely solely on the information provided by applicants to satisfy the requirements of <ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref>. Instead, the card issuer would need to obtain additional information about an applicant's independent income (such as by contacting the applicant). However, if a card issuer requests on its application forms that applicants provide their income without reference to household income (such as by requesting “income” or “salary”), the card issuer may rely on the information provided by applicants to satisfy the requirements of <ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Current obligations.</inline> A card issuer may consider the consumer's current obligations based on information provided by the consumer or in a consumer report. In evaluating a consumer's current obligations, a card issuer need not assume that credit lines for other obligations are fully utilized.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Joint applicants and joint accountholders.</inline> With respect to the opening of a joint account for two or more consumers or a credit line increase on such an account, the card issuer may consider the collective ability of all persons who are or will be liable for debts incurred on the account to make the required payments.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">51(a)(2) Minimum periodic payments.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicable minimum payment formula.</inline> For purposes of estimating required minimum periodic payments under the safe harbor set forth in <ref href="/us/cfr/t12/s226.51/a/2/ii">§ 226.51(a)(2)(ii)</ref>, if the account has or may have a promotional program, such as a deferred payment or similar program, where there is no applicable minimum payment formula during the promotional period, the issuer must estimate the required minimum periodic payment based on the minimum payment formula that will apply when the promotion ends.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest rate for purchases.</inline> For purposes of estimating required minimum periodic payments under the safe harbor set forth in <ref href="/us/cfr/t12/s226.51/a/2/ii">§ 226.51(a)(2)(ii)</ref>, if the interest rate for purchases is or may be a promotional rate, the issuer must use the post-promotional rate to estimate interest charges.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mandatory fees.</inline> For purposes of estimating required minimum periodic payments under the safe harbor set forth in <ref href="/us/cfr/t12/s226.51/a/2/ii">§ 226.51(a)(2)(ii)</ref>, mandatory fees that must be assumed to be charged include those fees the card issuer knows the consumer will be required to pay under the terms of the account if the account is opened, such as an annual fee. If a mandatory fee is a promotional fee (as defined in <ref href="/us/cfr/t12/s226.16/g">§ 226.16(g)</ref>), the issuer must use the post-promotional fee amount for purposes of <ref href="/us/cfr/t12/s226.51/a/2/ii">§ 226.51(a)(2)(ii)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">51(b) Rules affecting young consumers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Age as of date of application or consideration of credit line increase.</inline> Sections 226.51(b)(1) and (b)(2) apply only to a consumer who has not attained the age of 21 as of the date of submission of the application under <ref href="/us/cfr/t12/s226.51/b/1">§ 226.51(b)(1)</ref> or the date the credit line increase is requested by the consumer (or if no request has been made, the date the credit line increase is considered by the card issuer) under <ref href="/us/cfr/t12/s226.51/b/2">§ 226.51(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Liability of cosigner, guarantor, or joint accountholder.</inline> Sections 226.51(b)(1)(ii) and (b)(2) require the signature or written consent of a cosigner, guarantor, or joint accountholder agreeing either to be secondarily liable for any debt on the account incurred by the consumer before the consumer has attained the age of 21 or to be jointly liable with the consumer for any debt on the account. Sections 226.51(b)(1)(ii) and (b)(2) do not prohibit a card issuer from also requiring the cosigner, guarantor, or joint accountholder to assume liability for debts incurred after the consumer has attained the age of 21, consistent with any agreement made between the parties.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Authorized users exempt.</inline> If a consumer who has not attained the age of 21 is being <?page num="751"?>added to another person's account as an authorized user and has no liability for debts incurred on the account, <ref href="/us/cfr/t12/s226.51/b/1">§ 226.51(b)(1)</ref> and (b)(2) do not apply.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic application.</inline> Consistent with <ref href="/us/cfr/t12/s226.5/a/1/iii">§ 226.5(a)(1)(iii)</ref>, an application may be provided to the consumer in electronic form without regard to the consumer consent or other provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (<ref href="/us/usc/t15/s7001">15 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) in the circumstances set forth in <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref>. The electronic submission of an application from a consumer or a consent to a credit line increase from a cosigner, guarantor, or joint accountholder to a card issuer would constitute a written application or consent for purposes of <ref href="/us/cfr/t12/s226.51/b">§ 226.51(b)</ref> and would not be considered a consumer disclosure for purposes of the E-Sign Act.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">51(b)(1) Applications from young consumers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to Regulation B.</inline> In considering an application or credit line increase on the credit card account of a consumer who is less than 21 years old, creditors must comply with the applicable rules in Regulation B (<ref href="/us/cfr/t12/p202">12 CFR part 202</ref>).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Financial information.</inline> Information regarding income and assets that satisfies the requirements of <ref href="/us/cfr/t12/s226.51/a">§ 226.51(a)</ref> also satisfies the requirements of <ref href="/us/cfr/t12/s226.51/b/1">§ 226.51(b)(1)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 51(a)(1)–4.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">51(b)(2) Credit line increases for young consumers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to Regulation B.</inline> In considering an application or credit line increase on the credit card account of a consumer who is less than 21 years old, creditors must comply with the applicable rules in Regulation B (<ref href="/us/cfr/t12/p202">12 CFR part 202</ref>).</p>
<heading style="-uslm-sgm:HD2"><ref href="/us/cfr/t12/s226.52">§ 226.52</ref>—Limitations on Fees</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(a) Limitations prior to account opening and during first year after account opening.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(a)(1) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application.</inline> The 25 percent limit in <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> applies to fees that the card issuer charges to the account as well as to fees that the card issuer requires the consumer to pay with respect to the account through other means (such as through a payment from the consumer's asset account to the card issuer or from another credit account provided by the card issuer). For example</p>
<p style="-uslm-sgm:P">i. Assume that, under the terms of a credit card account, a consumer is required to pay $120 in fees for the issuance or availability of credit at account opening. The consumer is also required to pay a cash advance fee that is equal to five percent of the cash advance and a late payment fee of $15 if the required minimum periodic payment is not received by the payment due date (which is the twenty-fifth of the month). At account opening on January 1 of year one, the credit limit for the account is $500. Section 226.52(a)(1) permits the card issuer to charge to the account the $120 in fees for the issuance or availability of credit at account opening. On February 1 of year one, the consumer uses the account for a $100 cash advance. Section 226.52(a)(1) permits the card issuer to charge a $5 cash-advance fee to the account. On March 26 of year one, the card issuer has not received the consumer's required minimum periodic payment. Section 226.52(a)(2) permits the card issuer to charge a $15 late payment fee to the account. On July 15 of year one, the consumer uses the account for a $50 cash advance. Section 226.52(a)(1) does not permit the card issuer to charge a $2.50 cash advance fee to the account. Furthermore, <ref href="/us/cfr/t12/s225.52/a/1">§ 225.52(a)(1)</ref> prohibits the card issuer from collecting the $2.50 cash advance fee from the consumer by other means.</p>
<p style="-uslm-sgm:P">ii. Assume that, under the terms of a credit card account, a consumer is required to pay $125 in fees for the issuance or availability of credit during the first year after account opening. At account opening on January 1 of year one, the credit limit for the account is $500. Section 226.52(a)(1) permits the card issuer to charge the $125 in fees to the account. However, <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> prohibits the card issuer from requiring the consumer to make payments to the card issuer for additional non-exempt fees with respect to the account prior to account opening or during the first year after account opening. Section 226.52(a)(1) also prohibits the card issuer from requiring the consumer to open a separate credit account with the card issuer to fund the payment of additional non-exempt fees prior to the opening of the credit card account or during the first year after the credit card account is opened.</p>
<p style="-uslm-sgm:P">iii. Assume that, on January 1 of year one, a consumer is required to pay a $100 fee in order to apply for a credit card account. On January 5, the card issuer approves the consumer's application, assigns the account a credit limit of $1,000, and provides the consumer with account-opening disclosures consistent with <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>. The date on which the account may first be used by the consumer to engage in transactions is January 5. The consumer is required to pay $150 in fees for the issuance or availability of credit, which <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> permits the card issuer to charge to the account on January 5. However, because the $100 application fee is subject to the 25 percent limit in <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref>, the card issuer is prohibited from requiring the consumer to pay any additional non-exempt fees with respect to the account until January 5 of year two.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees that exceed 25 percent limit.</inline> A card issuer that charges a fee to a credit card account that exceeds the 25 percent limit complies with <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> if the card issuer waives or removes the fee and any associated interest charges or credits the account for an amount equal to the fee and any associated <?page num="752"?>interest charges within a reasonable amount of time but no later than the end of the billing cycle following the billing cycle during which the fee was charged. For example, assuming the facts in the example in comment 52(a)(1)–1.i. above, the card issuer complies with <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> if the card issuer charged the $2.50 cash advance fee to the account on July 15 of year one but waived or removed the fee or credited the account for $2.50 (plus any interest charges on that $2.50) at the end of the billing cycle.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changes in credit limit during first year.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increases in credit limit.</inline> If a card issuer increases the credit limit during the first year after the account is opened, <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> does not permit the card issuer to require the consumer to pay additional fees that would otherwise be prohibited (such as a fee for increasing the credit limit). For example, assume that, at account opening on January 1, the credit limit for a credit card account is $400 and the consumer is required to pay $100 in fees for the issuance or availability of credit. On July 1, the card issuer increases the credit limit for the account to $600. Section 226.52(a)(1) does not permit the card issuer to require the consumer to pay additional fees based on the increased credit limit.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Decreases in credit limit.</inline> If a card issuer decreases the credit limit during the first year after the account is opened, <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> requires the card issuer to waive or remove any fees charged to the account that exceed 25 percent of the reduced credit limit or to credit the account for an amount equal to any fees the consumer was required to pay with respect to the account that exceed 25 percent of the reduced credit limit within a reasonable amount of time but no later than the end of the billing cycle following the billing cycle during which the credit limit was reduced. For example</p>
<p style="-uslm-sgm:P">A. Assume that, at account opening on January 1, the credit limit for a credit card account is $1,000 and the consumer is required to pay $250 in fees for the issuance or availability of credit. The billing cycles for the account begin on the first day of the month and end on the last day of the month. On July 30, the card issuer decreases the credit limit for the account to $500. Section 226.52(a)(1) requires the card issuer to waive or remove $175 in fees from the account or to credit the account for an amount equal to $175 within a reasonable amount of time but no later than August 31.</p>
<p style="-uslm-sgm:P">B. Assume that, on June 25 of year one, a consumer is required to pay a $75 fee in order to apply for a credit card account. At account opening on July 1 of year one, the credit limit for the account is $500 and the consumer is required to pay $50 in fees for the issuance or availability of credit. The billing cycles for the account begin on the first day of the month and end on the last day of the month. On February 15 of year two, the card issuer decreases the credit limit for the account to $250. Section 226.52(a)(1) requires the card issuer to waive or remove fees from the account or to credit the account for an amount equal to $62.50 within a reasonable amount of time but no later than March 31 of year two.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date on which account may first be used by consumer to engage in transactions.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Methods of compliance.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref>, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions. A card issuer may consider an account open for purposes of <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> on any of the following dates</p>
<p style="-uslm-sgm:P">A. The date the account is first used by the consumer for a transaction (such as when an account is established in connection with financing the purchase of goods or services).</p>
<p style="-uslm-sgm:P">B. The date the consumer complies with any reasonable activation procedures imposed by the card issuer for preventing fraud or unauthorized use of a new account (such as requiring the consumer to provide information that verifies his or her identity), provided that the account may be used for transactions on that date.</p>
<p style="-uslm-sgm:P">C. The date that is seven days after the card issuer mails or delivers to the consumer account-opening disclosures that comply with <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>, provided that the consumer may use the account for transactions after complying with any reasonable activation procedures imposed by the card issuer for preventing fraud or unauthorized use of the new account (such as requiring the consumer to provide information that verifies his or her identity). If a card issuer has reasonable procedures designed to ensure that account-opening disclosures that comply with <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> are mailed or delivered to consumers no later than a certain number of days after the card issuer establishes the account, the card issuer may add that number of days to the seven-day period for purposes of determining the date on which the account was opened.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">A. Assume that, on July 1 of year one, a credit card account under an open-end (not home-secured) consumer credit plan is established in connection with financing the purchase of goods or services and a $500 transaction is charged to the account by the consumer. The card issuer may consider the account open on July 1 of year one for purposes of <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref>. Accordingly, <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> ceases to apply to the account on July 1 of year two.</p>
<p style="-uslm-sgm:P">B. Assume that, on July 1 of year one, a card issuer approves a consumer's application for a credit card account under an open-end (not home-secured) consumer credit plan and establishes the account on its internal systems. On July 5, the card issuer mails or delivers to the consumer account-opening <?page num="753"?>disclosures that comply with <ref href="/us/cfr/t12/s226.6">§ 226.6</ref>. If the consumer may use the account for transactions on the date the consumer complies with any reasonable procedures imposed by the card issuer for preventing fraud or unauthorized use, the card issuer may consider the account open on July 12 of year one for purposes of <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref>. Accordingly, <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> ceases to apply to the account on July 12 of year two.</p>
<p style="-uslm-sgm:P">C. Same facts as in paragraph B above except that the card issuer has adopted reasonable procedures designed to ensure that account-opening disclosures that comply with <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> are mailed or delivered to consumers no later than three days after an account is established on its systems. If the consumer may use the account for transactions on the date the consumer complies with any reasonable procedures imposed by the card issuer for preventing fraud or unauthorized use, the card issuer may consider the account open on July 11 of year one for purposes of <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref>. Accordingly, <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> ceases to apply to the account on July 11 of year two. However, if the consumer uses the account for a transaction or complies with the card issuer's reasonable procedures for preventing fraud or unauthorized use on July 8 of year one, the card issuer may, at its option, consider the account open on that date for purposes of <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> and <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> therefore ceases to apply to the account on July 8 of year two.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(a)(2) Fees not subject to limitations.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Covered fees.</inline> Except as provided in <ref href="/us/cfr/t12/s226.52/a/2">§ 226.52(a)(2)</ref>, <ref href="/us/cfr/t12/s226.52/a">§ 226.52(a)</ref> applies to any fees or other charges that a card issuer will or may require the consumer to pay with respect to a credit card account prior to account opening and during the first year after account opening, other than charges attributable to periodic interest rates. For example, <ref href="/us/cfr/t12/s226.52/a">§ 226.52(a)</ref> applies to</p>
<p style="-uslm-sgm:P">i. Fees that the consumer is required to pay for the issuance or availability of credit described in <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref>, including any fee based on account activity or inactivity and any fee that a consumer is required to pay in order to receive a particular credit limit;</p>
<p style="-uslm-sgm:P">ii. Fees for insurance described in <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> or debt cancellation or debt suspension coverage described in <ref href="/us/cfr/t12/s226.4/b/10">§ 226.4(b)(10)</ref> written in connection with a credit transaction, if the insurance or debt cancellation or debt suspension coverage is required by the terms of the account;</p>
<p style="-uslm-sgm:P">iii. Fees that the consumer is required to pay in order to engage in transactions using the account (such as cash advance fees, balance transfer fees, foreign transaction fees, and fees for using the account for purchases);</p>
<p style="-uslm-sgm:P">iv. Fees that the consumer is required to pay for violating the terms of the account (except to the extent specifically excluded by <ref href="/us/cfr/t12/s226.52/a/2/i">§ 226.52(a)(2)(i)</ref>);</p>
<p style="-uslm-sgm:P">v. Fixed finance charges; and</p>
<p style="-uslm-sgm:P">vi. Minimum charges imposed if a charge would otherwise have been determined by applying a periodic interest rate to a balance except for the fact that such charge is smaller than the minimum.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees the consumer is not required to pay.</inline> Section 226.52(a)(2)(ii) provides that <ref href="/us/cfr/t12/s226.52/a">§ 226.52(a)</ref> does not apply to fees that the consumer is not required to pay with respect to the account. For example, <ref href="/us/cfr/t12/s226.52/a">§ 226.52(a)</ref> generally does not apply to fees for making an expedited payment (to the extent permitted by <ref href="/us/cfr/t12/s226.10/e">§ 226.10(e)</ref>), fees for optional services (such as travel insurance), fees for reissuing a lost or stolen card, or statement reproduction fees.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Security deposits.</inline> A security deposit that is charged to a credit card account is a fee for purposes of <ref href="/us/cfr/t12/s226.52/a">§ 226.52(a)</ref>. In contrast, however, a security deposit is not subject to the 25 percent limit in <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> if it is not charged to the account. For example, <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref> does not prohibit a card issuer from requiring a consumer to provide funds at account opening pledged as security for the account that exceed 25 percent of the credit limit at account opening so long as those funds are not obtained from the account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(a)(3) Rule of construction.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees or charges otherwise prohibited by law.</inline> Section 226.52(a) does not authorize the imposition or payment of fees or charges otherwise prohibited by law. For example, see <ref href="/us/cfr/t16/s310.4/a/4">16 CFR 310.4(a)(4)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(b) Limitations on penalty fees.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees for violating the account terms or other requirements.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref>, a fee includes any charge imposed by a card issuer based on an act or omission that violates the terms of the account or any other requirements imposed by the card issuer with respect to the account, other than charges attributable to periodic interest rates. Accordingly, for purposes of <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref>, a fee does not include charges attributable to an increase in an annual percentage rate based on an act or omission that violates the terms or other requirements of an account.</p>
<p style="-uslm-sgm:P">i. The following are examples of fees that are subject to the limitations in <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref> or are prohibited by <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref></p>
<p style="-uslm-sgm:P">A. Late payment fees and any other fees imposed by a card issuer if an account becomes delinquent or if a payment is not received by a particular date.</p>
<p style="-uslm-sgm:P">B. Returned payment fees and any other fees imposed by a card issuer if a payment received via check, automated clearing house, or other payment method is returned.</p>
<p style="-uslm-sgm:P">C. Any fee or charge for an over-the-limit transaction as defined in <ref href="/us/cfr/t12/s226.56/a">§ 226.56(a)</ref>, to the extent the imposition of such a fee or charge is permitted by <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>.</p>
<p style="-uslm-sgm:P">D. Any fee imposed by a card issuer if payment on a check that accesses a credit card account is declined.
<?page num="754"?></p>
<p style="-uslm-sgm:P">E. Any fee or charge for a transaction that the card issuer declines to authorize. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref>.</p>
<p style="-uslm-sgm:P">F. Any fee imposed by a card issuer based on account inactivity (including the consumer's failure to use the account for a particular number or dollar amount of transactions or a particular type of transaction). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref>.</p>
<p style="-uslm-sgm:P">G. Any fee imposed by a card issuer based on the closure or termination of an account. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref>.</p>
<p style="-uslm-sgm:P">ii. The following are examples of fees to which <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref> does not apply</p>
<p style="-uslm-sgm:P">A. Balance transfer fees.</p>
<p style="-uslm-sgm:P">B. Cash advance fees.</p>
<p style="-uslm-sgm:P">C. Foreign transaction fees.</p>
<p style="-uslm-sgm:P">D. Annual fees and other fees for the issuance or availability of credit described in <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref>, except to the extent that such fees are based on account inactivity. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref>.</p>
<p style="-uslm-sgm:P">E. Fees for insurance described in <ref href="/us/cfr/t12/s226.4/b/7">§ 226.4(b)(7)</ref> or debt cancellation or debt suspension coverage described in <ref href="/us/cfr/t12/s226.4/b/10">§ 226.4(b)(10)</ref> written in connection with a credit transaction, provided that such fees are not imposed as a result of a violation of the account terms or other requirements of an account.</p>
<p style="-uslm-sgm:P">F. Fees for making an expedited payment (to the extent permitted by <ref href="/us/cfr/t12/s226.10/e">§ 226.10(e)</ref>).</p>
<p style="-uslm-sgm:P">G. Fees for optional services (such as travel insurance).</p>
<p style="-uslm-sgm:P">H. Fees for reissuing a lost or stolen card.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rounding to nearest whole dollar.</inline> A card issuer may round any fee that complies with <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref> to the nearest whole dollar. For example, if <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref> permits a card issuer to impose a late payment fee of $21.50, the card issuer may round that amount up to the nearest whole dollar and impose a late payment fee of $22. However, if the late payment fee permitted by <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref> were $21.49, the card issuer would not be permitted to round that amount up to $22, although the card issuer could round that amount down and impose a late payment fee of $21.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(b)(1) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship between <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, (b)(1)(ii), and (b)(2).</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship between <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> and (b)(1)(ii).</inline> A card issuer may impose a fee for violating the terms or other requirements of an account pursuant to either <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> or (b)(1)(ii).</p>
<p style="-uslm-sgm:P">A. A card issuer that complies with the safe harbors in <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> is not required to determine that its fees represent a reasonable proportion of the total costs incurred by the card issuer as a result of a type of violation under <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>.</p>
<p style="-uslm-sgm:P">B. A card issuer may impose a fee for one type of violation pursuant to <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> and may impose a fee for a different type of violation pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>. For example, a card issuer may impose a late payment fee of $30 based on a cost determination pursuant to <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> but impose returned payment and over-the-limit fees of $25 or $35 pursuant to the safe harbors in <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>.</p>
<p style="-uslm-sgm:P">C. A card issuer that previously based the amount of a penalty fee for a particular type of violation on a cost determination pursuant to <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> may begin to impose a penalty fee for that type of violation that is consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> at any time (subject to the notice requirements in <ref href="/us/cfr/t12/s226.9">§ 226.9</ref>), provided that the first fee imposed pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> is consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>. For example, assume that a late payment occurs on January 15 and that, based on a cost determination pursuant to <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, the card issuer imposes a $30 late payment fee. Another late payment occurs on July 15. The card issuer may impose another $30 late payment fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> or may impose a $25 late payment fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>. However, the card issuer may not impose a $35 late payment fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>. If the card issuer imposes a $25 fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> for the July 15 late payment and another late payment occurs on September 15, the card issuer may impose a $35 fee for the September 15 late payment pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship between <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref> and (b)(2).</inline> Section 226.52(b)(1) does not permit a card issuer to impose a fee that is inconsistent with the prohibitions in <ref href="/us/cfr/t12/s226.52/b/2">§ 226.52(b)(2)</ref>. For example, if <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref> prohibits the card issuer from imposing a late payment fee that exceeds $15, <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> does not permit the card issuer to impose a higher late payment fee.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(b)(1)(i) Fees based on costs.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs incurred as a result of violations.</inline> Section 226.52(b)(1)(i) does not require a card issuer to base a fee on the costs incurred as a result of a specific violation of the terms or other requirements of an account. Instead, for purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a card issuer must have determined that a fee for violating the terms or other requirements of an account represents a reasonable proportion of the costs incurred by the card issuer as a result of that type of violation. A card issuer may make a single determination for all of its credit card portfolios or may make separate determinations for each portfolio. The factors relevant to this determination include</p>
<p style="-uslm-sgm:P">i. The number of violations of a particular type experienced by the card issuer during a prior period of reasonable length (for example, a period of twelve months).</p>
<p style="-uslm-sgm:P">ii. The costs incurred by the card issuer during that period as a result of those violations.</p>
<p style="-uslm-sgm:P">iii. At the card issuer's option, the number of fees imposed by the card issuer as a result <?page num="755"?>of those violations during that period that the card issuer reasonably estimates it will be unable to collect. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 52(b)(1)(i)–5.</p>
<p style="-uslm-sgm:P">iv. At the card issuer's option, reasonable estimates for an upcoming period of changes in the number of violations of that type, the resulting costs, and the number of fees that the card issuer will be unable to collect. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> illustrative examples in comments 52(b)(1)(i)–6 through –9.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts excluded from cost analysis.</inline> The following amounts are not costs incurred by a card issuer as a result of violations of the terms or other requirements of an account for purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref></p>
<p style="-uslm-sgm:P">i. Losses and associated costs (including the cost of holding reserves against potential losses and the cost of funding delinquent accounts).</p>
<p style="-uslm-sgm:P">ii. Costs associated with evaluating whether consumers who have not violated the terms or other requirements of an account are likely to do so in the future (such as the costs associated with underwriting new accounts). However, once a violation of the terms or other requirements of an account has occurred, the costs associated with preventing additional violations for a reasonable period of time are costs incurred by a card issuer as a result of violations of the terms or other requirements of an account for purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Third party charges.</inline> As a general matter, amounts charged to the card issuer by a third party as a result of a violation of the terms or other requirements of an account are costs incurred by the card issuer for purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>. For example, if a card issuer is charged a specific amount by a third party for each returned payment, that amount is a cost incurred by the card issuer as a result of returned payments. However, if the amount is charged to the card issuer by an affiliate or subsidiary of the card issuer, the card issuer must have determined that the charge represents a reasonable proportion of the costs incurred by the affiliate or subsidiary as a result of the type of violation. For example, if an affiliate of a card issuer provides collection services to the card issuer on delinquent accounts, the card issuer must have determined that the amounts charged to the card issuer by the affiliate for such services represent a reasonable proportion of the costs incurred by the affiliate as a result of late payments.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amounts charged by other card issuers.</inline> The fact that a card issuer's fees for violating the terms or other requirements of an account are comparable to fees assessed by other card issuers does not satisfy the requirements of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Uncollected fees.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a card issuer may consider fees that it is unable to collect when determining the appropriate fee amount. Fees that the card issuer is unable to collect include fees imposed on accounts that have been charged off by the card issuer, fees that have been discharged in bankruptcy, and fees that the card issuer is required to waive in order to comply with a legal requirement (such as a requirement imposed by <ref href="/us/cfr/t12/p226">12 CFR part 226</ref> or <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref>). However, fees that the card issuer chooses not to impose or chooses not to collect (such as fees the card issuer chooses to waive at the request of the consumer or under a workout or temporary hardship arrangement) are not relevant for purposes of this determination. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> illustrative examples in comments 52(b)(2)(i)–6 through –9.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Late payment fees.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs incurred as a result of late payments.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, the costs incurred by a card issuer as a result of late payments include the costs associated with the collection of late payments, such as the costs associated with notifying consumers of delinquencies and resolving delinquencies (including the establishment of workout and temporary hardship arrangements).</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">A. Late payment fee based on past delinquencies and costs. Assume that, during year one, a card issuer experienced 1 million delinquencies and incurred $26 million in costs as a result of those delinquencies. For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a $26 late payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of late payments during year two.</p>
<p style="-uslm-sgm:P">B. Adjustment based on fees card issuer is unable to collect. Same facts as above except that the card issuer imposed a late payment fee for each of the 1 million delinquencies experienced during year one but was unable to collect 25% of those fees (in other words, the card issuer was unable to collect 250,000 fees, leaving a total of 750,000 late payments for which the card issuer did collect or could have collected a fee). For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, a late payment fee of $35 would represent a reasonable proportion of the total costs incurred by the card issuer as a result of late payments during year two.</p>
<p style="-uslm-sgm:P">C. Adjustment based on reasonable estimate of future changes. Same facts as paragraphs A. and B. above except the card issuer reasonably estimates that—based on past delinquency rates and other factors relevant to potential delinquency rates for year two—it will experience a 2% decrease in delinquencies during year two (in other words, 20,000 fewer delinquencies for a total of 980,000). The card issuer also reasonably estimates that it will be unable to collect the same percentage of fees (25%) during year two as during year one (in other words, the card issuer will be unable to collect 245,000 fees, leaving a total of 735,000 late payments for which the card issuer will be able to collect a fee). The card issuer also reasonably <?page num="756"?>estimates that—based on past changes in costs incurred as a result of delinquencies and other factors relevant to potential costs for year two—it will experience a 5% increase in costs during year two (in other words, $1.3 million in additional costs for a total of $27.3 million). For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a $37 late payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of late payments during year two.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Returned payment fees.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs incurred as a result of returned payments.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, the costs incurred by a card issuer as a result of returned payments include</p>
<p style="-uslm-sgm:P">A. Costs associated with processing returned payments and reconciling the card issuer's systems and accounts to reflect returned payments;</p>
<p style="-uslm-sgm:P">B. Costs associated with investigating potential fraud with respect to returned payments; and</p>
<p style="-uslm-sgm:P">C. Costs associated with notifying the consumer of the returned payment and arranging for a new payment.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">A. Returned payment fee based on past returns and costs. Assume that, during year one, a card issuer experienced 150,000 returned payments and incurred $3.1 million in costs as a result of those returned payments. For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a $21 returned payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of returned payments during year two.</p>
<p style="-uslm-sgm:P">B. Adjustment based on fees card issuer is unable to collect. Same facts as above except that the card issuer imposed a returned payment fee for each of the 150,000 returned payments experienced during year one but was unable to collect 15% of those fees (in other words, the card issuer was unable to collect 22,500 fees, leaving a total of 127,500 returned payments for which the card issuer did collect or could have collected a fee). For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, a returned payment fee of $24 would represent a reasonable proportion of the total costs incurred by the card issuer as a result of returned payments during year two.</p>
<p style="-uslm-sgm:P">C. Adjustment based on reasonable estimate of future changes. Same facts as paragraphs A. and B. above except the card issuer reasonably estimates that—based on past returned payment rates and other factors relevant to potential returned payment rates for year two—it will experience a 2% increase in returned payments during year two (in other words, 3,000 additional returned payments for a total of 153,000). The card issuer also reasonably estimates that it will be unable to collect 25% of returned payment fees during year two (in other words, the card issuer will be unable to collect 38,250 fees, leaving a total of 114,750 returned payments for which the card issuer will be able to collect a fee). The card issuer also reasonably estimates that—based on past changes in costs incurred as a result of returned payments and other factors relevant to potential costs for year two—it will experience a 1% decrease in costs during year two (in other words, a $31,000 reduction in costs for a total of $3.069 million). For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a $27 returned payment fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of returned payments during year two.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Over-the-limit fees.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs incurred as a result of over-the-limit transactions.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, the costs incurred by a card issuer as a result of over-the-limit transactions include</p>
<p style="-uslm-sgm:P">A. Costs associated with determining whether to authorize over-the-limit transactions; and</p>
<p style="-uslm-sgm:P">B. Costs associated with notifying the consumer that the credit limit has been exceeded and arranging for payments to reduce the balance below the credit limit.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs not incurred as a result of over-the-limit transactions.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, costs associated with obtaining the affirmative consent of consumers to the card issuer's payment of transactions that exceed the credit limit consistent with <ref href="/us/cfr/t12/s226.56">§ 226.56</ref> are not costs incurred by a card issuer as a result of over-the-limit transactions.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">A. Over-the-limit fee based on past fees and costs. Assume that, during year one, a card issuer authorized 600,000 over-the-limit transactions and incurred $4.5 million in costs as a result of those over-the-limit transactions. However, because of the affirmative consent requirements in <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>, the card issuer was only permitted to impose 200,000 over-the-limit fees during year one. For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a $23 over-the-limit fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of over-the-limit transactions during year two.</p>
<p style="-uslm-sgm:P">B. Adjustment based on fees card issuer is unable to collect. Same facts as above except that the card issuer was unable to collect 30% of the 200,000 over-the-limit fees imposed during year one (in other words, the card issuer was unable to collect 60,000 fees, leaving a total of 140,000 over-the-limit transactions for which the card issuer did collect or could have collected a fee). For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, an over-the-limit fee of $32 would represent a reasonable proportion of the total costs incurred by the card issuer as a result of over-the-limit transactions during year two.</p>
<p style="-uslm-sgm:P">C. Adjustment based on reasonable estimate of future changes. Same facts as paragraphs A. and B. above except the card issuer reasonably estimates that—based on past <?page num="757"?>over-the-limit transaction rates, the percentages of over-the-limit transactions that resulted in an over-the-limit fee in the past (consistent with <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>), and factors relevant to potential changes in those rates and percentages for year two—it will authorize approximately the same number of over-the-limit transactions during year two (600,000) and impose approximately the same number of over-the-limit fees (200,000). The card issuer also reasonably estimates that it will be unable to collect the same percentage of fees (30%) during year two as during year one (in other words, the card issuer was unable to collect 60,000 fees, leaving a total of 140,000 over-the-limit transactions for which the card issuer will be able to collect a fee). The card issuer also reasonably estimates that—based on past changes in costs incurred as a result of over-the-limit transactions and other factors relevant to potential costs for year two—it will experience a 6% decrease in costs during year two (in other words, a $270,000 reduction in costs for a total of $4.23 million). For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a $30 over-the-limit fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of over-the-limit transactions during year two.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Declined access check fees.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Costs incurred as a result of declined access checks.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, the costs incurred by a card issuer as a result of declining payment on a check that accesses a credit card account include</p>
<p style="-uslm-sgm:P">A. Costs associated with determining whether to decline payment on access checks;</p>
<p style="-uslm-sgm:P">B. Costs associated with processing declined access checks and reconciling the card issuer's systems and accounts to reflect declined access checks;</p>
<p style="-uslm-sgm:P">C. Costs associated with investigating potential fraud with respect to declined access checks; and</p>
<p style="-uslm-sgm:P">D. Costs associated with notifying the consumer and the merchant or other party that accepted the access check that payment on the check has been declined.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Assume that, during year one, a card issuer declined 100,000 access checks and incurred $2 million in costs as a result of those declined checks. The card issuer imposed a fee for each declined access check but was unable to collect 10% of those fees (in other words, the card issuer was unable to collect 10,000 fees, leaving a total of 90,000 declined access checks for which the card issuer did collect or could have collected a fee). For purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref>, a $22 declined access check fee would represent a reasonable proportion of the total costs incurred by the card issuer as a result of declined access checks during year two.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(b)(1)(ii) Safe harbors.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple violations of same type.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Same billing cycle or next six billing cycles.</inline> A card issuer cannot impose a fee for a violation pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref> unless a fee has previously been imposed for the same type of violation pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>. Once a fee has been imposed for a violation pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>, the card issuer may impose a fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref> for any subsequent violation of the same type until that type of violation has not occurred for a period of six consecutive complete billing cycles. A fee has been imposed for purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> even if the card issuer waives or rebates all or part of the fee.</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Late payments.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>, a late payment occurs during the billing cycle in which the payment may first be treated as late consistent with the requirements of <ref href="/us/cfr/t12/p226">12 CFR Part 226</ref> and the terms or other requirements of the account.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Returned payments.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>, a returned payment occurs during the billing cycle in which the payment is returned to the card issuer.</p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transactions that exceed the credit limit.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>, a transaction that exceeds the credit limit for an account occurs during the billing cycle in which the transaction occurs or is authorized by the card issuer.</p>
<p style="-uslm-sgm:P">D. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Declined access checks.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>, a check that accesses a credit card account is declined during the billing cycle in which the card issuer declines payment on the check.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.52/b/2/ii">§§ 226.52(b)(2)(ii)</ref> and 226.56(j)(1).</inline> If multiple violations are based on the same event or transaction such that <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing more than one fee, the event or transaction constitutes a single violation for purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>. Furthermore, consistent with <ref href="/us/cfr/t12/s226.56/j/1/i">§ 226.56(j)(1)(i)</ref>, no more than one violation for exceeding an account's credit limit can occur during a single billing cycle for purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> does not prohibit a card issuer from imposing fees for exceeding the credit limit in consecutive billing cycles based on the same over-the-limit transaction to the extent permitted by <ref href="/us/cfr/t12/s226.56/j/1">§ 226.56(j)(1)</ref>. In these circumstances, the second and third over-the-limit fees permitted by <ref href="/us/cfr/t12/s226.56/j/1">§ 226.56(j)(1)</ref> may be imposed pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 52(b)(2)(ii)–1.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> The following examples illustrate the application of <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> and (b)(1)(ii)(B) with respect to credit card accounts under an open-end (not home-secured) consumer credit plan that are not charge card accounts. For purposes of these examples, assume that the billing cycles for the account begin on the first day of the month and end on the last day of the month and that the payment due date for the account is the twenty-fifth day of the month.
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<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Violations of same type (late payments).</inline> A required minimum periodic payment of $50 is due on March 25. On March 26, a late payment has occurred because no payment has been received. Accordingly, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>, the card issuer imposes a $25 late payment fee on March 26. In order for the card issuer to impose a $35 late payment fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>, a second late payment must occur during the April, May, June, July, August, or September billing cycles.</p>
<p style="-uslm-sgm:P">(1) The card issuer does not receive any payment during the March billing cycle. A required minimum periodic payment of $100 is due on April 25. On April 20, the card issuer receives a $50 payment. No further payment is received during the April billing cycle. Accordingly, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>, the card issuer may impose a $35 late payment fee on April 26. Furthermore, the card issuer may impose a $35 late payment fee for any late payment that occurs during the May, June, July, August, September, or October billing cycles.</p>
<p style="-uslm-sgm:P">(2) Same facts as in paragraph A. above. On March 30, the card issuer receives a $50 payment and the required minimum periodic payments for the April, May, June, July, August, and September billing cycles are received on or before the payment due date. A required minimum periodic payment of $60 is due on October 25. On October 26, a late payment has occurred because the required minimum periodic payment due on October 25 has not been received. However, because this late payment did not occur during the six billing cycles following the March billing cycle, <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> only permits the card issuer to impose a late payment fee of $25.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Violations of different types (late payment and over the credit limit).</inline> The credit limit for an account is $1,000. Consistent with <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>, the consumer has affirmatively consented to the payment of transactions that exceed the credit limit. A required minimum periodic payment of $30 is due on August 25. On August 26, a late payment has occurred because no payment has been received. Accordingly, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>, the card issuer imposes a $25 late payment fee on August 26. On August 30, the card issuer receives a $30 payment. On September 10, a transaction causes the account balance to increase to $1,150, which exceeds the account's $1,000 credit limit. On September 11, a second transaction increases the account balance to $1,350. On September 23, the card issuer receives the $50 required minimum periodic payment due on September 25, which reduces the account balance to $1,300. On September 30, the card issuer imposes a $25 over-the-limit fee, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>. On October 26, a late payment has occurred because the $60 required minimum periodic payment due on October 25 has not been received. Accordingly, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>, the card issuer imposes a $35 late payment fee on October 26.</p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Violations of different types (late payment and returned payment).</inline> A required minimum periodic payment of $50 is due on July 25. On July 26, a late payment has occurred because no payment has been received. Accordingly, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>, the card issuer imposes a $25 late payment fee on July 26. On July 30, the card issuer receives a $50 payment. A required minimum periodic payment of $50 is due on August 25. On August 24, a $50 payment is received. On August 27, the $50 payment is returned to the card issuer for insufficient funds. In these circumstances, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> permits the card issuer to impose either a late payment fee or a returned payment fee but not both because the late payment and the returned payment result from the same event or transaction. Accordingly, for purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref>, the event or transaction constitutes a single violation. However, if the card issuer imposes a late payment fee, <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref> permits the issuer to impose a fee of $35 because the late payment occurred during the six billing cycles following the July billing cycle. In contrast, if the card issuer imposes a returned payment fee, the amount of the fee may be no more than $25 pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjustments based on Consumer Price Index.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> and (b)(1)(ii)(B), the Board shall calculate each year price level adjusted amounts using the Consumer Price Index in effect on June 1 of that year. When the cumulative change in the adjusted minimum value derived from applying the annual Consumer Price level to the current amounts in <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> and (b)(1)(ii)(B) has risen by a whole dollar, those amounts will be increased by $1.00. Similarly, when the cumulative change in the adjusted minimum value derived from applying the annual Consumer Price level to the current amounts in <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> and (b)(1)(ii)(B) has decreased by a whole dollar, those amounts will be decreased by $1.00. The Board will publish adjustments to the amounts in <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> and (b)(1)(ii)(B).</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Delinquent balance for charge card accounts.</inline> Section 226.52(b)(1)(ii)(C) provides that, when a charge card issuer that requires payment of outstanding balances in full at the end of each billing cycle has not received the required payment for two or more consecutive billing cycles, the card issuer may impose a late payment fee that does not exceed three percent of the delinquent balance. For purposes of <ref href="/us/cfr/t12/s226.52/b/1/ii/C">§ 226.52(b)(1)(ii)(C)</ref>, the delinquent balance is any previously billed amount that remains unpaid at the time the late payment fee is imposed pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/C">§ 226.52(b)(1)(ii)(C)</ref>. Consistent with <?page num="759"?><ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref>, a charge card issuer that imposes a fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/C">§ 226.52(b)(1)(ii)(C)</ref> with respect to a late payment may not impose a fee pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref> with respect to the same late payment. The following examples illustrate the application of <ref href="/us/cfr/t12/s226.52/b/1/ii/C">§ 226.52(b)(1)(ii)(C)</ref></p>
<p style="-uslm-sgm:P">i. Assume that a charge card issuer requires payment of outstanding balances in full at the end of each billing cycle and that the billing cycles for the account begin on the first day of the month and end on the last day of the month. At the end of the June billing cycle, the account has a balance of $1,000. On July 5, the card issuer provides a periodic statement disclosing the $1,000 balance consistent with <ref href="/us/cfr/t12/s226.7">§ 226.7</ref>. During the July billing cycle, the account is used for $300 in transactions, increasing the balance to $1,300. At the end of the July billing cycle, no payment has been received and the card issuer imposes a $25 late payment fee consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref>. On August 5, the card issuer provides a periodic statement disclosing the $1,325 balance consistent with <ref href="/us/cfr/t12/s226.7">§ 226.7</ref>. During the August billing cycle, the account is used for $200 in transactions, increasing the balance to $1,525. At the end of the August billing cycle, no payment has been received. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/C">§ 226.52(b)(1)(ii)(C)</ref>, the card issuer may impose a late payment fee of $40, which is 3% of the $1,325 balance that was due at the end of the August billing cycle. Section 226.52(b)(1)(ii)(C) does not permit the card issuer to include the $200 in transactions that occurred during the August billing cycle.</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that, on August 25, a $100 payment is received. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/C">§ 226.52(b)(1)(ii)(C)</ref>, the card issuer may impose a late payment fee of $37, which is 3% of the unpaid portion of the $1,325 balance that was due at the end of the August billing cycle ($1,225).</p>
<p style="-uslm-sgm:P">iii. Same facts as in paragraph A. above except that, on August 25, a $200 payment is received. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/C">§ 226.52(b)(1)(ii)(C)</ref>, the card issuer may impose a late payment fee of $34, which is 3% of the unpaid portion of the $1,325 balance that was due at the end of the August billing cycle ($1,125). In the alternative, the card issuer may impose a late payment fee of $35 consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing both fees.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(b)(2) Prohibited fees.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>.</inline> A card issuer does not comply with <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref> if it imposes a fee that is inconsistent with the prohibitions in <ref href="/us/cfr/t12/s226.52/b/2">§ 226.52(b)(2)</ref>. Thus, the prohibitions in <ref href="/us/cfr/t12/s226.52/b/2">§ 226.52(b)(2)</ref> apply even if a fee is consistent with <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> or (b)(1)(ii). For example, even if a card issuer has determined for purposes of <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> that a $27 fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of a particular type of violation, <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref> prohibits the card issuer from imposing that fee if the dollar amount associated with the violation is less than $27. Similarly, even if <ref href="/us/cfr/t12/s226.52/b/1/ii">§ 226.52(b)(1)(ii)</ref> permits a card issuer to impose a $25 fee, <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref> prohibits the card issuer from imposing that fee if the dollar amount associated with the violation is less than $25.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(b)(2)(i) Fees that exceed dollar amount associated with violation.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Late payment fees.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with a late payment is the amount of the required minimum periodic payment due immediately prior to assessment of the late payment fee. Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits a card issuer from imposing a late payment fee that exceeds the amount of that required minimum periodic payment. For example</p>
<p style="-uslm-sgm:P">i. Assume that a $15 required minimum periodic payment is due on September 25. The card issuer does not receive any payment on or before September 25. On September 26, the card issuer imposes a late payment fee. For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the late payment is the amount of the required minimum periodic payment due on September 25 ($15). Thus, under <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref>, the amount of that fee cannot exceed $15 (even if a higher fee would be permitted under <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>).</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that, on September 25, the card issuer receives a $10 payment. No further payments are received. On September 26, the card issuer imposes a late payment fee. For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the late payment is the full amount of the required minimum periodic payment due on September 25 ($15), rather than the unpaid portion of that payment ($5). Thus, under <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref>, the amount of the late payment fee cannot exceed $15 (even if a higher fee would be permitted under <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>).</p>
<p style="-uslm-sgm:P">iii. Assume that a $15 required minimum periodic payment is due on October 28 and the billing cycle for the account closes on October 31. The card issuer does not receive any payment on or before November 3. On November 3, the card issuer determines that the required minimum periodic payment due on November 28 is $50. On November 5, the card issuer imposes a late payment fee. For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the late payment is the amount of the required minimum periodic payment due on October 28 ($15), rather than the amount of the required minimum periodic payment due on November 28 ($50). Thus, under <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref>, the amount of that fee cannot exceed $15 (even if a higher fee would be permitted under <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>).
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<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Returned payment fees.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with a returned payment is the amount of the required minimum periodic payment due immediately prior to the date on which the payment is returned to the card issuer. Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits a card issuer from imposing a returned payment fee that exceeds the amount of that required minimum periodic payment. However, if a payment has been returned and is submitted again for payment by the card issuer, there is no additional dollar amount associated with a subsequent return of that payment and <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref> prohibits the card issuer from imposing an additional returned payment fee. For example</p>
<p style="-uslm-sgm:P">i. Assume that the billing cycles for an account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. A minimum payment of $15 is due on March 25. The card issuer receives a check for $100 on March 23, which is returned to the card issuer for insufficient funds on March 26. For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the returned payment is the amount of the required minimum periodic payment due on March 25 ($15). Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits the card issuer from imposing a returned payment fee that exceeds $15 (even if a higher fee would be permitted under <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>). Furthermore, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from assessing both a late payment fee and a returned payment fee in these circumstances. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 52(b)(2)(ii)–1.</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that the card issuer receives the $100 check on March 31 and the check is returned for insufficient funds on April 2. The minimum payment due on April 25 is $30. For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the returned payment is the amount of the required minimum periodic payment due on March 25 ($15), rather than the amount of the required minimum periodic payment due on April 25 ($30). Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits the card issuer from imposing a returned payment fee that exceeds $15 (even if a higher fee would be permitted under <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>). Furthermore, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from assessing both a late payment fee and a returned payment fee in these circumstances. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 52(b)(2)(ii)–1.</p>
<p style="-uslm-sgm:P">iii. Same facts as paragraph i. above except that, on March 28, the card issuer presents the $100 check for payment a second time. On April 1, the check is again returned for insufficient funds. Section 226.52(b)(2)(i)(B) prohibits the card issuer from imposing a returned payment fee based on the return of the payment on April 1.</p>
<p style="-uslm-sgm:P">iv. Assume that the billing cycles for an account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. A minimum payment of $15 is due on August 25. The card issuer receives a check for $15 on August 23, which is not returned. The card issuer receives a check for $50 on September 5, which is returned to the card issuer for insufficient funds on September 7. Section 226.52(b)(2)(i)(B) does not prohibit the card issuer from imposing a returned payment fee in these circumstances. Instead, for purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the returned payment is the amount of the required minimum periodic payment due on August 25 ($15). Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits the card issuer from imposing a returned payment fee that exceeds $15 (even if a higher fee would be permitted under <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>).</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Over-the-limit fees.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with extensions of credit in excess of the credit limit for an account is the total amount of credit extended by the card issuer in excess of the credit limit during the billing cycle in which the over-the-limit fee is imposed. Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits a card issuer from imposing an over-the-limit fee that exceeds that amount. Nothing in <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref> permits a card issuer to impose an over-the-limit fee if imposition of the fee is inconsistent with <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>. The following examples illustrate the application of <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> to over-the-limit fees</p>
<p style="-uslm-sgm:P">i. Assume that the billing cycles for a credit card account with a credit limit of $5,000 begin on the first day of the month and end on the last day of the month. Assume also that, consistent with <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>, the consumer has affirmatively consented to the payment of transactions that exceed the credit limit. On March 1, the account has a $4,950 balance. On March 6, a $60 transaction is charged to the account, increasing the balance to $5,010. On March 25, a $5 transaction is charged to the account, increasing the balance to $5,015. On the last day of the billing cycle (March 31), the card issuer imposes an over-the-limit fee. For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the extensions of credit in excess of the credit limit is the total amount of credit extended by the card issuer in excess of the credit limit during the March billing cycle ($15). Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits the card issuer from imposing an over-the-limit fee that exceeds $15 (even if a higher fee would be permitted under <ref href="/us/cfr/t12/s226.52/b/1">§ 226.52(b)(1)</ref>).</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that, on March 26, the card issuer receives a payment of $20, reducing the balance below the credit limit to $4,995. Nevertheless, for purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the extensions of credit in excess of the credit limit is the total amount of credit extended by the card issuer in excess of the <?page num="761"?>credit limit during the March billing cycle ($15). Thus, consistent with <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref>, the card issuer may impose an over-the-limit fee of $15.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Declined access check fees.</inline> For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with declining payment on a check that accesses a credit card account is the amount of the check. Thus, when a check that accesses a credit card account is declined, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits a card issuer from imposing a fee that exceeds the amount of that check. For example, assume that a check that accesses a credit card account is used as payment for a $50 transaction, but payment on the check is declined by the card issuer because the transaction would have exceeded the credit limit for the account. For purposes of <ref href="/us/cfr/t12/s226.52/b/2/i">§ 226.52(b)(2)(i)</ref>, the dollar amount associated with the declined check is the amount of the check ($50). Thus, <ref href="/us/cfr/t12/s226.52/b/2/i/A">§ 226.52(b)(2)(i)(A)</ref> prohibits the card issuer from imposing a fee that exceeds $50. However, the amount of this fee must also comply with <ref href="/us/cfr/t12/s226.52/b/1/i">§ 226.52(b)(1)(i)</ref> or (b)(1)(ii).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inactivity fees.</inline> Section 226.52(b)(2)(i)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) prohibits a card issuer from imposing a fee with respect to a credit card account under an open-end (not home-secured) consumer credit plan based on inactivity on that account (including the consumer's failure to use the account for a particular number or dollar amount of transactions or a particular type of transaction). For example, <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) prohibits a card issuer from imposing a $50 fee when a credit card account under an open-end (not home-secured) consumer credit plan is not used for at least $2,000 in purchases over the course of a year. Similarly, <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) prohibits a card issuer from imposing a $50 annual fee on all accounts of a particular type but waiving the fee on any account that is used for at least $2,000 in purchases over the course of a year if the card issuer promotes the waiver or rebate of the annual fee for purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref>. However, if the card issuer does not promote the waiver or rebate of the annual fee for purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref>, <ref href="/us/cfr/t12/s226.52/b/2/i/B">§ 226.52(b)(2)(i)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">2</inline>) does not prohibit a card issuer from considering account activity along with other factors when deciding whether to waive or rebate annual fees on individual accounts (such as in response to a consumer's request).</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Closed account fees.</inline> Section 226.52(b)(2)(i)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) prohibits a card issuer from imposing a fee based on the closure or termination of an account. For example, 226.52(b)(2)(i)(B)(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) prohibits a card issuer from</p>
<p style="-uslm-sgm:P">i. Imposing a one-time fee to consumers who close their accounts.</p>
<p style="-uslm-sgm:P">ii. Imposing a periodic fee (such as an annual fee, a monthly maintenance fee, or a closed account fee) after an account is closed or terminated if that fee was not imposed prior to closure or termination. This prohibition applies even if the fee was disclosed prior to closure or termination. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See also</inline> comment 55(d)–1.</p>
<p style="-uslm-sgm:P">iii. Increasing a periodic fee (such as an annual fee or a monthly maintenance fee) after an account is closed or terminated. However, a card issuer is not prohibited from continuing to impose a periodic fee that was imposed before the account was closed or terminated.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">52(b)(2)(ii) Multiple fees based on single event or transaction.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Single event or transaction.</inline> Section 226.52(b)(2)(ii) prohibits a card issuer from imposing more than one fee for violating the terms or other requirements of an account based on a single event or transaction. If <ref href="/us/cfr/t12/s226.56/j/1">§ 226.56(j)(1)</ref> permits a card issuer to impose fees for exceeding the credit limit in consecutive billing cycles based on the same over-the-limit transaction, those fees are not based on a single event or transaction for purposes of <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref>. The following examples illustrate the application of <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref>. Assume for purposes of these examples that the billing cycles for a credit card account begin on the first day of the month and end on the last day of the month and that the payment due date for the account is the twenty-fifth day of the month.</p>
<p style="-uslm-sgm:P">i. Assume that the required minimum periodic payment due on March 25 is $20. On March 26, the card issuer has not received any payment and imposes a late payment fee. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i), the card issuer may impose a $20 late payment fee on March 26. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing an additional late payment fee if the $20 minimum payment has not been received by a subsequent date (such as March 31).</p>
<p style="-uslm-sgm:P">A. On April 3, the card issuer provides a periodic statement disclosing that a $70 required minimum periodic payment is due on April 25. This minimum payment includes the $20 minimum payment due on March 25 and the $20 late payment fee imposed on March 26. On April 20, the card issuer receives a $20 payment. No additional payments are received during the April billing cycle. Section 226.52(b)(2)(ii) does not prohibit the card issuer from imposing a late payment fee based on the consumer's failure to make the $70 required minimum periodic payment on or before April 25. Accordingly, consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref> and (b)(2)(i), the card issuer may impose a $35 late payment fee on April 26.</p>
<p style="-uslm-sgm:P">B. On April 3, the card issuer provides a periodic statement disclosing that a $20 required minimum periodic payment is due on April 25. This minimum payment does not include the $20 minimum payment due on March 25 or the $20 late payment fee imposed <?page num="762"?>on March 26. On April 20, the card issuer receives a $20 payment. No additional payments are received during the April billing cycle. Because the card issuer has received the required minimum periodic payment due on April 25 and because <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing a second late payment fee based on the consumer's failure to make the $20 minimum payment due on March 25, the card issuer cannot impose a late payment fee in these circumstances.</p>
<p style="-uslm-sgm:P">ii. Assume that the required minimum periodic payment due on March 25 is $30.</p>
<p style="-uslm-sgm:P">A. On March 25, the card issuer receives a check for $50, but the check is returned for insufficient funds on March 27. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a returned payment fee of $25. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction.</p>
<p style="-uslm-sgm:P">B. Same facts as paragraph ii.A. above except that that card issuer receives the $50 check on March 27 and the check is returned for insufficient funds on March 29. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a returned payment fee of $25. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction. If no payment is received on or before the next payment due date (April 25), <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> does not prohibit the card issuer from imposing a late payment fee.</p>
<p style="-uslm-sgm:P">iii. Assume that the required minimum periodic payment due on July 25 is $30. On July 10, the card issuer receives a $50 payment, which is not returned. On July 20, the card issuer receives a $100 payment, which is returned for insufficient funds on July 24. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i)(A), the card issuer may impose a returned payment fee of $25. Nothing in <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the imposition of this fee.</p>
<p style="-uslm-sgm:P">iv. Assume that the credit limit for an account is $1,000 and that, consistent with <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>, the consumer has affirmatively consented to the payment of transactions that exceed the credit limit. On March 31, the balance on the account is $970 and the card issuer has not received the $35 required minimum periodic payment due on March 25. On that same date (March 31), a $70 transaction is charged to the account, which increases the balance to $1,040. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 and an over-the-limit fee of $25. Section 226.52(b)(2)(ii) does not prohibit the imposition of both fees because those fees are based on different events or transactions. No additional transactions are charged to the account during the March, April, or May billing cycles. If the account balance remains more than $35 above the credit limit on April 26, the card issuer may impose an over-the-limit fee of $35 pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>, to the extent consistent with <ref href="/us/cfr/t12/s226.56/j/1">§ 226.56(j)(1)</ref>. Furthermore, if the account balance remains more than $35 above the credit limit on May 26, the card issuer may again impose an over-the-limit fee of $35 pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>, to the extent consistent with <ref href="/us/cfr/t12/s226.56/j/1">§ 226.56(j)(1)</ref>. Thereafter, <ref href="/us/cfr/t12/s226.56/j/1">§ 226.56(j)(1)</ref> does not permit the card issuer to impose additional over-the-limit fees unless another over-the-limit transaction occurs. However, if an over-the-limit transaction occurs during the six billing cycles following the May billing cycle, the card issuer may impose an over-the-limit fee of $35 pursuant to <ref href="/us/cfr/t12/s226.52/b/1/ii/B">§ 226.52(b)(1)(ii)(B)</ref>.</p>
<p style="-uslm-sgm:P">v. Assume that the credit limit for an account is $5,000 and that, consistent with <ref href="/us/cfr/t12/s226.56">§ 226.56</ref>, the consumer has affirmatively consented to the payment of transactions that exceed the credit limit. On July 23, the balance on the account is $4,950. On July 24, the card issuer receives the $100 required minimum periodic payment due on July 25, reducing the balance to $4,850. On July 26, a $75 transaction is charged to the account, which increases the balance to $4,925. On July 27, the $100 payment is returned for insufficient funds, increasing the balance to $5,025. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i)(A), the card issuer may impose a returned payment fee of $25 or an over-the-limit fee of $25. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction.</p>
<p style="-uslm-sgm:P">vi. Assume that the required minimum periodic payment due on March 25 is $50. On March 20, the card issuer receives a check for $50, but the check is returned for insufficient funds on March 22. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i)(A), the card issuer may impose a returned payment fee of $25. On March 25, the card issuer receives a second check for $50, but the check is returned for insufficient funds on March 27. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§§ 226.52(b)(1)(ii)(A)</ref>, (b)(1)(ii)(B), and (b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a returned payment fee of $35. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction.</p>
<p style="-uslm-sgm:P">vii. Assume that the required minimum periodic payment due on February 25 is $100. On February 25, the card issuer receives a check for $100. On March 3, the card issuer provides a periodic statement disclosing that a $120 required minimum periodic payment is due on March 25. On March 4, the $100 check is returned to the card issuer for insufficient funds. Consistent with <ref href="/us/cfr/t12/s226.52/b/1/ii/A">§§ 226.52(b)(1)(ii)(A)</ref> and (b)(2)(i)(A), the card issuer may impose a <?page num="763"?>late payment fee of $25 or a returned payment fee of $25 with respect to the $100 payment. However, <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing both fees because those fees would be based on a single event or transaction. On March 20, the card issuer receives a $120 check, which is not returned. No additional payments are received during the March billing cycle. Because the card issuer has received the required minimum periodic payment due on March 25 and because <ref href="/us/cfr/t12/s226.52/b/2/ii">§ 226.52(b)(2)(ii)</ref> prohibits the card issuer from imposing a second fee based on the $100 payment that was returned for insufficient funds, the card issuer cannot impose a late payment fee in these circumstances.</p>
<heading style="-uslm-sgm:HD2">Section 226.53—Allocation of Payments</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Required minimum periodic payment.</inline> Section 226.53 addresses the allocation of amounts paid by the consumer in excess of the minimum periodic payment required by the card issuer. Section 226.53 does not limit or otherwise address the card issuer's ability to determine, consistent with applicable law and regulatory guidance, the amount of the required minimum periodic payment or how that payment is allocated. A card issuer may, but is not required to, allocate the required minimum periodic payment consistent with the requirements in <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> to the extent consistent with other applicable law or regulatory guidance.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicable rates and balances.</inline> Section 226.53 permits a card issuer to allocate an amount paid by the consumer in excess of the required minimum periodic payment based on the annual percentage rates and balances on the day the preceding billing cycle ends, on the day the payment is credited to the account, or on any day in between those two dates. The day used by the card issuer to determine the applicable annual percentage rates and balances for purposes of <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> generally must be consistent from billing cycle to billing cycle, although the card issuer may adjust this day from time to time. For example:</p>
<p style="-uslm-sgm:P">i. Assume that the billing cycles for a credit card account start on the first day of the month and end on the last day of the month. On the date the March billing cycle ends (March 31), the account has a purchase balance of $500 at a promotional annual percentage rate of 5% and another purchase balance of $200 at a non-promotional annual percentage rate of 15%. On April 5, a $100 purchase to which the 15% rate applies is charged to the account. On April 15, the promotional rate expires and <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits the card issuer to increase the rate that applies to the $500 balance from 5% to 18%. On April 25, the card issuer credits to the account $400 paid by the consumer in excess of the required minimum periodic payment. If the card issuer's practice is to allocate payments based on the rates and balances on the last day of the prior billing cycle, the card issuer would allocate the $400 payment to pay in full the $200 balance to which the 15% rate applied on March 31 and then allocate the remaining $200 to the $500 balance to which the 5% rate applied on March 31. In the alternative, if the card issuer's practice is to allocate payments based on the rates and balances on the day a payment is credited to the account, the card issuer would allocate the $400 payment to the $500 balance to which the 18% rate applied on April 25.</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that, on April 25, the card issuer credits to the account $750 paid by the consumer in excess of the required minimum periodic payment. If the card issuer's practice is to allocate payments based on the rates and balances on the last day of the prior billing cycle, the card issuer would allocate the $750 payment to pay in full the $200 balance to which the 15% rate applied on March 31 and the $500 balance to which the 5% rate applied on March 31 and then allocate the remaining $50 to the $100 purchase made on April 5. In the alternative, if the card issuer's practice is to allocate payments based on the rates and balances on the day a payment is credited to the account, the card issuer would allocate the $750 payment to pay in full the $500 balance to which the 18% rate applied on April 25 and then allocate the remaining $250 to the $300 balance to which the 15% rate applied on April 25.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Claims or defenses under <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref> and billing error disputes under <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>.</inline> When a consumer has asserted a claim or defense against the card issuer pursuant to <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref> or alleged a billing error under <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>, the card issuer must apply the consumer's payment in a manner that avoids or minimizes any reduction in the amount subject to that claim, defense, or dispute. For example:</p>
<p style="-uslm-sgm:P">i. Assume that a credit card account has a $500 cash advance balance at an annual percentage rate of 25% and a $1,000 purchase balance at an annual percentage rate of 17%. Assume also that $200 of the cash advance balance is subject to a claim or defense under <ref href="/us/cfr/t12/s226.12/c">§ 226.12(c)</ref> or a billing error dispute under <ref href="/us/cfr/t12/s226.13">§ 226.13</ref>. If the consumer pays $900 in excess of the required minimum periodic payment, the card issuer must allocate $300 of the excess payment to pay in full the portion of the cash advance balance that is not subject to the claim, defense, or dispute and then allocate the remaining $600 to the $1,000 purchase balance.</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that the consumer pays $1,400 in excess of the required minimum periodic payment. The card issuer must allocate $1,300 of the excess payment to pay in full the $300 cash advance balance that is not subject to the claim, defense, or dispute and the $1,000 purchase balance. If there are no new transactions or <?page num="764"?>other amounts to which the remaining $100 can be allocated, the card issuer may apply that amount to the $200 cash advance balance that is subject to the claim, defense, or dispute. However, if the card issuer subsequently determines that a billing error occurred as asserted by the consumer, the card issuer must credit the account for the disputed amount and any related finance or other charges and send a correction notice consistent with <ref href="/us/cfr/t12/s226.13/e">§ 226.13(e)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balances with the same rate.</inline> When the same annual percentage rate applies to more than one balance on an account and a different annual percentage rate applies to at least one other balance on that account, <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> generally does not require that any particular method be used when allocating among the balances with the same annual percentage rate. Under these circumstances, a card issuer may treat the balances with the same rate as a single balance or separate balances. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> example in comment 53–5.iv. However, when a balance on a credit card account is subject to a deferred interest or similar program that provides that a consumer will not be obligated to pay interest that accrues on the balance if the balance is paid in full prior to the expiration of a specified period of time, that balance must be treated as a balance with an annual percentage rate of zero for purposes of <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> during that period of time. For example, if an account has a $1,000 purchase balance and a $2,000 balance that is subject to a deferred interest program that expires on July 1 and a 15% annual percentage rate applies to both, the balances must be treated as balances with different rates for purposes of <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> until July 1. In addition, unless the card issuer allocates amounts paid by the consumer in excess of the required minimum periodic payment in the manner requested by the consumer pursuant to <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref>, <ref href="/us/cfr/t12/s226.53/b/1/i">§ 226.53(b)(1)(i)</ref> requires the card issuer to apply any excess payments first to the $1,000 purchase balance except during the last two billing cycles of the deferred interest period (when it must be applied first to any remaining portion of the $2,000 balance). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> example in comment 53–5.v.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> For purposes of the following examples, assume that none of the required minimum periodic payment is allocated to the balances discussed (unless otherwise stated).</p>
<p style="-uslm-sgm:P">i. Assume that a credit card account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $800 in excess of the required minimum periodic payment. Under <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref>, the card issuer must allocate $500 to pay off the cash advance balance and then allocate the remaining $300 to the purchase balance.</p>
<p style="-uslm-sgm:P">ii. Assume that a credit card account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $400 in excess of the required minimum periodic payment. Under <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref>, the card issuer must allocate the entire $400 to the cash advance balance.</p>
<p style="-uslm-sgm:P">iii. Assume that a credit card account has a cash advance balance of $100 at an annual percentage rate of 20%, a purchase balance of $300 at an annual percentage rate of 18%, and a $600 protected balance on which the 12% annual percentage rate cannot be increased pursuant to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>. If the consumer pays $500 in excess of the required minimum periodic payment, <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref> requires the card issuer to allocate $100 to pay off the cash advance balance, $300 to pay off the purchase balance, and $100 to the protected balance.</p>
<p style="-uslm-sgm:P">iv. Assume that a credit card account has a cash advance balance of $500 at an annual percentage rate of 20%, a purchase balance of $1,000 at an annual percentage rate of 15%, and a transferred balance of $2,000 that was previously at a discounted annual percentage rate of 5% but is now at an annual percentage rate of 15%. Assume also that the consumer pays $800 in excess of the required minimum periodic payment. Under <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref>, the card issuer must allocate $500 to pay off the cash advance balance and allocate the remaining $300 among the purchase balance and the transferred balance in the manner the card issuer deems appropriate.</p>
<p style="-uslm-sgm:P">v. Assume that on January 1 a consumer uses a credit card account to make a $1,200 purchase subject to a deferred interest program under which interest accrues at an annual percentage rate of 15% but the consumer will not be obligated to pay that interest if the balance is paid in full on or before June 30. The billing cycles for this account begin on the first day of the month and end on the last day of the month. Each month from January through June, the consumer uses the account to make $200 in purchases that are not subject to the deferred interest program but are subject to the 15% rate</p>
<p style="-uslm-sgm:P">A. Each month from February through June, the consumer pays $400 in excess of the required minimum periodic payment on the payment due date, which is the twenty-fifth of the month. Any interest that accrues on the purchases not subject to the deferred interest program is paid by the required minimum periodic payment. The card issuer does not accept requests from consumers regarding the allocation of excess payments pursuant to <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref>. Thus, <ref href="/us/cfr/t12/s226.53/b/1/i">§ 226.53(b)(1)(i)</ref> requires the card issuer to allocate the $400 excess payments received on February 25, March 25, and April 25 consistent with <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref>. In other words, the card issuer must allocate those payments as <?page num="765"?>follows: $200 to pay off the balance not subject to the deferred interest program (which is subject to the 15% rate) and the remaining $200 to the deferred interest balance (which is treated as a balance with a rate of zero). However, <ref href="/us/cfr/t12/s226.53/b/1/i">§ 226.53(b)(1)(i)</ref> requires the card issuer to allocate the entire $400 excess payment received on May 25 to the deferred interest balance. Similarly, <ref href="/us/cfr/t12/s226.53/b/1/i">§ 226.53(b)(1)(i)</ref> requires the card issuer to allocate the $400 excess payment received on June 25 as follows: $200 to the deferred interest balance (which pays that balance in full) and the remaining $200 to the balance not subject to the deferred interest program.</p>
<p style="-uslm-sgm:P">B. Same facts as above, except that the card issuer does accept requests from consumers regarding the allocation of excess payments pursuant to <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref>. In addition, on April 25, the card issuer receives an excess payment of $800, which the consumer requests be allocated to pay off the $800 balance subject to the deferred interest program. Section 226.53(b)(1)(ii) permits the card issuer to allocate the $800 excess payment in the manner requested by the consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">53(b) Special rules.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest and similar programs.</inline> Section 226.53(b)(1) applies to deferred interest or similar programs under which the consumer is not obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time. For purposes of <ref href="/us/cfr/t12/s226.53/b/1">§ 226.53(b)(1)</ref>, “deferred interest” has the same meaning as in <ref href="/us/cfr/t12/s226.16/h/2">§ 226.16(h)(2)</ref> and associated commentary. Section 226.53(b)(1) applies regardless of whether the consumer is required to make payments with respect to that balance during the specified period. However, a grace period during which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate is not a deferred interest or similar program for purposes of <ref href="/us/cfr/t12/s226.53/b/1">§ 226.53(b)(1)</ref>. Similarly, a temporary annual percentage rate of zero percent that applies for a specified period of time consistent with <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> is not a deferred interest or similar program for purposes of <ref href="/us/cfr/t12/s226.53/b/1">§ 226.53(b)(1)</ref> unless the consumer may be obligated to pay interest that accrues during the period if a balance is not paid in full prior to expiration of the period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Expiration of deferred interest or similar program during billing cycle.</inline> For purposes of <ref href="/us/cfr/t12/s226.53/b/1/i">§ 226.53(b)(1)(i)</ref>, a billing cycle does not constitute one of the two billing cycles immediately preceding expiration of a deferred interest or similar program if the expiration date for the program precedes the payment due date in that billing cycle. For example, assume that a credit card account has a balance subject to a deferred interest program that expires on June 15. Assume also that the billing cycles for the account begin on the first day of the month and end on the last day of the month and that the required minimum periodic payment is due on the twenty-fifth day of the month. The card issuer does not accept requests from consumers regarding the allocation of excess payments pursuant to <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref>. Because the expiration date for the deferred interest program (June 15) precedes the due date in the June billing cycle (June 25), <ref href="/us/cfr/t12/s226.53/b/1/i">§ 226.53(b)(1)(i)</ref> requires the card issuer to allocate first to the deferred interest balance any amount paid by the consumer in excess of the required minimum periodic payment during the April and May billing cycles (as well as any amount paid by the consumer before June 15). However, if the deferred interest program expired on June 25 or on June 30 (or on any day in between), <ref href="/us/cfr/t12/s226.53/b/1/i">§ 226.53(b)(1)(i)</ref> would apply only to the May and June billing cycles.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer requests.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Generally.</inline> Section 226.53(b) does not require a card issuer to allocate amounts paid by the consumer in excess of the required minimum periodic payment in the manner requested by the consumer, provided that the card issuer instead allocates such amounts consistent with <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref> or (b)(1)(i), as applicable. For example, a card issuer may decline consumer requests regarding payment allocation as a general matter or may decline such requests when a consumer does not comply with requirements set by the card issuer (such as submitting the request in writing or submitting the request prior to or contemporaneously with submission of the payment), provided that amounts paid by the consumer in excess of the required minimum periodic payment are allocated consistent with <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref> or (b)(1)(i), as applicable. Similarly, a card issuer that accepts requests pursuant to <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref> or (b)(2) must allocate amounts paid by a consumer in excess of the required minimum periodic payment consistent with <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref> or (b)(1)(i), as applicable, if the consumer does not submit a request. Furthermore, a card issuer that accepts requests pursuant to <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref> or (b)(2) must allocate consistent with <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref> or (b)(1)(i), as applicable, if the consumer submits a request with which the card issuer cannot comply (such as a request that contains a mathematical error), unless the consumer submits an additional request with which the card issuer can comply.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of consumer requests that satisfy <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref> or (b)(2).</inline> A consumer has made a request for purposes of <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref> or (b)(2) if</p>
<p style="-uslm-sgm:P">A. The consumer contacts the card issuer orally, electronically, or in writing and specifically requests that a payment or payments be allocated in a particular manner during the period of time that the deferred interest or similar program applies to a balance on the account or the period of time that a balance on the account is secured.
<?page num="766"?></p>
<p style="-uslm-sgm:P">B. The consumer completes and submits to the card issuer a form or payment coupon provided by the card issuer for the purpose of requesting that a payment or payments be allocated in a particular manner during the period of time that the deferred interest or similar program applies to a balance on the account or the period of time that a balance on the account is secured.</p>
<p style="-uslm-sgm:P">C. The consumer contacts the card issuer orally, electronically, or in writing and specifically requests that a payment that the card issuer has previously allocated consistent with <ref href="/us/cfr/t12/s226.53/a">§ 226.53(a)</ref> or (b)(1)(i), as applicable, instead be allocated in a different manner.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of consumer requests that do not satisfy <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref> or (b)(2).</inline> A consumer has not made a request for purposes of <ref href="/us/cfr/t12/s226.53/b/1/ii">§ 226.53(b)(1)(ii)</ref> or (b)(2) if</p>
<p style="-uslm-sgm:P">A. The terms and conditions of the account agreement contain preprinted language stating that by applying to open an account, by using that account for transactions subject to a deferred interest or similar program, or by using the account to purchase property in which the card issuer holds a security interest the consumer requests that payments be allocated in a particular manner.</p>
<p style="-uslm-sgm:P">B. The card issuer's on-line application contains a preselected check box indicating that the consumer requests that payments be allocated in a particular manner and the consumer does not deselect the box.</p>
<p style="-uslm-sgm:P">C. The payment coupon provided by the card issuer contains preprinted language or a preselected check box stating that by submitting a payment the consumer requests that the payment be allocated in a particular manner.</p>
<p style="-uslm-sgm:P">D. The card issuer requires a consumer to accept a particular payment allocation method as a condition of using a deferred interest or similar program, purchasing property in which the card issuer holds a security interest, making a payment, or receiving account services or features.</p>
<heading style="-uslm-sgm:HD2">Section 226.54—Limitations on the Imposition of Finance Charges</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">54(a) Limitations on imposing finance charges as a result of the loss of a grace period.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">54(a)(1) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility for grace period.</inline> Section 226.54 prohibits the imposition of finance charges as a result of the loss of a grace period in certain specified circumstances. Section 226.54 does not require the card issuer to provide a grace period. Furthermore, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> does not prohibit the card issuer from placing limitations and conditions on a grace period (such as limiting application of the grace period to certain types of transactions or conditioning eligibility for the grace period on certain transactions being paid in full by a particular date), provided that such limitations and conditions are consistent with <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref> and <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>. Finally, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> does not limit the imposition of finance charges with respect to a transaction when the consumer is not eligible for a grace period on that transaction at the end of the billing cycle in which the transaction occurred. For example:</p>
<p style="-uslm-sgm:P">i. Assume that the billing cycles for a credit card account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. Assume also that, for purchases made during the current billing cycle (for purposes of this example, the June billing cycle), the grace period applies from the date of the purchase until the payment due date in the following billing cycle (July 25), subject to two conditions. First, the purchase balance at the end of the preceding billing cycle (the May billing cycle) must have been paid in full by the payment due date in the current billing cycle (June 25). Second, the purchase balance at the end of the current billing cycle (the June billing cycle) must be paid in full by the following payment due date (July 25). Finally, assume that the consumer was eligible for a grace period at the start of the June billing cycle (in other words, assume that the purchase balance for the April billing cycle was paid in full by May 25).</p>
<p style="-uslm-sgm:P">A. If the consumer pays the purchase balance for the May billing cycle in full by June 25, then at the end of the June billing cycle the consumer is eligible for a grace period with respect to purchases made during that billing cycle. Therefore, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> limits the imposition of finance charges with respect to purchases made during the June billing cycle if the consumer does not pay the purchase balance for the June billing cycle in full by July 25. Specifically, <ref href="/us/cfr/t12/s226.54/a/1/i">§ 226.54(a)(1)(i)</ref> prohibits the card issuer from imposing finance charges based on the purchase balance at the end of the June billing cycle for days that precede the July billing cycle. Furthermore, <ref href="/us/cfr/t12/s226.54/a/1/ii">§ 226.54(a)(1)(ii)</ref> prohibits the card issuer from imposing finance charges based on any portion of the balance at the end of the June billing cycle that was paid on or before July 25.</p>
<p style="-uslm-sgm:P">B. If the consumer does not pay the purchase balance for the May billing cycle in full by June 25, then the consumer is not eligible for a grace period with respect to purchases made during the June billing cycle at the end of that cycle. Therefore, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> does not limit the imposition of finance charges with respect to purchases made during the June billing cycle regardless of whether the consumer pays the purchase balance for the June billing cycle in full by July 25.</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that the card issuer places only one condition on the provision of a grace period for purchases made during the current billing cycle (the <?page num="767"?>June billing cycle): that the purchase balance at the end of the current billing cycle (the June billing cycle) be paid in full by the following payment due date (July 25). In these circumstances, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> applies to the same extent as discussed in paragraphs i.A. and i.B. above regardless of whether the purchase balance for the April billing cycle was paid in full by May 25.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition of grace period.</inline> For purposes of <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§§ 226.5(b)(2)(ii)(B)</ref> and 226.54, a grace period is a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate. The following are not grace periods for purposes of <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>:</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest and similar programs.</inline> A deferred interest or similar promotional program under which a consumer will not be obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time is not a grace period for purposes of <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>. Thus, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> does not prohibit the card issuer from charging accrued interest to an account upon expiration of a deferred interest or similar program if the balance was not paid in full prior to expiration (to the extent consistent with <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and other applicable law and regulatory guidance).</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Waivers or rebates of interest.</inline> As a general matter, a card issuer has not provided a grace period with respect to transactions for purposes of <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> if, on an individualized basis (such as in response to a consumer's request), the card issuer waives or rebates finance charges that have accrued on transactions. In addition, when a balance at the end of the preceding billing cycle is paid in full on or before the payment due date in the current billing cycle, a card issuer that waives or rebates trailing or residual interest accrued on that balance or any other transactions during the current billing cycle has not provided a grace period with respect to that balance or any other transactions for purposes of <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>. However, if the terms of the account provide that all interest accrued on transactions will be waived or rebated if the balance for those transactions at the end of the billing cycle during which the transactions occurred is paid in full by the following payment due date, the card issuer is providing a grace period with respect to those transactions for purposes of <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>. For example:</p>
<p style="-uslm-sgm:P">A. Assume that the billing cycles for a credit card account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. On March 31, the balance on the account is $1,000 and the consumer is not eligible for a grace period with respect to that balance because the balance at the end of the prior billing cycle was not paid in full on March 25. On April 15, the consumer uses the account for a $500 purchase. On April 25, the card issuer receives a payment of $1,000. On May 3, the card issuer mails or delivers a periodic statement reflecting trailing or residual interest that accrued on the $1,000 balance from April 1 through April 24 as well as interest that accrued on the $500 purchase from April 15 through April 30. On May 10, the consumer requests that the trailing or residual interest charges be waived and the card issuer complies. By waiving these interest charges, the card issuer has not provided a grace period with respect to the $1,000 balance or the $500 purchase.</p>
<p style="-uslm-sgm:P">B. Same facts as in paragraph ii.A. above except that the terms of the account state that trailing or residual interest will be waived in these circumstances or it is the card issuer's practice to waive trailing or residual interest in these circumstances. By waiving these interest charges, the card issuer has not provided a grace period with respect to the $1,000 balance or the $500 purchase.</p>
<p style="-uslm-sgm:P">C. Assume that the billing cycles for a credit card account begin on the first day of the month and end on the last day of the month and that the payment due date is the twenty-fifth day of the month. Assume also that, for purchases made during the current billing cycle (for purposes of this example, the June billing cycle), the terms of the account provide that interest accrued on those purchases from the date of the purchase until the payment due date in the following billing cycle (July 25) will be waived or rebated, subject to two conditions. First, the purchase balance at the end of the preceding billing cycle (the May billing cycle) must have been paid in full by the payment due date in the current billing cycle (June 25). Second, the purchase balance at the end of the current billing cycle (the June billing cycle) must be paid in full by the following payment due date (July 25). Under these circumstances, the card issuer is providing a grace period on purchases for purposes of <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>. Therefore, assuming that the consumer was eligible for this grace period at the start of the June billing cycle (in other words, assuming that the purchase balance for the April billing cycle was paid in full by May 25) and assuming that the consumer pays the purchase balance for the May billing cycle in full by June 25, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> applies to the imposition of finance charges with respect to purchases made during the June billing cycle. Specifically, <ref href="/us/cfr/t12/s226.54/a/1/i">§ 226.54(a)(1)(i)</ref> prohibits the card issuer from imposing finance charges based on the purchase balance at the end of the June billing cycle for days that precede the July billing cycle. Furthermore, <ref href="/us/cfr/t12/s226.54/a/1/ii">§ 226.54(a)(1)(ii)</ref> prohibits the card issuer from imposing finance charges based on any portion of the balance at the end of the June billing cycle that was paid on or before July 25.
<?page num="768"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to payment allocation requirements in <ref href="/us/cfr/t12/s226.53">§ 226.53</ref>.</inline> Card issuers must comply with the payment allocation requirements in <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> even if doing so will result in the loss of a grace period.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibition on two-cycle balance computation method.</inline> When a consumer ceases to be eligible for a grace period, <ref href="/us/cfr/t12/s226.54/a/1/i">§ 226.54(a)(1)(i)</ref> prohibits the card issuer from computing the finance charge using the two-cycle average daily balance computation method. This method calculates the finance charge using a balance that is the sum of the average daily balances for two billing cycles. The first balance is for the current billing cycle, and is calculated by adding the total balance (including or excluding new purchases and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. The second balance is for the preceding billing cycle.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prohibition on imposing finance charges on amounts paid within grace period.</inline> When a balance on a credit card account is eligible for a grace period and the card issuer receives payment for some but not all of that balance prior to the expiration of the grace period, <ref href="/us/cfr/t12/s226.54/a/1/ii">§ 226.54(a)(1)(ii)</ref> prohibits the card issuer from imposing finance charges on the portion of the balance paid. Card issuers are not required to use a particular method to comply with <ref href="/us/cfr/t12/s226.54/a/1/ii">§ 226.54(a)(1)(ii)</ref>. However, when <ref href="/us/cfr/t12/s226.54/a/1/ii">§ 226.54(a)(1)(ii)</ref> applies, a card issuer is in compliance if, for example, it applies the consumer's payment to the balance subject to the grace period at the end of the preceding billing cycle (in a manner consistent with the payment allocation requirements in <ref href="/us/cfr/t12/s226.53">§ 226.53</ref>) and then calculates interest charges based on the amount of the balance that remains unpaid.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> Assume that the annual percentage rate for purchases on a credit card account is 15%. The billing cycle starts on the first day of the month and ends on the last day of the month. The payment due date for the account is the twenty-fifth day of the month. For purchases made during the current billing cycle, the card issuer provides a grace period from the date of the purchase until the payment due date in the following billing cycle, provided that the purchase balance at the end of the current billing cycle is paid in full by the following payment due date. For purposes of this example, assume that none of the required minimum periodic payment is allocated to the balances discussed. During the March billing cycle, the following transactions are charged to the account: A $100 purchase on March 10, a $200 purchase on March 15, and a $300 purchase on March 20. On March 25, the purchase balance for the February billing cycle is paid in full. Thus, for purposes of <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>, the consumer is eligible for a grace period on the March purchases. At the end of the March billing cycle (March 31), the consumer's total purchase balance is $600 and the consumer will not be charged interest on that balance if it is paid in full by the following due date (April 25).</p>
<p style="-uslm-sgm:P">i. On April 10, a $150 purchase is charged to the account. On April 25, the card issuer receives $500 in excess of the required minimum periodic payment. Section 226.54(a)(1)(i) prohibits the card issuer from reaching back and charging interest on any of the March transactions from the date of the transaction through the end of the March billing cycle (March 31). In these circumstances, the card issuer may comply with <ref href="/us/cfr/t12/s226.54/a/1/ii">§ 226.54(a)(1)(ii)</ref> by applying the $500 excess payment to the $600 purchase balance and then charging interest only on the portion of the $600 purchase balance that remains unpaid ($100) from the start of the April billing cycle (April 1) through the end of the April billing cycle (April 30). In addition, the card issuer may charge interest on the $150 purchase from the date of the transaction (April 10) through the end of the April billing cycle (April 31).</p>
<p style="-uslm-sgm:P">ii. Same facts as in paragraph 6. above except that, on March 18, a $250 cash advance is charged to the account at an annual percentage rate of 25%. The card issuer's grace period does not apply to cash advances, but the card issuer does provide a grace period on the March purchases because the purchase balance for the February billing cycle is paid in full on March 25. On April 25, the card issuer receives $600 in excess of the required minimum periodic payment. As required by <ref href="/us/cfr/t12/s226.53">§ 226.53</ref>, the card issuer allocates the $600 excess payment first to the balance with the highest annual percentage rate (the $250 cash advance balance). Although <ref href="/us/cfr/t12/s226.54/a/1/i">§ 226.54(a)(1)(i)</ref> prohibits the card issuer from charging interest on the March purchases based on days in the March billing cycle, the card issuer may charge interest on the $250 cash advance from the date of the transaction (March 18) through April 24. In these circumstances, the card issuer may comply with <ref href="/us/cfr/t12/s226.54/a/1/ii">§ 226.54(a)(1)(ii)</ref> by applying the remainder of the excess payment ($350) to the $600 purchase balance and then charging interest only on the portion of the $600 purchase balance that remains unpaid ($250) from the start of the April billing cycle (April 1) through the end of the April billing cycle (April 30).</p>
<p style="-uslm-sgm:P">iii. Same facts as in paragraph 6. above except that the consumer does not pay the balance for the February billing cycle in full on March 25 and therefore is not eligible for a grace period on the March purchases. Under these circumstances, <ref href="/us/cfr/t12/s226.54">§ 226.54</ref> does not apply and the card issuer may charge interest from the date of each transaction through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 25).
<?page num="769"?></p>
<heading style="-uslm-sgm:HD2">Section 226.55—Limitations on Increasing Annual Percentage Rates, Fees, and Charges</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(a) General rule.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increase in rate, fee, or charge.</inline> Section 226.55(a) prohibits card issuers from increasing an annual percentage rate or any fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) on a credit card account unless specifically permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. Except as specifically provided in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>, this prohibition applies even if the circumstances under which an increase will occur are disclosed in advance. The following examples illustrate the general application of <ref href="/us/cfr/t12/s226.55/a">§ 226.55(a)</ref> and (b). Additional examples illustrating specific aspects of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref> are provided in the commentary to those exceptions.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account-opening disclosure of non-variable rate for six months, then variable rate.</inline> Assume that, at account opening on January 1 of year one, a card issuer discloses that the annual percentage rate for purchases is a non-variable rate of 15% and will apply for six months. The card issuer also discloses that, after six months, the annual percentage rate for purchases will be a variable rate that is currently 18% and will be adjusted quarterly by adding a margin of 8 percentage points to a publicly-available index not under the card issuer's control. Furthermore, the card issuer discloses that the annual percentage rate for cash advances is the same variable rate that will apply to purchases after six months. Finally, the card issuer discloses that, to the extent consistent with <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and other applicable law, a non-variable penalty rate of 30% may apply if the consumer makes a late payment. The payment due date for the account is the twenty-fifth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase and cash advance balances.</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change-in-terms rate increase for new transactions after first year.</inline> On January 15 of year one, the consumer uses the account to make a $2,000 purchase and a $500 cash advance. No other transactions are made on the account. At the start of each quarter, the card issuer may adjust the variable rate that applies to the $500 cash advance consistent with changes in the index (pursuant to <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>). All required minimum periodic payments are received on or before the payment due date until May of year one, when the payment due on May 25 is received by the creditor on May 28. At this time, the card issuer is prohibited by <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> from increasing the rates that apply to the $2,000 purchase, the $500 cash advance, or future purchases and cash advances. Six months after account opening (July 1), the card issuer may begin to accrue interest on the $2,000 purchase at the previously-disclosed variable rate determined using an 8-point margin (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>). Because no other increases in rate were disclosed at account opening, the card issuer may not subsequently increase the variable rate that applies to the $2,000 purchase and the $500 cash advance (except due to increases in the index pursuant to <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>). On November 16, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer of a new variable rate that will apply on January 1 of year two (calculated using the same index and an increased margin of 12 percentage points). On December 15, the consumer makes a $100 purchase. On January 1 of year two, the card issuer may increase the margin used to determine the variable rate that applies to new purchases to 12 percentage points (pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>). However, <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref> does not permit the card issuer to apply the variable rate determined using the 12-point margin to the $2,000 purchase balance. Furthermore, although the $100 purchase occurred more than 14 days after provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice, <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> does not permit the card issuer to apply the variable rate determined using the 12-point margin to that purchase because it occurred during the first year after account opening. On January 15 of year two, the consumer makes a $300 purchase. The card issuer may apply the variable rate determined using the 12-point margin to the $300 purchase.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account becomes more than 60 days delinquent during first year.</inline> Same facts as above except that the required minimum periodic payment due on May 25 of year one is not received by the card issuer until July 30 of year one. Because the card issuer received the required minimum periodic payment more than 60 days after the payment due date, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> permits the card issuer to increase the annual percentage rate applicable to the $2,000 purchase, the $500 cash advance, and future purchases and cash advances. However, <ref href="/us/cfr/t12/s226.55/b/4/i">§ 226.55(b)(4)(i)</ref> requires the card issuer to first comply with the notice requirements in <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref>. Thus, if the card issuer provided a <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref> notice on July 25 stating that all rates on the account would be increased to the 30% penalty rate, the card issuer could apply that rate beginning on September 8 to all balances and to future transactions.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account-opening disclosure of non-variable rate for six months, then increased non-variable rate for six months, then variable rate; change-in-terms rate increase for new transactions after first year.</inline> Assume that, at account opening on January 1 of year one, a card issuer discloses that the annual percentage rate for purchases will increase as follows: A non-variable rate of 5% for six months; a non-variable rate of 10% for an additional six months; and thereafter a variable rate that <?page num="770"?>is currently 15% and will be adjusted monthly by adding a margin of 5 percentage points to a publicly-available index not under the card issuer's control. The payment due date for the account is the fifteenth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase balance. On January 15 of year one, the consumer uses the account to make a $1,500 purchase. Six months after account opening (July 1), the card issuer may begin to accrue interest on the $1,500 purchase at the previously-disclosed 10% non-variable rate (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>). On September 15, the consumer uses the account for a $700 purchase. On November 16, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer of a new variable rate that will apply on January 1 of year two (calculated using the same index and an increased margin of 8 percentage points). One year after account opening (January 1 of year two), the card issuer may begin accruing interest on the $2,200 purchase balance at the previously-disclosed variable rate determined using a 5-point margin (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>). Section 226.55 does not permit the card issuer to apply the variable rate determined using the 8-point margin to the $2,200 purchase balance. Furthermore, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> does not permit the card issuer to subsequently increase the variable rate determined using the 5-point margin that applies to the $2,200 purchase balance (except due to increases in the index pursuant to <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>). The card issuer may, however, apply the variable rate determined using the 8-point margin to purchases made on or after January 1 of year two (pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>).</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change-in-terms rate increase for new transactions after first year; penalty rate increase after first year.</inline> Assume that, at account opening on January 1 of year one, a card issuer discloses that the annual percentage rate for purchases is a variable rate determined by adding a margin of 6 percentage points to a publicly-available index outside of the card issuer's control. The card issuer also discloses that, to the extent consistent with <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and other applicable law, a non-variable penalty rate of 28% may apply if the consumer makes a late payment. The due date for the account is the fifteenth of the month. On May 30 of year two, the account has a purchase balance of $1,000. On May 31, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer of a new variable rate that will apply on July 16 for all purchases made on or after June 15 (calculated by using the same index and an increased margin of 8 percentage points). On June 14, the consumer makes a $500 purchase. On June 15, the consumer makes a $200 purchase. On July 1, the card issuer has not received the payment due on June 15 and provides the consumer with a notice pursuant to <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref> stating that the 28% penalty rate will apply as of August 15 to all transactions made on or after July 16 and that, if the consumer becomes more than 60 days late, the penalty rate will apply to all balances on the account. On July 17, the consumer makes a $300 purchase.</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account does not become more than 60 days delinquent.</inline> The payment due on June 15 of year two is received on July 2. On July 16, <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref> permits the card issuer to apply the variable rate determined using the 8-point margin disclosed in the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice to the $200 purchase made on June 15 but does not permit the card issuer to apply this rate to the $1,500 purchase balance. On August 15, <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref> permits the card issuer to apply the 28% penalty rate disclosed at account opening and in the <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref> notice to the $300 purchase made on July 17 but does not permit the card issuer to apply this rate to the $1,500 purchase balance (which remains at the variable rate determined using the 6-point margin) or the $200 purchase (which remains at the variable rate determined using the 8-point margin).</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account becomes more than 60 days delinquent after provision of <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref> notice.</inline> Same facts as above except the payment due on June 15 of year two has not been received by August 15. Section 226.55(b)(4) permits the card issuer to apply the 28% penalty rate to the $1,500 purchase balance and the $200 purchase because it has not received the June 15 payment within 60 days after the due date. However, in order to do so, <ref href="/us/cfr/t12/s226.55/b/4/i">§ 226.55(b)(4)(i)</ref> requires the card issuer to first provide an additional notice pursuant to <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref>. This notice must be sent no earlier than August 15, which is the first day the account became more than 60 days' delinquent. If the notice is sent on August 15, the card issuer may begin accruing interest on the $1,500 purchase balance and the $200 purchase at the 28% penalty rate beginning on September 29.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to grace period.</inline> Nothing in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> prohibits a card issuer from assessing interest due to the loss of a grace period to the extent consistent with <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref> and <ref href="/us/cfr/t12/s226.54">§ 226.54</ref>. In addition, a card issuer has not reduced an annual percentage rate on a credit card account for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> if the card issuer does not charge interest on a balance or a portion thereof based on a payment received prior to the expiration of a grace period. For example, if the annual percentage rate for purchases on an account is 15% but the card issuer does not charge any interest on a $500 purchase balance because that balance was paid in full prior to the expiration of the grace period, the card issuer has not reduced the 15% purchase rate to 0% for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b) Exceptions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions not mutually exclusive.</inline> A card issuer generally may increase an annual percentage rate or a fee or charge required to be <?page num="771"?>disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) pursuant to an exception set forth in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref> even if that increase would not be permitted under a different exception. For example, although a card issuer cannot increase an annual percentage rate pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> unless that rate is provided for a specified period of at least six months, the card issuer may increase an annual percentage rate during a specified period due to an increase in an index consistent with <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>. Similarly, although <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> does not permit a card issuer to increase an annual percentage rate during the first year after account opening, the card issuer may increase the rate during the first year after account opening pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> if the required minimum periodic payment is not received within 60 days after the due date. However, if <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires a card issuer to decrease the rate, fee, or charge that applies to a balance while the account is subject to a workout or temporary hardship arrangement or subject to <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or a similar Federal or State statute or regulation, the card issuer may not impose a higher rate, fee, or charge on that balance pursuant to <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref> or (b)(6) upon completion or failure of the arrangement or once <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or the similar Federal or State statute or regulation no longer applies. For example, assume that, on January 1, the annual percentage rate that applies to a $1,000 balance is increased from 12% to 30% pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref>. On February 1, the rate on that balance is decreased from 30% to 15% consistent with <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref> as a part of a workout or temporary hardship arrangement. On July 1, <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to reduce the rate that applies to any remaining portion of the $1,000 balance from 15% to 12%. If the consumer subsequently completes or fails to comply with the terms of the workout or temporary hardship arrangement, the card issuer may not increase the 12% rate that applies to any remaining portion of the $1,000 balance pursuant to <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b) Exceptions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions not mutually exclusive.</inline> A card issuer generally may increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) pursuant to an exception set forth in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref> even if that increase would not be permitted under a different exception. For example, although a card issuer cannot increase an annual percentage rate pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> unless that rate is provided for a specified period of at least six months, the card issuer may increase an annual percentage rate during a specified period due to an increase in an index consistent with <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>. Similarly, although <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> does not permit a card issuer to increase an annual percentage rate during the first year after account opening, the card issuer may increase the rate during the first year after account opening pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> if the required minimum periodic payment is not received within 60 days after the due date. However, if <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires a card issuer to decrease the rate, fee, or charge that applies to a balance while the account is subject to a workout or temporary hardship arrangement or subject to <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or a similar Federal or State statute or regulation, the card issuer may not impose a higher rate, fee, or charge on that balance pursuant to <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref> or (b)(6) upon completion or failure of the arrangement or once <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> or the similar Federal or State statute or regulation no longer applies. For example, assume that, on January 1, the annual percentage rate that applies to a $1,000 balance is increased from 12% to 30% pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref>. On February 1, the rate on that balance is decreased from 30% to 15% consistent with <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref> as a part of a workout or temporary hardship arrangement. On July 1, <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to reduce the rate that applies to any remaining portion of the $1,000 balance from 15% to 12%. If the consumer subsequently completes or fails to comply with the terms of the workout or temporary hardship arrangement, the card issuer may not increase the 12% rate that applies to any remaining portion of the $1,000 balance pursuant to <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship between exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref> and notice requirements in <ref href="/us/cfr/t12/s226.9">§ 226.9</ref>.</inline> Nothing in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> alters the requirements in <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and (g) that creditors provide written notice at least 45 days prior to the effective date of certain increases in annual percentage rates, fees, and charges.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">14-day rule in <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref>.</inline> Although <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref> permits a card issuer that discloses an increased rate pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) to apply that rate to transactions that occur more than 14 days after provision of the notice, the card issuer cannot begin to accrue interest at the increased rate until that increase goes into effect, consistent with <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g). For example, if on May 1 a card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> stating that a rate will increase from 15% to 18% on June 15, <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref> permits the card issuer to apply the 18% rate to transactions that occur on or after May 16. However, neither <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> nor <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> permits the card issuer to begin accruing interest at the 18% rate on those transactions until June 15. See additional examples in comment 55(b)(3)–4.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mid-cycle increases; application of balance computation methods.</inline> Once an increased rate has gone into effect, the card issuer cannot calculate interest charges based on that increased rate for days prior to the effective <?page num="772"?>date. Assume that, in the example in paragraph i. above, the billing cycles for the account begin on the first day of the month and end on the last day of the month. If, for example, the card issuer uses the average daily balance computation method, it cannot apply the 18% rate to the average daily balance for the entire June billing cycle because that rate did not become effective until June 15. However, the card issuer could apply the 15% rate to the average daily balance from June 1 through June 14 and the 18% rate to the average daily balance from June 15 through June 30. Similarly, if the card issuer that uses the daily balance computation method, it could apply the 15% rate to the daily balance for each day from June 1 through June 14 and the 18% rate to the daily balance for each day from June 15 through June 30.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mid-cycle increases; delayed implementation of increase.</inline> If <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref> and <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>, (c), or (g) permit a card issuer to apply an increased annual percentage rate, fee, or charge on a date that is not the first day of a billing cycle, the card issuer may delay application of the increased rate, fee, or charge until the first day of the following billing cycle without relinquishing the ability to apply that rate, fee, or charge. Thus, in the example in paragraphs i. and ii. above, the card issuer could delay application of the 18% rate until the start of the next billing cycle (April 1) without relinquishing its ability to apply that rate under <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>. Similarly, assume that, at account opening on January 1, a card issuer discloses that a non-variable annual percentage rate of 10% will apply to purchases for six months and a non-variable rate of 15% will apply thereafter. The first day of each billing cycle for the account is the fifteenth of the month. If the six-month period expires on July 1, the card issuer may delay application of the 15% rate until the start of the next billing cycle (July 15) without relinquishing its ability to apply that rate under <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of a lower rate, fee, or charge.</inline> Nothing in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> prohibits a card issuer from lowering an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii). However, a card issuer that does so cannot subsequently increase the rate, fee, or charge unless permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. The following examples illustrate the application of the rule</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of lower rate during first year.</inline> Assume that a card issuer discloses at account opening on January 1 of year one that a non-variable annual percentage rate of 15% will apply to purchases. The card issuer also discloses that, to the extent consistent with <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and other applicable law, a non-variable penalty rate of 30% may apply if the consumer's required minimum periodic payment is received after the payment due date, which is the tenth of the month. The required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase balance.</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary rate returns to standard rate at expiration.</inline> On September 30 of year one, the account has a purchase balance of $1,400 at the 15% rate. On October 1, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the rate for new purchases will decrease to a non-variable rate of 5% for six months (from October 1 through March 31 of year two) and that, beginning on April 1 of year two, the rate for purchases will increase to the 15% non-variable rate disclosed at account opening. The card issuer does not apply the 5% rate to the $1,400 purchase balance. On October 14 of year one, the consumer makes a $300 purchase at the 5% rate. On January 15 of year two, the consumer makes a $150 purchase at the 5% rate. On April 1 of year two, the card issuer may begin accruing interest on the $300 purchase and the $150 purchase at 15% as disclosed in the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>).</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Penalty rate increase.</inline> Same facts as above except that the required minimum periodic payment due on November 10 of year one is not received until November 15. Section 226.55 does not permit the card issuer to increase any annual percentage rate on the account at this time. The card issuer may apply the 30% penalty rate to new transactions beginning on April 1 of year two pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> by providing a <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref> notice informing the consumer of this increase no later than February 14 of year two. The card issuer may not, however, apply the 30% penalty rate to the $1,400 purchase balance as of September 30 of year one, the $300 purchase on October 15 of year one, or the $150 purchase on January 15 of year two.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of lower rate at end of first year.</inline> Assume that, at account opening on January 1 of year one, a card issuer discloses that a non-variable annual percentage rate of 15% will apply to purchases for one year and discloses that, after the first year, the card issuer will apply a variable rate that is currently 20% and is determined by adding a margin of 10 percentage points to a publicly-available index not under the card issuer's control. On December 31 of year one, the account has a purchase balance of $3,000.</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice of extension of existing temporary rate provided consistent with <ref href="/us/cfr/t12/s226.55/b/1/i">§ 226.55(b)(1)(i)</ref>.</inline> On December 15 of year one, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the existing 15% rate will continue to apply until July 1 of year two. The notice further states that, on July 1 of year two, the variable rate disclosed at account opening will apply. On July 1 of year two, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits the card issuer to apply that variable rate to any <?page num="773"?>remaining portion of the $3,000 balance and to new transactions.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice of new temporary rate provided consistent with <ref href="/us/cfr/t12/s226.55/b/1/i">§ 226.55(b)(1)(i)</ref>.</inline> On December 15 of year one, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer of a new variable rate that will apply on January 1 of year two that is lower than the variable rate disclosed at account opening. The new variable rate is calculated using the same index and a reduced margin of 8 percentage points. The notice further states that, on July 1 of year two, the margin will increase to the margin disclosed at account opening (10 percentage points). On July 1 of year two, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits the card issuer to increase the margin used to determine the variable rate that applies to new purchases to 10 percentage points and to apply that rate to any remaining portion of the $3,000 purchase balance.</p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No notice provided.</inline> Same facts as in paragraph ii.B. above except that the card issuer does not send a notice on December 15 of year one. Instead, on January 1 of year two, the card issuer lowers the margin used to determine the variable rate to 8 percentage points and applies that rate to the $3,000 purchase balance and to new purchases. Section 226.9 does not require advance notice in these circumstances. However, unless the account becomes more than 60 days' delinquent, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> does not permit the card issuer to subsequently increase the rate that applies to the $3,000 purchase balance except due to increases in the index (pursuant to <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>).</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of lower rate after first year.</inline> Assume that a card issuer discloses at account opening on January 1 of year one that a non-variable annual percentage rate of 10% will apply to purchases for one year, after which that rate will increase to a non-variable rate of 15%. The card issuer also discloses that, to the extent consistent with <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and other applicable law, a non-variable penalty rate of 30% may apply if the consumer's required minimum periodic payment is received after the payment due date, which is the tenth of the month. The required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase balance.</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Effect of 14-day period.</inline> On June 30 of year two, the account has a purchase balance of $1,000 at the 15% rate. On July 1, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the rate for new purchases will decrease to a non-variable rate of 5% for six months (from July 1 through December 31 of year two) and that, beginning on January 1 of year three, the rate for purchases will increase to a non-variable rate of 17%. On July 15 of year two, the consumer makes a $200 purchase. On July 16, the consumer makes a $100 purchase. On January 1 of year three, the card issuer may begin accruing interest on the $100 purchase at 17% (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>). However, <ref href="/us/cfr/t12/s226.55/b/1/ii/B">§ 226.55(b)(1)(ii)(B)</ref> does not permit the card issuer to apply the 17% rate to the $200 purchase because that transaction occurred within 14 days after provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice. Instead, the card issuer may apply the 15% rate that applied to purchases prior to provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice. In addition, if the card issuer applied the 5% rate to the $1,000 purchase balance, <ref href="/us/cfr/t12/s226.55/b/ii/A">§ 226.55(b)(ii)(A)</ref> would not permit the card issuer to increase the rate that applies to that balance on January 1 of year three to a rate that is higher than 15% that previously applied to the balance.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Penalty rate increase.</inline> Same facts as above except that the required minimum periodic payment due on August 25 is received on August 30. At this time, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> does not permit the card issuer to increase the annual percentage rates that apply to the $1,000 purchase balance, the $200 purchase, or the $100 purchase. Instead, those rates can only be increased as discussed in paragraph iii.A. above. However, if the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) on September 1, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> permits the card issuer to apply an increased rate (such as the 17% purchase rate or the 30% penalty rate) to transactions that occur on or after September 16 beginning on October 16.</p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of lower temporary rate during specified period.</inline> Same facts as in paragraph iii. above. On June 30 of year two, the account has a purchase balance of $1,000 at the 15% non-variable rate. On July 1, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the rate for the $1,000 balance and new purchases will decrease to a non-variable rate of 12% for six months (from July 1 through December 31 of year two) and that, beginning on January 1 of year three, the rate for purchases will increase to a variable rate that is currently 20% and is determined by adding a margin of 10 percentage points to a publicly-available index not under the card issuer's control. On August 15 of year two, the consumer makes a $500 purchase. On October 1, the card issuer provides another notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the rate for the $1,000 balance, the $500 purchase, and new purchases will decrease to a non-variable rate of 5% for six months (from October 1 of year two through March 31 of year three) and that, beginning on April 1 of year three, the rate for purchases will increase to a variable rate that is currently 23% and is determined by adding a margin of 13 percentage points to the previously-disclosed index. On November 15 of year two, the consumer makes a $300 purchase. On April 1 of year three, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> permits the card issuer to begin accruing interest using the following rates for <?page num="774"?>any remaining portion of the following balances: The 15% non-variable rate for the $1,000 balance; the variable rate determined using the 10-point margin for the $500 purchase; and the variable rate determined using the 13-point margin for the $300 purchase.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date on which transaction occurred.</inline> When a transaction occurred for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> is generally determined by the date of the transaction. However, if a transaction that occurred within 14 days after provision of a <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice is not charged to the account prior to the effective date of the change or increase, the card issuer may treat the transaction as occurring more than 14 days after provision of the notice for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>. See example in comment 55(b)(3)–4.iii.B. In addition, when a merchant places a “hold” on the available credit on an account for an estimated transaction amount because the actual transaction amount will not be known until a later date, the date of the transaction for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> is the date on which the card issuer receives the actual transaction amount from the merchant. See example in comment 55(b)(3)–4.iii.A.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Category of transactions.</inline> For purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>, a “category of transactions” is a type or group of transactions to which an annual percentage rate applies that is different than the annual percentage rate that applies to other transactions. Similarly, a type or group of transactions is a “category of transactions” for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> if a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) applies to those transactions that is different than the fee or charge that applies to other transactions. For example, purchase transactions, cash advance transactions, and balance transfer transactions are separate categories of transactions for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> if a card issuer applies different annual percentage rates to each. Furthermore, if, for example, the card issuer applies different annual percentage rates to different types of purchase transactions (such as one rate for purchases of gasoline or purchases over $100 and a different rate for all other purchases), each type constitutes a separate category of transactions for purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b)(1) Temporary rate, fee, or charge exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>.</inline> A card issuer that has complied with the disclosure requirements in <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> has also complied with the disclosure requirements in <ref href="/us/cfr/t12/s226.55/b/1/i">§ 226.55(b)(1)(i)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Period of six months or longer.</inline> A temporary annual percentage rate, fee, or charge must apply for a specified period of six months or longer before a card issuer can increase that rate, fee, or charge pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>. The specified period must expire no less than six months after the date on which the card issuer provides the consumer with the disclosures required by <ref href="/us/cfr/t12/s226.55/b/1/i">§ 226.55(b)(1)(i)</ref> or, if later, the date on which the account can be used for transactions to which the temporary rate, fee, or charge applies. Section 226.55(b)(1) does not prohibit a card issuer from limiting the application of a temporary annual percentage rate, fee, or charge to a particular category of transactions (such as to balance transfers or to purchases over $100). However, in circumstances where the card issuer limits application of the temporary rate, fee, or charge to a single transaction, the specified period must expire no less than six months after the date on which that transaction occurred. The following examples illustrate the application of <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref></p>
<p style="-uslm-sgm:P">i. Assume that on January 1 a card issuer offers a consumer a 5% annual percentage rate on purchases made during the months of January through June. A 15% rate will apply thereafter. On February 15, a $500 purchase is charged to the account. On June 15, a $200 purchase is charged to the account. On July 1, the card issuer may begin accruing interest at the 15% rate on the $500 purchase and the $200 purchase (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>).</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that on January 1 the card issuer offered the 5% rate on purchases beginning in the month of February. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 15% rate on the $500 purchase and the $200 purchase until August 1.</p>
<p style="-uslm-sgm:P">iii. Assume that on October 31 of year one the annual percentage rate for purchases is 17%. On November 1, the card issuer offers the consumer a 0% rate for six months on purchases made during the months of November and December. The 17% rate will apply thereafter. On November 15, a $500 purchase is charged to the account. On December 15, a $300 purchase is charged to the account. On January 15 of year two, a $150 purchase is charged to the account. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 17% rate on the $500 purchase and the $300 purchase until May 1 of year two. However, the card issuer may accrue interest at the 17% rate on the $150 purchase beginning on January 15 of year two.</p>
<p style="-uslm-sgm:P">iv. Assume that on June 1 of year one a card issuer offers a consumer a 0% annual percentage rate for six months on the purchase of an appliance. An 18% rate will apply thereafter. On September 1, a $5,000 transaction is charged to the account for the purchase of an appliance. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 18% rate on the $5,000 transaction until March 1 of year two.</p>
<p style="-uslm-sgm:P">v. Assume that on May 31 of year one the annual percentage rate for purchases is 15%. On June 1, the card issuer offers the consumer a 5% rate for six months on a balance <?page num="775"?>transfer of at least $1,000. The 15% rate will apply thereafter. On June 15, a $3,000 balance is transferred to the account. On July 15, a $200 purchase is charged to the account. Section 226.55(b)(1) would not permit the card issuer to begin accruing interest at the 15% rate on the $3,000 transferred balance until December 15. However, the card issuer may accrue interest at the 15% rate on the $200 purchase beginning on July 15.</p>
<p style="-uslm-sgm:P">vi. Same facts as in paragraph v. above except that the card issuer offers the 5% rate for six months on all balance transfers of at least $1,000 during the month of June and a $2,000 balance is transferred to the account on June 30 (in addition to the $3,000 balance transfer on June 15). Because the 5% rate is not limited to a particular transaction, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits the card issuer to begin accruing interest on the $3,000 and $2,000 transferred balances on December 1.</p>
<p style="-uslm-sgm:P">vii. Assume that a card issuer discloses at account opening on January 1 of year one that the annual fee for the account is $0 until January 1 of year two, when the fee will increase to $50. On January 1 of year two, the card issuer may impose the $50 annual fee. However, the issuer must also comply with the notice requirements in <ref href="/us/cfr/t12/s226.9/e">§ 226.9(e)</ref>.</p>
<p style="-uslm-sgm:P">viii. Assume that a card issuer discloses at account opening on January 1 of year one that the monthly maintenance fee for the account is $0 until July 1 of year one, when the fee will increase to $10. Beginning on July 1 of year one, the card issuer may impose the $10 monthly maintenance fee (to the extent consistent with <ref href="/us/cfr/t12/s226.52/a">§ 226.52(a)</ref>).</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest and similar promotional programs.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>.</inline> The general prohibition in <ref href="/us/cfr/t12/s226.55/a">§ 226.55(a)</ref> applies to the imposition of accrued interest upon the expiration of a deferred interest or similar promotional program under which the consumer is not obligated to pay interest that accrues on a balance if that balance is paid in full prior to the expiration of a specified period of time. However, the exception in <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> also applies to these programs, provided that the specified period is six months or longer and that, prior to the commencement of the period, the card issuer discloses the length of the period and the rate at which interest will accrue on the balance subject to the deferred interest or similar program if that balance is not paid in full prior to expiration of the period. See comment 9(c)(2)(v)–9. For purposes of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>, “deferred interest” has the same meaning as in <ref href="/us/cfr/t12/s226.16/h/2">§ 226.16(h)(2)</ref> and associated commentary.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest offer at account opening.</inline> Assume that, at account opening on January 1 of year one, the card issuer discloses the following with respect to a deferred interest program: “No interest on purchases made in January of year one if paid in full by December 31 of year one. If the balance is not paid in full by that date, interest will be imposed from the transaction date at a rate of 20%.” On January 15 of year one, the consumer makes a purchase of $2,000. No other transactions are made on the account. The terms of the deferred interest program require the consumer to make minimum periodic payments with respect to the deferred interest balance, and the payment due on April 1 is not received until April 10. Section 226.55 does not permit the card issuer to charge to the account interest that has accrued on the $2,000 purchase at this time. Furthermore, if the consumer pays the $2,000 purchase in full on or before December 31 of year one, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> does not permit the card issuer to charge to the account any interest that has accrued on that purchase. If, however, the $2,000 purchase has not been paid in full by January 1 of year two, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits the card issuer to charge to the account the interest accrued on that purchase at the 20% rate during year one (to the extent consistent with other applicable law).</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deferred interest offer after account opening.</inline> Assume that a card issuer discloses at account opening on January 1 of year one that the rate that applies to purchases is a variable annual percentage rate that is currently 18% and will be adjusted quarterly by adding a margin of 8 percentage points to a publicly-available index not under the card issuer's control. The card issuer also discloses that, to the extent consistent with <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and other applicable law, a non-variable penalty rate of 30% may apply if the consumer's required minimum periodic payment is received after the payment due date, which is the first of the month. On June 30 of year two, the consumer uses the account for a $1,000 purchase in response to an offer of a deferred interest program. Under the terms of this program, interest on the purchase will accrue at the variable rate for purchases but the consumer will not be obligated to pay that interest if the purchase is paid in full by December 31 of year three. The terms of the deferred interest program require the consumer to make minimum periodic payments with respect to the deferred interest balance, and the payment due on September 1 of year two is not received until September 6. Section 226.55 does not permit the card issuer to charge to the account interest that has accrued on the $1,000 purchase at this time. Furthermore, if the consumer pays the $1,000 purchase in full on or before December 31 of year three, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> does not permit the card issuer to charge to the account any interest that has accrued on that purchase. On December 31 of year three, the $1,000 purchase has been paid in full. Under these circumstances, the card issuer may not charge any interest accrued on the $1,000 purchase.</p>
<p style="-uslm-sgm:P">C. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> to deferred interest programs.</inline> Same facts as in paragraph <?page num="776"?>ii.B. above except that, on November 2 of year two, the card issuer has not received the required minimum periodic payments due on September 1, October 1, or November 1 of year two and sends a <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice stating that interest accrued on the $1,000 purchase since June 30 of year two will be charged to the account on December 17 of year two and thereafter interest will be charged on the $1,000 purchase consistent with the variable rate for purchases. On December 17 of year two, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> permits the card issuer to charge to the account interest accrued on the $1,000 purchase since June 30 of year two and <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> permits the card issuer to begin charging interest on the $1,000 purchase consistent with the variable rate for purchases. However, if the card issuer receives the required minimum periodic payments due on January 1, February 1, March 1, April 1, May 1, and June 1 of year three, <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to cease charging the account for interest on the $1,000 purchase no later than the first day of the next billing cycle. See comment 55(b)(4)–3.iii. However, <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> does not require the card issuer to waive or credit the account for interest accrued on the $1,000 purchase since June 30 of year two. If the $1,000 purchase is paid in full on December 31 of year three, the card issuer is not permitted to charge to the account interest accrued on the $1,000 purchase after June 1 of year three.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Contingent or discretionary increases.</inline> Section 226.55(b)(1) permits a card issuer to increase a temporary annual percentage rate, fee, or charge upon the expiration of a specified period of time. However, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> does not permit a card issuer to apply an increased rate, fee, or charge that is contingent on a particular event or occurrence or that may be applied at the card issuer's discretion. The following examples illustrate rate increases that are not permitted by <ref href="/us/cfr/t12/s226.55">§ 226.55</ref></p>
<p style="-uslm-sgm:P">i. Assume that a card issuer discloses at account opening on January 1 of year one that a non-variable annual percentage rate of 15% applies to purchases but that all rates on an account may be increased to a non-variable penalty rate of 30% if a consumer's required minimum periodic payment is received after the payment due date, which is the fifteenth of the month. On March 1, the account has a $2,000 purchase balance. The payment due on March 15 is not received until March 20. Section 226.55 does not permit the card issuer to apply the 30% penalty rate to the $2,000 purchase balance. However, pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>, the card issuer could provide a <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice on or before November 16 informing the consumer that, on January 1 of year two, the 30% rate (or a different rate) will apply to new transactions.</p>
<p style="-uslm-sgm:P">ii. Assume that a card issuer discloses at account opening on January 1 of year one that a non-variable annual percentage rate of 5% applies to transferred balances but that this rate will increase to a non-variable rate of 18% if the consumer does not use the account for at least $200 in purchases each billing cycle. On July 1, the consumer transfers a balance of $4,000 to the account. During the October billing cycle, the consumer uses the account for $150 in purchases. Section 226.55 does not permit the card issuer to apply the 18% rate to the $4,000 transferred balance or the $150 in purchases. However, pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>, the card issuer could provide a <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice on or before November 16 informing the consumer that, on January 1 of year two, the 18% rate (or a different rate) will apply to new transactions.</p>
<p style="-uslm-sgm:P">iii. Assume that a card issuer discloses at account opening on January 1 of year one that the annual fee for the account is $10 but may be increased to $50 if a consumer's required minimum periodic payment is received after the payment due date, which is the fifteenth of the month. The payment due on July 15 is not received until July 23. Section 226.55 does not permit the card issuer to impose the $50 annual fee at this time. Furthermore, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> does not permit the card issuer to increase the $10 annual fee during the first year after account opening. However, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> does permit the card issuer to impose the $50 fee (or a different fee) on January 1 of year two if, on or before November 16 of year one, the issuer informs the consumer of the increased fee consistent with <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and the consumer does not reject that increase pursuant to <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref>.</p>
<p style="-uslm-sgm:P">iv. Assume that a card issuer discloses at account opening on January 1 of year one that the annual fee for a credit card account under an open-end (not home-secured) consumer credit plan is $0 but may be increased to $100 if the consumer's balance in a deposit account provided by the card issuer or its affiliate or subsidiary falls below $5,000. On June 1 of year one, the balance on the deposit account is $4,500. Section 226.55 does not permit the card issuer to impose the $100 annual fee at this time. Furthermore, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> does not permit the card issuer to increase the $0 annual fee during the first year after account opening. However, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> does permit the card issuer to impose the $100 fee (or a different fee) on January 1 of year two if, on or before November 16 of year one, the issuer informs the consumer of the increased fee consistent with <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and the consumer does not reject that increase pursuant to <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref>.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of increased fees and charges.</inline> Section 226.55(b)(1)(ii) limits the ability of a card issuer to apply an increased fee or charge to certain transactions. However, to the extent consistent with <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>, (c), <?page num="777"?>and (d), a card issuer generally is not prohibited from increasing a fee or charge that applies to the account as a whole. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comments 55(c)(1)–3 and 55(d)–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b)(2) Variable rate exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increases due to increase in index.</inline> Section 226.55(b)(2) provides that an annual percentage rate that varies according to an index that is not under the card issuer's control and is available to the general public may be increased due to an increase in the index. This section does not permit a card issuer to increase the rate by changing the method used to determine a rate that varies with an index (such as by increasing the margin), even if that change will not result in an immediate increase. However, from time to time, a card issuer may change the day on which index values are measured to determine changes to the rate.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Index not under card issuer's control.</inline> A card issuer may increase a variable annual percentage rate pursuant to <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref> only if the increase is based on an index or indices outside the card issuer's control. For purposes of <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>, an index is under the card issuer's control if:</p>
<p style="-uslm-sgm:P">i. The index is the card issuer's own prime rate or cost of funds. A card issuer is permitted, however, to use a published prime rate, such as that in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wall Street Journal,</inline> even if the card issuer's own prime rate is one of several rates used to establish the published rate.</p>
<p style="-uslm-sgm:P">ii. The variable rate is subject to a fixed minimum rate or similar requirement that does not permit the variable rate to decrease consistent with reductions in the index. A card issuer is permitted, however, to establish a fixed maximum rate that does not permit the variable rate to increase consistent with increases in an index. For example, assume that, under the terms of an account, a variable rate will be adjusted monthly by adding a margin of 5 percentage points to a publicly-available index. When the account is opened, the index is 10% and therefore the variable rate is 15%. If the terms of the account provide that the variable rate will not decrease below 15% even if the index decreases below 10%, the card issuer cannot increase that rate pursuant to <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>. However, <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref> does not prohibit the card issuer from providing in the terms of the account that the variable rate will not increase above a certain amount (such as 20%).</p>
<p style="-uslm-sgm:P">iii. The variable rate can be calculated based on any index value during a period of time (such as the 90 days preceding the last day of a billing cycle). A card issuer is permitted, however, to provide in the terms of the account that the variable rate will be calculated based on the average index value during a specified period. In the alternative, the card issuer is permitted to provide in the terms of the account that the variable rate will be calculated based on the index value on a specific day (such as the last day of a billing cycle). For example, assume that the terms of an account provide that a variable rate will be adjusted at the beginning of each quarter by adding a margin of 7 percentage points to a publicly-available index. At account opening at the beginning of the first quarter, the variable rate is 17% (based on an index value of 10%). During the first quarter, the index varies between 9.8% and 10.5% with an average value of 10.1%. On the last day of the first quarter, the index value is 10.2%. At the beginning of the second quarter, <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref> does not permit the card issuer to increase the variable rate to 17.5% based on the first quarter's maximum index value of 10.5%. However, if the terms of the account provide that the variable rate will be calculated based on the average index value during the prior quarter, <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref> permits the card issuer to increase the variable rate to 17.1% (based on the average index value of 10.1% during the first quarter). In the alternative, if the terms of the account provide that the variable rate will be calculated based on the index value on the last day of the prior quarter, <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref> permits the card issuer to increase the variable rate to 17.2% (based on the index value of 10.2% on the last day of the first quarter).</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Publicly available.</inline> The index or indices must be available to the public. A publicly-available index need not be published in a newspaper, but it must be one the consumer can independently obtain (by telephone, for example) and use to verify the annual percentage rate applied to the account.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing a non-variable rate to a variable rate.</inline> Section 226.55 generally prohibits a card issuer from changing a non-variable annual percentage rate to a variable annual percentage rate because such a change can result in an increase. However, a card issuer may change a non-variable rate to a variable rate to the extent permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. For example, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits a card issuer to change a non-variable rate to a variable rate upon expiration of a specified period of time. Similarly, following the first year after the account is opened, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> permits a card issuer to change a non-variable rate to a variable rate with respect to new transactions (after complying with the notice requirements in <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>, (c) or (g)).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing a variable rate to a non-variable rate.</inline> Nothing in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> prohibits a card issuer from changing a variable annual percentage rate to an equal or lower non-variable rate. Whether the non-variable rate is equal to or lower than the variable rate is determined at the time the card issuer provides the notice required by <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>. For example, assume that on March 1 a variable annual percentage rate that is currently 15% applies to a balance of $2,000 and the card <?page num="778"?>issuer sends a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the variable rate will be converted to a non-variable rate of 14% effective April 15. On April 15, the card issuer may apply the 14% non-variable rate to the $2,000 balance and to new transactions even if the variable rate on March 2 or a later date was less than 14%.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution of index.</inline> A card issuer may change the index and margin used to determine the annual percentage rate under <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref> if the original index becomes unavailable, as long as historical fluctuations in the original and replacement indices were substantially similar, and as long as the replacement index and margin will produce a rate similar to the rate that was in effect at the time the original index became unavailable. If the replacement index is newly established and therefore does not have any rate history, it may be used if it produces a rate substantially similar to the rate in effect when the original index became unavailable.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b)(3) Advance notice exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref>.</inline> A card issuer may not increase a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> if the consumer has rejected the increased fee or charge pursuant to <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice provided pursuant to <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref> and (c).</inline> If an increased annual percentage rate, fee, or charge is disclosed pursuant to both <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref> and (c), that rate, fee, or charge may only be applied to transactions that occur more than 14 days after provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice as provided in <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account opening.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple accounts with same card issuer.</inline> When a consumer has a credit card account with a card issuer and the consumer opens a new credit card account with the same card issuer (or its affiliate or subsidiary), the opening of the new account constitutes the opening of a credit card account for purposes of <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> if, more than 30 days after the new account is opened, the consumer has the option to obtain additional extensions of credit on each account. For example, assume that, on January 1 of year one, a consumer opens a credit card account with a card issuer. On July 1 of year one, the consumer opens a second credit card account with that card issuer. On July 15, a $1,000 balance is transferred from the first account to the second account. The opening of the second account constitutes the opening of a credit card account for purposes of <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> so long as, on August 1, the consumer has the option to engage in transactions using either account. Under these circumstances, the card issuer could not increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) on the second account pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> until July 1 of year two (which is one year after the second account was opened).</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitution, replacement or consolidation.</inline>
</p>
<p style="-uslm-sgm:P">A. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Generally.</inline> A credit card account has not been opened for purposes of <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> when a credit card account issued by a card issuer is substituted, replaced, or consolidated with another credit card account issued by the same card issuer (or its affiliate or subsidiary). Circumstances in which a credit card account has not been opened for purposes of <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> include when:</p>
<p style="-uslm-sgm:P">(1) A retail credit card account is replaced with a cobranded general purpose credit card account that can be used at a wider number of merchants;</p>
<p style="-uslm-sgm:P">(2) A credit card account is replaced with another credit card account offering different features;</p>
<p style="-uslm-sgm:P">(3) A credit card account is consolidated or combined with one or more other credit card accounts into a single credit card account; or</p>
<p style="-uslm-sgm:P">(4) A credit card account acquired through merger or acquisition is replaced with a credit card account issued by the acquiring card issuer.</p>
<p style="-uslm-sgm:P">B. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limitation.</inline> A card issuer that replaces or consolidates a credit card account with another credit card account issued by the card issuer (or its affiliate or subsidiary) may not increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) in a manner otherwise prohibited by <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>. For example, assume that, on January 1 of year one, a consumer opens a credit card account with an annual percentage rate of 15% for purchases. On July 1 of year one, the account is replaced with a credit card account that offers different features (such as rewards on purchases). Under these circumstances, <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> prohibits the card issuer from increasing the annual percentage rate for new purchases to a rate that is higher than 15% pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> until January 1 of year two (which is one year after the first account was opened).</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change-in-terms rate increase; temporary rate increase; 14-day period.</inline> Assume that an account is opened on January 1 of year one. On March 14 of year two, the account has a purchase balance of $2,000 at a non-variable annual percentage rate of 15%. On March 15, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the rate for new purchases will increase to a non-variable rate of 18% on May 1. The notice further states that the 18% rate will apply for six months (until November 1) and that thereafter the card issuer will apply a variable rate that is currently 22% and is determined by adding a margin of 12 percentage points to a publicly-available index that is not under the card issuer's control. The fourteenth day after provision of the notice <?page num="779"?>is March 29 and, on that date, the consumer makes a $200 purchase. On March 30, the consumer makes a $1,000 purchase. On May 1, the card issuer may begin accruing interest at 18% on the $1,000 purchase made on March 30 (pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>). Section 226.55(b)(3)(ii) does not permit the card issuer to apply the 18% rate to the $2,200 purchase balance as of March 29 because that balance reflects transactions that occurred prior to or within 14 days after the provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice. After six months (November 2), the card issuer may begin accruing interest on any remaining portion of the $1,000 purchase at the previously-disclosed variable rate determined using the 12-point margin (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> and (b)(3)).</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Checks that access an account.</inline> Assume that a card issuer discloses at account opening on January 1 of year one that the annual percentage rate that applies to cash advances is a variable rate that is currently 24% and will be adjusted quarterly by adding a margin of 14 percentage points to a publicly available index not under the card issuer's control. On July 1 of year two, the card issuer provides checks that access the account and, pursuant to <ref href="/us/cfr/t12/s226.9/b/3/i/A">§ 226.9(b)(3)(i)(A)</ref>, discloses that a promotional rate of 15% will apply to credit extended by use of the checks until January 1 of year three, after which the cash advance rate determined using the 14-point margin will apply. On July 9 of year two, the consumer uses one of the checks to pay for a $500 transaction. Beginning on January 1 of year three, the card issuer may apply the cash advance rate determined using the 14-point margin to any remaining portion of the $500 transaction (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> and (b)(3)).</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Hold on available credit; 14-day period.</inline> Assume that an account is opened on January 1 of year one. On September 14 of year two, the account has a purchase balance of $2,000 at a non-variable annual percentage rate of 17%. On September 15, the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the rate for new purchases will increase to a non-variable rate of 20% on October 30. The fourteenth day after provision of the notice is September 29. On September 28, the consumer uses the credit card to check into a hotel and the hotel obtains authorization for a $1,000 hold on the account to ensure there is adequate available credit to cover the anticipated cost of the stay.</p>
<p style="-uslm-sgm:P">A. The consumer checks out of the hotel on October 2. The actual cost of the stay is $1,100 because of additional incidental costs. On October 2, the hotel charges the $1,100 transaction to the account. For purposes of <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>, the transaction occurred on October 2. Therefore, on October 30, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> permits the card issuer to apply the 20% rate to new purchases and to the $1,100 transaction. However, <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref> does not permit the card issuer to apply the 20% rate to any remaining portion of the $2,000 purchase balance.</p>
<p style="-uslm-sgm:P">B. Same facts as above except that the consumer checks out of the hotel on September 29. The actual cost of the stay is $250, but the hotel does not charge this amount to the account until November 1. For purposes of <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>, the card issuer may treat the transaction as occurring more than 14 days after provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> notice (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> after September 29). Accordingly, the card issuer may apply the 20% rate to the $250 transaction.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Application of increased fees and charges. See</inline> comment 55(c)(1)–3.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Delayed implementation of increase.</inline> Section 226.55(b)(3)(iii) does not prohibit a card issuer from notifying a consumer of an increase in an annual percentage rate, fee, or charge consistent with <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>, (c), or (g). However, <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> does prohibit application of an increased rate, fee, or charge during the first year after the account is opened, while the account is closed, or while the card issuer does not permit the consumer to use the account for new transactions. If <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>, (c), or (g) permits a card issuer to apply an increased rate, fee, or charge on a particular date and the account is closed on that date or the card issuer does not permit the consumer to use the account for new transactions on that date, the card issuer may delay application of the increased rate, fee, or charge until the first day of the following billing cycle without relinquishing the ability to apply that rate, fee, or charge (assuming the increase is otherwise consistent with <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> examples in comment 55(b)–2.iii. However, if the account is closed or the card issuer does not permit the consumer to use the account for new transactions on the first day of the following billing cycle, then the card issuer must provide a new notice of the increased rate, fee, or charge consistent with <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref>, (c), or (g).</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date on which account may first be used by consumer to engage in transactions.</inline> For purposes of <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref>, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions. An account is considered open for purposes of <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> on any date that the card issuer may consider the account open for purposes of <ref href="/us/cfr/t12/s226.52/a/1">§ 226.52(a)(1)</ref>. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 52(a)(1)–4.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b)(4) Delinquency exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Receipt of required minimum periodic payment within 60 days of due date.</inline> Section 226.55(b)(4) applies when a card issuer has not received the consumer's required minimum periodic payment within 60 days after the <?page num="780"?>due date for that payment. In order to satisfy this condition, a card issuer that requires monthly minimum payments generally must not have received two consecutive required minimum periodic payments. Whether a required minimum periodic payment has been received for purposes of <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> depends on whether the amount received is equal to or more than the first outstanding required minimum periodic payment. For example, assume that the required minimum periodic payments for a credit card account are due on the fifteenth day of the month. On May 13, the card issuer has not received the $50 required minimum periodic payment due on March 15 or the $150 required minimum periodic payment due on April 15. The sixtieth day after the March 15 payment due date is May 14. If the card issuer receives a $50 payment on May 14, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> does not apply because the payment is equal to the required minimum periodic payment due on March 15 and therefore the account is not more than 60 days delinquent. However, if the card issuer instead received a $40 payment on May 14, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> would apply beginning on May 15 because the payment is less than the required minimum periodic payment due on March 15. Furthermore, if the card issuer received the $50 payment on May 15, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> would apply because the card issuer did not receive the required minimum periodic payment due on March 15 within 60 days after the due date for that payment.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.9/g/3/i/B">§ 226.9(g)(3)(i)(B)</ref>.</inline> A card issuer that has complied with the disclosure requirements in <ref href="/us/cfr/t12/s226.9/g/3/i/B">§ 226.9(g)(3)(i)(B)</ref> has also complied with the disclosure requirements in <ref href="/us/cfr/t12/s226.55/b/4/i">§ 226.55(b)(4)(i)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reduction in rate pursuant to <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref>.</inline> Section 226.55(b)(4)(ii) provides that, if the card issuer receives six consecutive required minimum periodic payments on or before the payment due date beginning with the first payment due following the effective date of the increase, the card issuer must reduce any annual percentage rate, fee, or charge increased pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> to the annual percentage rate, fee, or charge that applied prior to the increase with respect to transactions that occurred prior to or within 14 days after provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Six consecutive payments immediately following effective date of increase.</inline> Section 226.55(b)(4)(ii) does not apply if the card issuer does not receive six consecutive required minimum periodic payments on or before the payment due date beginning with the payment due immediately following the effective date of the increase, even if, at some later point in time, the card issuer receives six consecutive required minimum periodic payments on or before the payment due date.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate, fee, or charge that does not exceed rate, fee, or charge that applied before increase.</inline> Although <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to reduce an annual percentage rate, fee, or charge increased pursuant to <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> to the annual percentage rate, fee, or charge that applied prior to the increase, this provision does not prohibit the card issuer from applying an increased annual percentage rate, fee, or charge consistent with any of the other exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. For example, if a temporary rate applied prior to the <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> increase and the temporary rate expired before a reduction in rate pursuant to <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref>, the card issuer may apply an increased rate to the extent consistent with <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>. Similarly, if a variable rate applied prior to the <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> increase, the card issuer may apply any increase in that variable rate to the extent consistent with <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Delayed implementation of reduction.</inline> If <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires a card issuer to reduce an annual percentage rate, fee, or charge on a date that is not the first day of a billing cycle, the card issuer may delay application of the reduced rate, fee, or charge until the first day of the following billing cycle.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> The following examples illustrate the application of <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref>:</p>
<p style="-uslm-sgm:P">A. Assume that the billing cycles for an account begin on the first day of the month and end on the last day of the month and that the required minimum periodic payments are due on the fifteenth day of the month. Assume also that the account has a $5,000 purchase balance to which a non-variable annual percentage rate of 15% applies. On May 16 of year one, the card issuer has not received the required minimum periodic payments due on the fifteenth day of March, April, or May and sends a <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice stating that the annual percentage rate applicable to the $5,000 balance and to new transactions will increase to 28% effective July 1. On July 1, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> permits the card issuer to apply the 28% rate to the $5,000 balance and to new transactions. The card issuer receives the required minimum periodic payments due on the fifteenth day of July, August, September, October, November, and December. On January 1 of year two, <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to 15%. The card issuer is not required to reduce the rate that applies to any transactions that occurred on or after May 31 (which is the fifteenth day after provision of the <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or (g) notice).</p>
<p style="-uslm-sgm:P">B. Same facts as paragraph iv.A. above except that the 15% rate that applied to the $5,000 balance prior to the <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> increase was scheduled to increase to 20% on August 1 of year one (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>). On January 1 of year two, <?page num="781"?><ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to 20%.</p>
<p style="-uslm-sgm:P">C. Same facts as paragraph iv.A. above except that the 15% rate that applied to the $5,000 balance prior to the <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> increase was scheduled to increase to 20% on March 1 of year two (pursuant to <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>). On January 1 of year two, <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to 15%.</p>
<p style="-uslm-sgm:P">D. Same facts as paragraph iv.A. above except that the 15% rate that applied to the $5,000 balance prior to the <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> increase was a variable rate that was determined by adding a margin of 10 percentage points to a publicly-available index not under the card issuer's control (consistent with <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>). On January 1 of year two, <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> requires the card issuer to reduce the rate that applies to any remaining portion of the $5,000 balance to the variable rate determined using the 10-point margin.</p>
<p style="-uslm-sgm:P">E. For an example of the application of <ref href="/us/cfr/t12/s226.55/b/4/ii">§ 226.55(b)(4)(ii)</ref> to deferred interest or similar programs, see comment 55(b)(1)–3.ii.C.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b)(5) Workout and temporary hardship arrangement exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Scope of exception.</inline> Nothing in <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref> permits a card issuer to alter the requirements of <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> pursuant to a workout or temporary hardship arrangement. For example, a card issuer cannot increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) pursuant to a workout or temporary hardship arrangement unless otherwise permitted by <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>. In addition, a card issuer cannot require the consumer to make payments with respect to a protected balance that exceed the payments permitted under <ref href="/us/cfr/t12/s226.55/c">§ 226.55(c)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.9/c/2/v/D">§ 226.9(c)(2)(v)(D)</ref>.</inline> A card issuer that has complied with the disclosure requirements in <ref href="/us/cfr/t12/s226.9/c/2/v/D">§ 226.9(c)(2)(v)(D)</ref> has also complied with the disclosure requirements in <ref href="/us/cfr/t12/s226.55/b/5/i">§ 226.55(b)(5)(i)</ref>. See comment 9(c)(2)(v)–10. Thus, although the disclosures required by <ref href="/us/cfr/t12/s226.55/b/5/i">§ 226.55(b)(5)(i)</ref> must generally be provided in writing prior to commencement of the arrangement, a card issuer may comply with <ref href="/us/cfr/t12/s226.55/b/5/i">§ 226.55(b)(5)(i)</ref> by complying with <ref href="/us/cfr/t12/s226.9/c/2/v/D">§ 226.9(c)(2)(v)(D)</ref>, which states that the disclosure of the terms of the arrangement may be made orally by telephone, provided that the card issuer mails or delivers a written disclosure of the terms of the arrangement to the consumer as soon as reasonably practicable after the oral disclosure is provided.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate, fee, or charge that does not exceed rate, fee, or charge that applied before workout or temporary hardship arrangement.</inline> Upon the completion or failure of a workout or temporary hardship arrangement, <ref href="/us/cfr/t12/s226.55/b/5/ii">§ 226.55(b)(5)(ii)</ref> prohibits the card issuer from applying to any transactions that occurred prior to commencement of the arrangement an annual percentage rate, fee, or charge that exceeds the annual percentage rate, fee, or charge that applied to those transactions prior to commencement of the arrangement. However, this provision does not prohibit the card issuer from applying an increased annual percentage rate, fee, or charge upon completion or failure of the arrangement, to the extent consistent with any of the other exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. For example, if a temporary rate applied prior to the arrangement and that rate expired during the arrangement, the card issuer may apply an increased rate upon completion or failure of the arrangement to the extent consistent with <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>. Similarly, if a variable rate applied prior to the arrangement, the card issuer may apply any increase in that variable rate upon completion or failure of the arrangement to the extent consistent with <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline>
</p>
<p style="-uslm-sgm:P">i. Assume that an account is subject to a $50 annual fee and that, consistent with <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref>, the margin used to determine a variable annual percentage rate that applies to a $5,000 balance is increased from 5 percentage points to 15 percentage points. Assume also that the card issuer and the consumer subsequently agree to a workout arrangement that reduces the annual fee to $0 and reduces the margin back to 5 points on the condition that the consumer pay a specified amount by the payment due date each month. If the consumer does not pay the agreed-upon amount by the payment due date, <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref> permits the card issuer to increase the annual fee to $50 and increase the margin for the variable rate that applies to the $5,000 balance up to 15 percentage points.</p>
<p style="-uslm-sgm:P">ii. Assume that a consumer fails to make four consecutive monthly minimum payments totaling $480 on a consumer credit card account with a balance of $6,000 and that, consistent with <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref>, the annual percentage rate that applies to that balance is increased from a non-variable rate of 15% to a non-variable penalty rate of 30%. Assume also that the card issuer and the consumer subsequently agree to a temporary hardship arrangement that reduces all rates on the account to 0% on the condition that the consumer pay an amount by the payment due date each month that is sufficient to cure the $480 delinquency within six months. If the consumer pays the agreed-upon amount by the payment due date during the six-month period and cures the delinquency, <ref href="/us/cfr/t12/s226.55/b/5">§ 226.55(b)(5)</ref> permits the card issuer to increase the rate that applies to any remaining portion of the $6,000 balance to 15% or any other rate up to the 30% penalty rate.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(b)(6) Servicemembers Civil Relief Act exception.</inline>
<?page num="782"?> </p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate that does not exceed rate that applied before decrease.</inline> Once <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> no longer applies, <ref href="/us/cfr/t12/s226.55/b/6">§ 226.55(b)(6)</ref> prohibits a card issuer from applying an annual percentage rate to any transactions that occurred prior to a decrease in rate pursuant to <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> that exceeds the rate that applied to those transactions prior to the decrease. However, this provision does not prohibit the card issuer from applying an increased annual percentage rate once <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> no longer applies, to the extent consistent with any of the other exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. For example, if a temporary rate applied prior to the decrease and that rate expired during the period that <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> applied to the account, the card issuer may apply an increased rate once <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> no longer applies to the extent consistent with <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref>. Similarly, if a variable rate applied prior to the decrease, the card issuer may apply any increase in that variable rate once <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> no longer applies to the extent consistent with <ref href="/us/cfr/t12/s226.55/b/2">§ 226.55(b)(2)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Assume that on December 31 of year one the annual percentage rate that applies to a $5,000 balance on a credit card account is a variable rate that is determined by adding a margin of 10 percentage points to a publicly-available index that is not under the card issuer's control. On January 1 of year two, the card issuer reduces the rate that applies to the $5,000 balance to a non-variable rate of 6% pursuant to <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref>. On January 1 of year three, <ref href="/us/usc/t50/app527">50 U.S.C. app. 527</ref> ceases to apply and the card issuer provides a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that on February 15 of year three the variable rate determined using the 10-point margin will apply to any remaining portion of the $5,000 balance. On February 15 of year three, <ref href="/us/cfr/t12/s226.55/b/6">§ 226.55(b)(6)</ref> permits the card issuer to begin accruing interest on any remaining portion of the $5,000 balance at the variable rate determined using the 10-point margin.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(c) Treatment of protected balances.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(c)(1) Definition of protected balance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example of protected balance.</inline> Assume that, on March 15 of year two, an account has a purchase balance of $1,000 at a non-variable annual percentage rate of 12% and that, on March 16, the card issuer sends a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> informing the consumer that the annual percentage rate for new purchases will increase to a non-variable rate of 15% on May 1. The fourteenth day after provision of the notice is March 29. On March 29, the consumer makes a $100 purchase. On March 30, the consumer makes a $150 purchase. On May 1, <ref href="/us/cfr/t12/s226.55/b/3/ii">§ 226.55(b)(3)(ii)</ref> permits the card issuer to begin accruing interest at 15% on the $150 purchase made on March 30 but does not permit the card issuer to apply that 15% rate to the $1,100 purchase balance as of March 29. Accordingly, the protected balance for purposes of <ref href="/us/cfr/t12/s226.55/c">§ 226.55(c)</ref> is the $1,100 purchase balance as of March 29. The $150 purchase made on March 30 is not part of the protected balance.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">First year after account opening.</inline> Section 226.55(c) applies to amounts owed for a category of transactions to which an increased annual percentage rate or an increased fee or charge cannot be applied after the rate, fee, or charge for that category of transactions has been increased pursuant to <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref>. Because <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref> does not permit a card issuer to increase an annual percentage rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) during the first year after account opening, <ref href="/us/cfr/t12/s226.55/c">§ 226.55(c)</ref> does not apply to balances during the first year after account opening.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Increased fees and charges.</inline> Except as provided in <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref>, <ref href="/us/cfr/t12/s226.55/b/3">§ 226.55(b)(3)</ref> permits a card issuer to increase a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) after complying with the applicable notice requirements in <ref href="/us/cfr/t12/s226.9/b">§ 226.9(b)</ref> or (c), provided that the increased fee or charge is not applied to a protected balance. To the extent consistent with <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref>, a card issuer is not prohibited from increasing a fee or charge that applies to the account as a whole or to balances other than the protected balance. For example, after the first year following account opening, a card issuer generally may add or increase an annual or a monthly maintenance fee for an account after complying with the notice requirements in <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref>, including notifying the consumer of the right to reject the new or increased fee under <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref>. However, except as otherwise provided in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>, an increased fee or charge cannot be applied to an account while the account is closed or while the card issuer does not permit the consumer to use the account for new transactions. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref>; <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see also</inline> <ref href="/us/cfr/t12/s226.52/b/2/i/B">§§ 226.52(b)(2)(i)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>) and 226.55(d)(1). Furthermore, if the consumer rejects an increase in a fee or charge pursuant to <ref href="/us/cfr/t12/s226.9/h">§ 226.9(h)</ref>, the card issuer is prohibited from applying the increased fee or charge to the account and from imposing any other fee or charge solely as a result of the rejection. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.9/h/2/i">§ 226.9(h)(2)(i)</ref> and (ii); comment 9(h)(2)(ii)–2.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Changing balance computation method.</inline> Nothing in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> prohibits a card issuer from changing the balance computation method that applies to new transactions as well as protected balances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(c)(2) Repayment of protected balance.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No less beneficial to the consumer.</inline> A card issuer may provide a method of repaying the protected balance that is different from the methods listed in <ref href="/us/cfr/t12/s226.55/c/2">§ 226.55(c)(2)</ref> so long as the method used is no less beneficial to the consumer than one of the listed methods. A method is no less beneficial to the consumer if the method results in a required minimum <?page num="783"?>periodic payment that is equal to or less than a minimum payment calculated using the method for the account before the effective date of the increase. Similarly, a method is no less beneficial to the consumer if the method amortizes the balance in five years or longer or if the method results in a required minimum periodic payment that is equal to or less than a minimum payment calculated consistent with <ref href="/us/cfr/t12/s226.55/c/2/iii">§ 226.55(c)(2)(iii)</ref>. For example:</p>
<p style="-uslm-sgm:P">i. If at account opening the cardholder agreement stated that the required minimum periodic payment would be either the total of fees and interest charges plus 1% of the total amount owed or $20 (whichever is greater), the card issuer may require the consumer to make a minimum payment of $20 even if doing so would pay off the balance in less than five years or constitute more than 2% of the balance plus fees and interest charges.</p>
<p style="-uslm-sgm:P">ii. A card issuer could increase the percentage of the balance included in the required minimum periodic payment from 2% to 5% so long as doing so would not result in amortization of the balance in less than five years.</p>
<p style="-uslm-sgm:P">iii. A card issuer could require the consumer to make a required minimum periodic payment that amortizes the balance in four years so long as doing so would not more than double the percentage of the balance included in the minimum payment prior to the date on which the increased annual percentage rate, fee, or charge became effective.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(c)(2)(ii) Five-year amortization period.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amortization period starting from effective date of increase.</inline> Section 226.55(c)(2)(ii) provides for an amortization period for the protected balance of no less than five years, starting from the date on which the increased annual percentage rate or fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii) became effective. A card issuer is not required to recalculate the required minimum periodic payment for the protected balance if, during the amortization period, that balance is reduced as a result of the allocation of payments by the consumer in excess of that minimum payment consistent with <ref href="/us/cfr/t12/s226.53">§ 226.53</ref> or any other practice permitted by these rules and other applicable law.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amortization when applicable rate is variable.</inline> If the annual percentage rate that applies to the protected balance varies with an index, the card issuer may adjust the interest charges included in the required minimum periodic payment for that balance accordingly in order to ensure that the balance is amortized in five years. For example, assume that a variable rate that is currently 15% applies to a protected balance and that, in order to amortize that balance in five years, the required minimum periodic payment must include a specific amount of principal plus all accrued interest charges. If the 15% variable rate increases due to an increase in the index, the creditor may increase the required minimum periodic payment to include the additional interest charges.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(c)(2)(iii) Doubling repayment rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Portion of required minimum periodic payment on other balances.</inline> Section 226.55(c)(2)(iii) addresses the portion of the required minimum periodic payment based on the protected balance. Section 226.55(c)(2)(iii) does not limit or otherwise address the card issuer's ability to determine the portion of the required minimum periodic payment based on other balances on the account or the card issuer's ability to apply that portion of the minimum payment to the balances on the account.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Assume that the method used by a card issuer to calculate the required minimum periodic payment for a credit card account requires the consumer to pay either the total of fees and accrued interest charges plus 2% of the total amount owed or $50, whichever is greater. Assume also that the account has a purchase balance of $2,000 at an annual percentage rate of 15% and a cash advance balance of $500 at an annual percentage rate of 20% and that the card issuer increases the rate for purchases to 18% but does not increase the rate for cash advances. Under <ref href="/us/cfr/t12/s226.55/c/2/iii">§ 226.55(c)(2)(iii)</ref>, the card issuer may require the consumer to pay fees and interest plus 4% of the $2,000 purchase balance. Section 226.55(c)(2)(iii) does not limit the card issuer's ability to increase the portion of the required minimum periodic payment that is based on the cash advance balance.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(d) Continuing application.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Closed accounts.</inline> If a credit card account under an open-end (not home-secured) consumer credit plan with a balance is closed, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> continues to apply to that balance. For example, if a card issuer or a consumer closes a credit card account with a balance, <ref href="/us/cfr/t12/s226.55/d/1">§ 226.55(d)(1)</ref> prohibits the card issuer from increasing the annual percentage rate that applies to that balance or imposing a periodic fee based solely on that balance that was not charged before the account was closed (such as a closed account fee) unless permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Acquired accounts.</inline> If, through merger or acquisition (for example), a card issuer acquires a credit card account under an open-end (not home-secured) consumer credit plan with a balance, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> continues to apply to that balance. For example, if a credit card account has a $1,000 purchase balance with an annual percentage rate of 15% and the card issuer that acquires that account applies an 18% rate to purchases, <ref href="/us/cfr/t12/s226.55/d/1">§ 226.55(d)(1)</ref> prohibits the card issuer from applying the 18% rate to the $1,000 balance unless permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>.
<?page num="784"?></p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Balance transfers.</inline>
</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Between accounts issued by the same creditor.</inline> If a balance is transferred from a credit card account under an open-end (not home-secured) consumer credit plan issued by a creditor to another credit account issued by the same creditor or its affiliate or subsidiary, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> continues to apply to that balance. For example, if a credit card account has a $2,000 purchase balance with an annual percentage rate of 15% and that balance is transferred to another credit card account issued by the same creditor that applies an 18% rate to purchases, <ref href="/us/cfr/t12/s226.55/d/2">§ 226.55(d)(2)</ref> prohibits the creditor from applying the 18% rate to the $2,000 balance unless permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. However, the creditor would not generally be prohibited from charging a new periodic fee (such as an annual fee) on the second account so long as the fee is not based solely on the $2,000 balance and the creditor has notified the consumer of the fee either by providing written notice 45 days before imposing the fee pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> or by providing account-opening disclosures pursuant to <ref href="/us/cfr/t12/s226.6/b">§ 226.6(b)</ref>. See also <ref href="/us/cfr/t12/s226.55/b/3/iii">§ 226.55(b)(3)(iii)</ref>; comment 55(b)(3)–3; comment 5(b)(1)(i)–6. Additional circumstances in which a balance is considered transferred for purposes of <ref href="/us/cfr/t12/s226.55/d/2">§ 226.55(d)(2)</ref> include when:</p>
<p style="-uslm-sgm:P">A. A retail credit card account with a balance is replaced or substituted with a cobranded general purpose credit card account that can be used with a broader merchant base;</p>
<p style="-uslm-sgm:P">B. A credit card account with a balance is replaced or substituted with another credit card account offering different features;</p>
<p style="-uslm-sgm:P">C. A credit card account with a balance is consolidated or combined with one or more other credit card accounts into a single credit card account; and</p>
<p style="-uslm-sgm:P">D. A credit card account is replaced or substituted with a line of credit that can be accessed solely by an account number.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Between accounts issued by different creditors.</inline> If a balance is transferred to a credit card account under an open-end (not home-secured) consumer credit plan issued by a creditor from a credit card account issued by a different creditor or an institution that is not an affiliate or subsidiary of the creditor that issued the account to which the balance is transferred, <ref href="/us/cfr/t12/s226.55/d/2">§ 226.55(d)(2)</ref> does not prohibit the creditor to which the balance is transferred from applying its account terms to that balance, provided that those terms comply with this part. For example, if a credit card account issued by creditor A has a $1,000 purchase balance at an annual percentage rate of 15% and the consumer transfers that balance to a credit card account with a purchase rate of 17% issued by creditor B, creditor B may apply the 17% rate to the $1,000 balance. However, creditor B may not subsequently increase the rate on that balance unless permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">55(e) Promotional waivers or rebates of interest, fees, and other charges.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Generally.</inline> Nothing in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> prohibits a card issuer from waiving or rebating finance charges due to a periodic interest rate or a fee or charge required to be disclosed under <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>, (b)(2)(iii), or (b)(2)(xii). However, if a card issuer promotes and applies the waiver or rebate to an account, the card issuer cannot temporarily or permanently cease or terminate any portion of the waiver or rebate on that account unless permitted by one of the exceptions in <ref href="/us/cfr/t12/s226.55/b">§ 226.55(b)</ref>. For example</p>
<p style="-uslm-sgm:P">i. A card issuer applies an annual percentage rate of 15% to balance transfers but promotes a program under which all of the interest accrued on transferred balances will be waived or rebated for one year. If, prior to the commencement of the one-year period, the card issuer discloses the length of the period and the annual percentage rate that will apply to transferred balances after expiration of that period consistent with <ref href="/us/cfr/t12/s226.55/b/1/i">§ 226.55(b)(1)(i)</ref>, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits the card issuer to begin imposing interest charges on transferred balances after one year. Furthermore, if, during the one-year period, a required minimum periodic payment is not received within 60 days of the payment due date, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> permits the card issuer to begin imposing interest charges on transferred balances (after providing a notice consistent with <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref> and <ref href="/us/cfr/t12/s226.55/b/4/i">§ 226.55(b)(4)(i)</ref>). However, if a required minimum periodic payment is not more than 60 days delinquent or if the consumer otherwise violates the terms or other requirements of the account, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> does not permit the card issuer to begin imposing interest charges on transferred balances until the expiration of the one-year period.</p>
<p style="-uslm-sgm:P">ii. A card issuer imposes a monthly maintenance fee of $10 but promotes a program under which the fee will be waived or rebated for the six months following account opening. If, prior to account opening, the card issuer discloses the length of the period and the monthly maintenance fee that will be imposed after expiration of that period consistent with <ref href="/us/cfr/t12/s226.55/b/1/i">§ 226.55(b)(1)(i)</ref>, <ref href="/us/cfr/t12/s226.55/b/1">§ 226.55(b)(1)</ref> permits the card issuer to begin imposing the monthly maintenance fee six months after account opening. Furthermore, if, during the six-month period, a required minimum periodic payment is not received within 60 days of the payment due date, <ref href="/us/cfr/t12/s226.55/b/4">§ 226.55(b)(4)</ref> permits the card issuer to begin imposing the monthly maintenance fee (after providing a notice consistent with <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> and <ref href="/us/cfr/t12/s226.55/b/4/i">§ 226.55(b)(4)(i)</ref>). However, if a required minimum periodic payment is not more than 60 days delinquent or if the consumer otherwise violates the terms or other requirements of the account, <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> does not permit the card <?page num="785"?>issuer to begin imposing the monthly maintenance fee until the expiration of the six-month period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Promotion of waiver or rebate.</inline> For purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref>, a card issuer generally promotes a waiver or rebate if the card issuer discloses the waiver or rebate in an advertisement (as defined in <ref href="/us/cfr/t12/s226.2/a/2">§ 226.2(a)(2)</ref>). <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 2(a)(2)–1. In addition, a card issuer generally promotes a waiver or rebate for purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref> if the card issuer discloses the waiver or rebate in communications regarding existing accounts (such as communications regarding a promotion that encourages additional or different uses of an existing account). However, a card issuer does not promote a waiver or rebate for purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref> if the advertisement or communication relates to an inquiry or dispute about a specific charge or to interest, fees, or charges that have already been waived or rebated.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of promotional communications.</inline> The following are examples of circumstances in which a card issuer is promoting a waiver or rebate for purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref></p>
<p style="-uslm-sgm:P">A. A card issuer discloses the waiver or rebate in a newspaper, magazine, leaflet, promotional flyer, catalog, sign, or point-of-sale display, unless the disclosure relates to interest, fees, or charges that have already been waived.</p>
<p style="-uslm-sgm:P">B. A card issuer discloses the waiver or rebate on radio or television or through electronic advertisements (such as on the Internet), unless the disclosure relates to interest, fees, or charges that have already been waived or rebated.</p>
<p style="-uslm-sgm:P">C. A card issuer discloses a waiver or rebate to individual consumers, such as by telephone, letter, or electronic communication, through direct mail literature, or on or with account statements, unless the disclosure relates to an inquiry or dispute about a specific charge or to interest, fees, or charges that have already been waived or rebated.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of non-promotional communications.</inline> The following are examples of circumstances in which a card issuer is not promoting a waiver or rebate for purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref></p>
<p style="-uslm-sgm:P">A. After a card issuer has waived or rebated interest, fees, or other charges subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> with respect to an account, the issuer discloses the waiver or rebate to the accountholder on the periodic statement or by telephone, letter, or electronic communication. However, if the card issuer also discloses prospective waivers or rebates in the same communication, the issuer is promoting a waiver or rebate for purposes of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref>.</p>
<p style="-uslm-sgm:P">B. A card issuer communicates with a consumer about a waiver or rebate of interest, fees, or other charges subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> in relation to an inquiry or dispute about a specific charge, including a dispute under <ref href="/us/cfr/t12/s226.12">§§ 226.12</ref> or 226.13.</p>
<p style="-uslm-sgm:P">C. A card issuer waives or rebates interest, fees, or other charges subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> in order to comply with a legal requirement (such as the limitations in <ref href="/us/cfr/t12/s226.52/a">§ 226.52(a)</ref>).</p>
<p style="-uslm-sgm:P">D. A card issuer discloses a grace period, as defined in <ref href="/us/cfr/t12/s226.5/b/2/ii">§ 226.5(b)(2)(ii)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>).</p>
<p style="-uslm-sgm:P">E. A card issuer provides a period after the payment due date during which interest, fees, or other charges subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> are waived or rebated even if a payment has not been received.</p>
<p style="-uslm-sgm:P">F. A card issuer provides benefits (such as rewards points or cash back on purchases or finance charges) that can be applied to the account as credits, provided that the benefits are not promoted as reducing interest, fees, or other charges subject to <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship of <ref href="/us/cfr/t12/s226.55/e">§ 226.55(e)</ref> to grace period.</inline> Section 226.55(e) does not apply to the waiver of finance charges due to a periodic rate consistent with a grace period, as defined in <ref href="/us/cfr/t12/s226.5/b/2/ii">§ 226.5(b)(2)(ii)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>).</p>
<heading style="-uslm-sgm:HD2">Section 226.56—Requirements for Over-the-Limit Transactions</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(b) Opt-in requirement.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Policy and practice of declining over-the-limit transactions.</inline> Section 226.56(b)(1)(i)–(v), including the requirements to provide notice and obtain consumer consent, do not apply to any card issuer that has a policy and practice of declining to pay any over-the-limit transactions for the consumer's credit card account when the card issuer has a reasonable belief that completing a transaction will cause the consumer to exceed the consumer's credit limit for that account. For example, if a card issuer only authorizes those transactions which, at the time of authorization, would not cause the consumer to exceed a credit limit, it is not subject to the requirement to provide consumers notice and an opportunity to affirmatively consent to the card issuer's payment of over-the-limit transactions. However, if an over-the-limit transaction is paid without the consumer providing affirmative consent, the card issuer may not charge a fee for paying the transaction.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Over-the-limit transactions not required to be authorized or paid.</inline> Section 226.56 does not require a card issuer to authorize or pay an over-the-limit transaction even if the consumer has affirmatively consented to the card issuer's over-the-limit service.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of reasonable opportunity to provide affirmative consent.</inline> A card issuer provides a reasonable opportunity for the consumer to provide affirmative consent to the card issuer's payment of over-the-limit transactions when, among other things, it provides reasonable methods by which the consumer may affirmatively consent. A card issuer provides such reasonable methods if—
<?page num="786"?></p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">On the application.</inline> The card issuer provides the notice on the application form that the consumer can fill out to request the service as part of the application;</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">By mail.</inline> The card issuer provides a form with the account-opening disclosures or the periodic statement for the consumer to fill out and mail to affirmatively request the service;</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">By telephone.</inline> The card issuer provides a readily available telephone line that consumers may call to provide affirmative consent.</p>
<p style="-uslm-sgm:P">iv. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">By electronic means.</inline> The card issuer provides an electronic means for the consumer to affirmatively consent. For example, a card issuer could provide a form that can be accessed and processed at its Web site, where the consumer can check a box to opt in and confirm that choice by clicking on a button that affirms the consumer's consent.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Separate consent required.</inline> A consumer's affirmative consent, or opt-in, to a card issuer's payment of over-the-limit transactions must be obtained separately from other consents or acknowledgments obtained by the card issuer. For example, a consumer's signature on a credit application to request a credit card would not by itself sufficiently evidence the consumer's consent to the card issuer's payment of over-the-limit transactions. However, a card issuer may obtain a consumer's affirmative consent by providing a blank signature line or a check box on the application that the consumer can sign or select to request the over-the-limit service, provided that the signature line or check box is used solely for purposes of evidencing the choice and not for any other purpose, such as to also obtain consumer consents for other account services or features or to receive disclosures electronically.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Written confirmation.</inline> A card issuer may comply with the requirement in <ref href="/us/cfr/t12/s226.56/b/1/iv">§ 226.56(b)(1)(iv)</ref> to provide written confirmation of the consumer's decision to affirmatively consent, or opt in, to the card issuer's payment of over-the-limit transactions by providing the consumer a copy of the consumer's completed opt-in form or by sending a letter or notice to the consumer acknowledging that the consumer has elected to opt into the card issuer's service. A card issuer may also satisfy the written confirmation requirement by providing the confirmation on the first periodic statement sent after the consumer has opted in. For example, a card issuer could provide a written notice consistent with <ref href="/us/cfr/t12/s226.56/e/2">§ 226.56(e)(2)</ref> on the periodic statement. A card issuer may not, however, assess any over-the-limit fees or charges on the consumer's credit card account unless and until the card issuer has sent the written confirmation. Thus, if a card issuer elects to provide written confirmation on the first periodic statement after the consumer has opted in, it would not be permitted to assess any over-the-limit fees or charges until the next statement cycle.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(b)(2) Completion of over-the-limit transactions without consumer consent.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of over-the-limit transactions paid without consumer consent.</inline> Section 226.56(b)(2) provides that a card issuer may pay an over-the-limit transaction even if the consumer has not provided affirmative consent, so long as the card issuer does not impose a fee or charge for paying the transaction. The prohibition on imposing fees for paying an over-the-limit transaction applies even in circumstances where the card issuer is unable to avoid paying a transaction that exceeds the consumer's credit limit.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transactions not submitted for authorization.</inline> A consumer has not affirmatively consented to a card issuer's payment of over-the-limit transactions. The consumer purchases a $3 cup of coffee using his credit card. Because of the small dollar amount of the transaction, the merchant does not submit the transaction to the card issuer for authorization. The transaction causes the consumer to exceed the credit limit. Under these circumstances, the card issuer is prohibited from imposing a fee or charge on the consumer's credit card account for paying the over-the-limit transaction because the consumer has not opted in to the card issuer's over-the-limit service.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Settlement amount exceeds authorization amount.</inline> A consumer has not affirmatively consented to a card issuer's payment of over-the-limit transactions. The consumer uses his credit card at a pay-at-the-pump fuel dispenser to purchase $50 of fuel. Before permitting the consumer to use the fuel pump, the merchant verifies the validity of the card by requesting an authorization hold of $1. The subsequent $50 transaction amount causes the consumer to exceed his credit limit. Under these circumstances, the card issuer is prohibited from imposing a fee or charge on the consumer's credit card account for paying the over-the-limit transaction because the consumer has not opted in to the card issuer's over-the-limit service.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intervening charges.</inline> A consumer has not affirmatively consented to a card issuer's payment of over-the-limit transactions. The consumer makes a $50 purchase using his credit card. However, before the $50 transaction is charged to the consumer's account, a separate recurring charge is posted to the account. The $50 purchase then causes the consumer to exceed his credit limit. Under these circumstances, the card issuer is prohibited from imposing a fee or charge on the consumer's credit card account for paying the over-the-limit transaction because the consumer has not opted in to the card issuer's over-the-limit service.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible fees or charges when a consumer has not consented.</inline> Section 226.56(b)(2) <?page num="787"?>does not preclude a card issuer from assessing fees or charges other than over-the-limit fees when an over-the-limit transaction is completed. For example, if a consumer has not opted in, the card issuer may assess a balance transfer fee in connection with a balance transfer, provided such a fee is assessed whether or not the transfer exceeds the credit limit. Section 226.56(b)(2) does not limit the card issuer's ability to debit the consumer's account for the amount of the over-the-limit transaction if the card issuer is permitted to do so under applicable law. The card issuer may also assess interest charges in connection with the over-the-limit transaction.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(c) Method of election.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuer-determined methods.</inline> A card issuer may determine the means available to consumers to affirmatively consent, or opt in, to the card issuer's payment of over-the-limit transactions. For example, a card issuer may decide to obtain consents in writing, electronically, or orally, or through some combination of these methods. Section 226.56(c) further requires, however, that such methods must be made equally available for consumers to revoke a prior consent. Thus, for example, if a card issuer allows a consumer to consent in writing or electronically, it must also allow the consumer to revoke that consent in writing or electronically.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic requests.</inline> A consumer consent or revocation request submitted electronically is not considered a consumer disclosure for purposes of the E-Sign Act.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(d) Timing and placement of notices.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Contemporaneous notice for oral or electronic consent.</inline> Under <ref href="/us/cfr/t12/s226.56/d/1/ii">§ 226.56(d)(1)(ii)</ref>, if a card issuer seeks to obtain consent from the consumer orally or by electronic means, the card issuer must provide a notice containing the disclosures in <ref href="/us/cfr/t12/s226.56/e/1">§ 226.56(e)(1)</ref> prior to and as part of the process of obtaining the consumer's consent.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(e) Content.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of over-the-limit fee.</inline> See Model Forms G–25(A) and G–25(B) for guidance on how to disclose the amount of the over-the-limit fee.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice content.</inline> In describing the consumer's right to affirmatively consent to a card issuer's payment of over-the-limit transactions, the card issuer may explain that any transactions that exceed the consumer's credit limit will be declined if the consumer does not consent to the service. In addition, the card issuer should explain that even if a consumer consents, the payment of over-the-limit transactions is at the discretion of the card issuer. For example, the card issuer may indicate that it may decline a transaction for any reason, such as if the consumer is past due or significantly over the limit. The card issuer may also disclose the consumer's right to revoke consent.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(f) Joint relationships.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Authorized users.</inline> Section 226.56(f) does not permit a card issuer to treat a request to opt in to or to revoke a prior request for the card issuer's payment of over-the-limit transactions from an authorized user that is not jointly liable on a credit card account as a consent or revocation request for that account.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(g) Continuing right to opt in or revoke opt-in.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fees or charges for over-the-limit transactions incurred prior to revocation.</inline> Section 226.56(g) provides that a consumer may revoke his or her prior consent at any time. If a consumer does so, this provision does not require the card issuer to waive or reverse any over-the-limit fees or charges assessed to the consumer's account for transactions that occurred prior to the card issuer's implementation of the consumer's revocation request. Nor does this requirement prevent the card issuer from assessing over-the-limit fees in subsequent cycles if the consumer's account balance continues to exceed the credit limit after the payment due date as a result of an over-the-limit transaction that occurred prior to the consumer's revocation of consent.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(h) Duration of opt-in.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuer ability to stop paying over-the-limit transactions after consumer consent.</inline> A card issuer may cease paying over-the-limit transactions for consumers that have previously opted in at any time and for any reason. For example, a card issuer may stop paying over-the-limit transactions for a consumer to respond to changes in the credit risk presented by the consumer.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">56(j) Prohibited practices.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Periodic fees or charges.</inline> A card issuer may charge an over-the-limit fee or charge only if the consumer has exceeded the credit limit during the billing cycle. Thus, a card issuer may not impose any recurring or periodic fees for paying over-the-limit transactions (for example, a monthly “over-the-limit protection” service fee), even if the consumer has affirmatively consented to or opted in to the service, unless the consumer has in fact exceeded the credit limit during that cycle.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of limits on fees or charges imposed per billing cycle.</inline> Section 226.56(j)(1) generally prohibits a card issuer from assessing a fee or charge due to the same over-the-limit transaction for more than three billing cycles. The following examples illustrate the prohibition.</p>
<p style="-uslm-sgm:P">i. Assume that a consumer has opted into a card issuer's payment of over-the-limit transactions. The consumer exceeds the credit limit during the December billing cycle and does not make sufficient payment to bring the account balance back under the limit for four consecutive cycles. The consumer does not engage in any additional transactions during this period. In this case, <?page num="788"?><ref href="/us/cfr/t12/s226.56/j/1">§ 226.56(j)(1)</ref> would permit the card issuer to charge a maximum of three over-the-limit fees for the December over-the-limit transaction.</p>
<p style="-uslm-sgm:P">ii. Assume the same facts as above except that the consumer makes sufficient payment to reduce his account balance by the payment due date during the February billing cycle. The card issuer may charge over-the-limit fees for the December and January billing cycles. However, because the consumer's account balance was below the credit limit by the payment due date for the February billing cycle, the card issuer may not charge an over-the-limit fee for the February billing cycle.</p>
<p style="-uslm-sgm:P">iii. Assume the same facts as in paragraph i., except that the consumer engages in another over-the-limit transaction during the February billing cycle. Because the consumer has obtained an additional extension of credit which causes the consumer to exceed his credit limit, the card issuer may charge over-the-limit fees for the December transaction on the January, February and March billing statements, and additional over-the-limit fees for the February transaction on the April and May billing statements. The card issuer may not charge an over-the-limit fee for each of the December and the February transactions on the March billing statement because it is prohibited from imposing more than one over-the-limit fee during a billing cycle.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Replenishment of credit line.</inline> Section 226.56(j)(2) does not prevent a card issuer from delaying replenishment of a consumer's available credit where appropriate, for example, where the card issuer may suspect fraud on the credit card account. However, a card issuer may not assess an over-the-limit fee or charge if the over-the-limit transaction is caused by the card issuer's decision not to promptly replenish the available credit after the consumer's payment is credited to the consumer's account.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples of conditioning.</inline> Section 226.56(j)(3) prohibits a card issuer from conditioning or otherwise tying the amount of a consumer's credit limit on the consumer affirmatively consenting to the card issuer's payment of over-the-limit transactions where the card issuer assesses an over-the-limit fee for the transaction. The following examples illustrate the prohibition.</p>
<p style="-uslm-sgm:P">i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of credit limit.</inline> Assume that a card issuer offers a credit card with a credit limit of $1,000. The consumer is informed that if the consumer opts in to the payment of the card issuer's payment of over-the-limit transactions, the initial credit limit would be increased to $1,300. If the card issuer would have offered the credit card with the $1,300 credit limit but for the fact that the consumer did not consent to the card issuer's payment of over-the-limit transactions, the card issuer would not be in compliance with <ref href="/us/cfr/t12/s226.56/j/3">§ 226.56(j)(3)</ref>. Section 226.56(j)(3) prohibits the card issuer from tying the consumer's opt-in to the card issuer's payment of over-the-limit transactions as a condition of obtaining the credit card with the $1,300 credit limit.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Access to credit.</inline> Assume the same facts as above, except that the card issuer declines the consumer's application altogether because the consumer has not affirmatively consented or opted in to the card issuer's payment of over-the-limit transactions. The card issuer is not in compliance with <ref href="/us/cfr/t12/s226.56/j/3">§ 226.56(j)(3)</ref> because the card issuer has required the consumer's consent as a condition of obtaining credit.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Over-the-limit fees caused by accrued fees or interest.</inline> Section 226.56(j)(4) prohibits a card issuer from imposing any over-the-limit fees or charges on a consumer's account if the consumer has exceeded the credit limit solely because charges imposed as part of the plan as described in <ref href="/us/cfr/t12/s226.6/b/3">§ 226.6(b)(3)</ref> were charged to the consumer's account during the billing cycle. For example, a card issuer may not assess an over-the-limit fee or charge even if the credit limit was exceeded due to fees for services requested by the consumer if such fees would constitute charges imposed as part of the plan (such as fees for voluntary debt cancellation or suspension coverage). Section 226.56(j)(4) does not, however, restrict card issuers from assessing over-the-limit fees or charges due to accrued finance charges or fees from prior cycles that have subsequently been added to the account balance. The following examples illustrate the prohibition.</p>
<p style="-uslm-sgm:P">i. Assume that a consumer has opted in to a card issuer's payment of over-the-limit transactions. The consumer's account has a credit limit of $500. The billing cycles for the account begin on the first day of the month and end on the last day of the month. The account is not eligible for a grace period as defined in <ref href="/us/cfr/t12/s226.5/b/2/ii/B">§ 226.5(b)(2)(ii)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3</inline>). On December 31, the only balance on the account is a purchase balance of $475. On that same date, $50 in fees charged as part of the plan under <ref href="/us/cfr/t12/s226.6/b/3/i">§ 226.6(b)(3)(i)</ref> and interest charges are imposed on the account, increasing the total balance at the end of the December billing cycle to $525. Although the total balance exceeds the $500 credit limit, <ref href="/us/cfr/t12/s226.56/j/4">§ 226.56(j)(4)</ref> prohibits the card issuer from imposing an over-the-limit fee or charge for the December billing cycle in these circumstances because the consumer's credit limit was exceeded solely because of the imposition of fees and interest charges during that cycle.</p>
<p style="-uslm-sgm:P">ii. Same facts as above except that, on December 31, the only balance on the account is a purchase balance of $400. On that same date, $50 in fees imposed as part of the plan under <ref href="/us/cfr/t12/s226.6/b/3/i">§ 226.6(b)(3)(i)</ref>, including interest charges, are imposed on the account, increasing the total balance at the end of the <?page num="789"?>December billing cycle to $450. The consumer makes a $25 payment by the January payment due date and the remaining $25 in fees imposed as part of the plan in December is added to the outstanding balance. On January 25, an $80 purchase is charged to the account. At the close of the cycle on January 31, an additional $20 in fees imposed as part of the plan are imposed on the account, increasing the total balance to $525. Because <ref href="/us/cfr/t12/s226.56/j/4">§ 226.56(j)(4)</ref> does not require the issuer to consider fees imposed as part of the plan for the prior cycle in determining whether an over-the-limit fee may be properly assessed for the current cycle, the issuer need not take into account the remaining $25 in fees and interest charges from the December cycle in determining whether fees imposed as part of the plan caused the consumer to exceed the credit limit during the January cycle. Thus, under these circumstances, <ref href="/us/cfr/t12/s226.56/j/4">§ 226.56(j)(4)</ref> does not prohibit the card issuer from imposing an over-the-limit fee or charge for the January billing cycle because the $20 in fees imposed as part of the plan for the January billing cycle did not cause the consumer to exceed the credit limit during that cycle.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Additional restrictions on over-the-limit fees.</inline> See <ref href="/us/cfr/t12/s226.52/b">§ 226.52(b)</ref>.</p>
<heading style="-uslm-sgm:HD2">Section 226.57—Reporting and Marketing Rules for College Student Open-End Credit</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">57(a) Definitions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">57(a)(1) College student credit card.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> The definition of college student credit card excludes home-equity lines of credit accessed by credit cards and overdraft lines of credit accessed by debit cards. A college student credit card includes a college affinity card within the meaning of TILA Section 127(r)(1)(A). In addition, a card may fall within the scope of the definition regardless of the fact that it is not intentionally targeted at or marketed to college students. For example, an agreement between a college and a card issuer may provide for marketing of credit cards to alumni, faculty, staff, and other non-student consumers who have a relationship with the college, but also contain provisions that contemplate the issuance of cards to students. A credit card issued to a student at the college in connection with such an agreement qualifies as a college student credit card.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">57(a)(5) College credit card agreement.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline> Section 226.57(a)(5) defines “college credit card agreement” to include any business, marketing or promotional agreement between a card issuer and a college or university (or an affiliated organization, such as an alumni club or a foundation) if the agreement provides for the issuance of credit cards to full-time or part-time students. Business, marketing or promotional agreements may include a broad range of arrangements between a card issuer and an institution of higher education or affiliated organization, including arrangements that do not meet the criteria to be considered college affinity card agreements as discussed in TILA Section 127(r)(1)(A). For example, TILA Section 127(r)(1)(A) specifies that under a college affinity card agreement, the card issuer has agreed to make a donation to the institution or affiliated organization, the card issuer has agreed to offer discounted terms to the consumer, or the credit card will display pictures, symbols, or words identified with the institution or affiliated organization; even if these conditions are not met, an agreement may qualify as a college credit card agreement, if the agreement is a business, marketing or promotional agreement that contemplates the issuance of college student credit cards to college students currently enrolled (either full-time or part-time) at the institution. An agreement may qualify as a college credit card agreement even if marketing of cards under the agreement is targeted at alumni, faculty, staff, and other non-student consumers, as long as cards may also be issued to students in connection with the agreement.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">57(b) Public disclosure of agreements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Public disclosure.</inline> Section 226.57(b) requires an institution of higher education to publicly disclose any contract or other agreement made with a card issuer or creditor for the purpose of marketing a credit card. Examples of publicly disclosing such contracts or agreements include, but are not limited to, posting such contracts or agreements on the institution's Web site or making such contracts or agreements available upon request, provided the procedures for requesting the documents are reasonable and free of cost to the requestor, and the requested contracts or agreements are provided within a reasonable time frame.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Redaction prohibited.</inline> An institution of higher education must publicly disclose any contract or other agreement made with a card issuer for the purpose of marketing a credit card in its entirety and may not redact any portion of such contract or agreement. Any clause existing in such contracts or agreements, providing for the confidentiality of any portion of the contract or agreement, would be invalid to the extent it restricts the ability of the institution of higher education to publicly disclose the contract or agreement in its entirety.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">57(c) Prohibited inducements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Tangible item clarified.</inline> A tangible item includes any physical item, such as a gift card, a t-shirt, or a magazine subscription, that a card issuer or creditor offers to induce a college student to apply for or open an open-end consumer credit plan offered by such card issuer or creditor. Tangible items do not include non-physical inducements such as discounts, rewards points, or promotional credit terms.
<?page num="790"?></p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inducement clarified.</inline> If a tangible item is offered to a person whether or not that person applies for or opens an open-end consumer credit plan, the tangible item has not been offered to induce the person to apply for or open the plan. For example, refreshments offered to a college student on campus that are not conditioned on whether the student has applied for or agreed to open an open-end consumer credit plan would not violate <ref href="/us/cfr/t12/s226.57/c">§ 226.57(c)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Near campus clarified.</inline> A location that is within 1,000 feet of the border of the campus of an institution of higher education, as defined by the institution of higher education, is considered near the campus of an institution of higher education.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Mailings included.</inline> The prohibition in <ref href="/us/cfr/t12/s226.57/c">§ 226.57(c)</ref> on offering a tangible item to a college student to induce such student to apply for or open an open-end consumer credit plan offered by such card issuer or creditor applies to any solicitation or application mailed to a college student at an address on or near the campus of an institution of higher education.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Related event clarified.</inline> An event is related to an institution of higher education if the marketing of such event uses the name, emblem, mascot, or logo of an institution of higher education, or other words, pictures, symbols identified with an institution of higher education in a way that implies that the institution of higher education endorses or otherwise sponsors the event.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reasonable procedures for determining if applicant is a student.</inline> Section 226.57(c) applies solely to offering a tangible item to a college student. Therefore, a card issuer or creditor may offer any person who is not a college student a tangible item to induce such person to apply for or open an open-end consumer credit plan offered by such card issuer or creditor, on campus, near campus, or at an event sponsored by or related to an institution of higher education. The card issuer or creditor must have reasonable procedures for determining whether an applicant is a college student before giving the applicant the tangible item. For example, a card issuer or creditor may ask whether the applicant is a college student as part of the application process. The card issuer or creditor may rely on the representations made by the applicant.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">57(d) Annual report to the Board.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">57(d)(2) Contents of report.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Memorandum of understanding.</inline> Section 226.57(d)(2) requires that the report to the Board include, among other items, a copy of any memorandum of understanding between the card issuer and the institution (or affiliated organization) that “directly or indirectly relates to the college credit card agreement or that controls or directs any obligations or distribution of benefits between any such entities.” Such a memorandum of understanding includes any document that amends the college credit card agreement, or that constitutes a further agreement between the parties as to the interpretation or administration of the agreement. For example, a memorandum of understanding required to be included in the report would include a document that provides details on the dollar amounts of payments from the card issuer to the university, to supplement the original agreement which only provided for payments in general terms (e.g., as a percentage). A memorandum of understanding for these purposes would not include email (or other) messages that merely discuss matters such as the addresses to which payments should be sent or the names of contact persons for carrying out the agreement.</p>
<heading style="-uslm-sgm:HD2">Section 226.58—Internet Posting of Credit Card Agreements</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(b) Definitions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(b)(1) Agreement.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Inclusion of pricing information.</inline> For purposes of this section, a credit card agreement is deemed to include certain information, such as annual percentage rates and fees, even if the issuer does not otherwise include this information in the basic credit contract. This information is listed under the defined term “pricing information” in <ref href="/us/cfr/t12/s226.58/b/7">§ 226.58(b)(7)</ref>. For example, the basic credit contract may not specify rates, fees and other information that constitutes pricing information as defined in <ref href="/us/cfr/t12/s226.58/b/7">§ 226.58(b)(7)</ref>; instead, such information may be provided to the cardholder in a separate document sent along with the card. However, this information nevertheless constitutes part of the agreement for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Provisions contained in separate documents included.</inline> A credit card agreement is defined as the written document or documents evidencing the terms of the legal obligation, or the prospective legal obligation, between a card issuer and a consumer for a credit card account under an open-end (not home-secured) consumer credit plan. An agreement therefore may consist of several documents that, taken together, define the legal obligation between the issuer and consumer. For example, provisions that mandate arbitration or allow an issuer to unilaterally alter the terms of the card issuer's or consumer's obligation are part of the agreement even if they are provided to the consumer in a document separate from the basic credit contract.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(b)(2) Amends.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantive changes.</inline> A change to an agreement is substantive, and therefore is deemed an amendment of the agreement, if it alters the rights or obligations of the parties. Section 226.58(b)(2) provides that any change in the pricing information, as defined in <ref href="/us/cfr/t12/s226.58/b/7">§ 226.58(b)(7)</ref>, is deemed to be substantive. Examples of other changes that generally <?page num="791"?>would be considered substantive include: (i) Addition or deletion of a provision giving the issuer or consumer a right under the agreement, such as a clause that allows an issuer to unilaterally change the terms of an agreement; (ii) addition or deletion of a provision giving the issuer or consumer an obligation under the agreement, such as a clause requiring the consumer to pay an additional fee; (iii) changes that may affect the cost of credit to the consumer, such as changes in a provision describing how the minimum payment will be calculated; (iv) changes that may affect how the terms of the agreement are construed or applied, such as changes in a choice-of-law provision; and (v) changes that may affect the parties to whom the agreement may apply, such as provisions regarding authorized users or assignment of the agreement.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Non-substantive changes.</inline> Changes that generally would not be considered substantive include, for example: (i) Correction of typographical errors that do not affect the meaning of any terms of the agreement; (ii) changes to the card issuer's corporate name, logo, or tagline; (iii) changes to the format of the agreement, such as conversion to a booklet from a full-sheet format, changes in font, or changes in margins; (iv) changes to the name of the credit card to which the program applies; (v) reordering sections of the agreement without affecting the meaning of any terms of the agreement; (vi) adding, removing, or modifying a table of contents or index; and (vii) changes to titles, headings, section numbers, or captions.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(b)(4) Card issuer.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuer clarified.</inline> Section 226.58(b)(4) provides that, for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>, card issuer or issuer means the entity to which a consumer is legally obligated, or would be legally obligated, under the terms of a credit card agreement. For example, Bank X and Bank Y work together to issue credit cards. A consumer that obtains a credit card issued pursuant to this arrangement between Bank X and Bank Y is subject to an agreement that states “This is an agreement between you, the consumer, and Bank X that governs the terms of your Bank Y Credit Card.” The card issuer in this example is Bank X, because the agreement creates a legally enforceable obligation between the consumer and Bank X. Bank X is the issuer even if the consumer applied for the card through a link on Bank Y's Web site and the cards prominently feature the Bank Y logo on the front of the card.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of third-party service providers.</inline> An institution that is the card issuer as defined in <ref href="/us/cfr/t12/s226.58/b/4">§ 226.58(b)(4)</ref> has a legal obligation to comply with the requirements of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. However, a card issuer generally may use a third-party service provider to satisfy its obligations under <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>, provided that the issuer acts in accordance with regulatory guidance regarding use of third-party service providers and other applicable regulatory guidance. In some cases, an issuer may wish to arrange for the institution with which it partners to issue credit cards to fulfill the requirements of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref> on the issuer's behalf. For example, Retailer and Bank work together to issue credit cards. Under the <ref href="/us/cfr/t12/s226.58/b/4">§ 226.58(b)(4)</ref> definition, Bank is the issuer of these credit cards for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. However, Retailer services the credit card accounts, including mailing account opening materials and periodic statements to cardholders. While Bank is responsible for ensuring compliance with <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>, Bank may arrange for Retailer (or another appropriate third-party service provider) to submit credit card agreements to the Board under <ref href="/us/cfr/t12/s226.58">§ 226.58</ref> on Bank's behalf. Bank must comply with regulatory guidance regarding use of third-party service providers and other applicable regulatory guidance.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Partner institution Web sites.</inline> As explained in comments 58(d)–2 and 58(e)–3, if an issuer provides cardholders with access to specific information about their individual accounts, such as balance information or copies of statements, through a third-party Web site, the issuer is deemed to maintain that Web site for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. Such a Web site is deemed to be maintained by the issuer for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref> even where, for example, an unaffiliated entity designs the Web site and owns and maintains the information technology infrastructure that supports the Web site, cardholders with credit cards from multiple issuers can access individual account information through the same Web site, and the Web site is not labeled, branded, or otherwise held out to the public as belonging to the issuer. A partner institution's Web site is an example of a third-party Web site that may be deemed to be maintained by the issuer for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. For example, Retailer and Bank work together to issue credit cards. Under the <ref href="/us/cfr/t12/s226.58/b/4">§ 226.58(b)(4)</ref> definition, Bank is the issuer of these credit cards for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. Bank does not have a Web site. However, cardholders can access information about their individual accounts, such as balance information and copies of statements, through a Web site maintained by Retailer. Retailer designs the Web site and owns and maintains the information technology infrastructure that supports the Web site. The Web site is branded and held out to the public as belonging to Retailer. Because cardholders can access information about their individual accounts through this Web site, the Web site is deemed to be maintained by Bank for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. Bank therefore may comply with <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> by ensuring that agreements offered to the public are posted on Retailer's Web site in accordance with <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref>. Bank may comply with <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref> by ensuring that cardholders can request copies of their individual agreements <?page num="792"?>through Retailer's Web site in accordance with <ref href="/us/cfr/t12/s226.58/e/1">§ 226.58(e)(1)</ref>. Bank need not create and maintain a Web site branded and held out to the public as belonging to Bank in order to comply with <ref href="/us/cfr/t12/s226.58/d">§§ 226.58(d)</ref> and (e) as long as Bank ensures that Retailer's Web site complies with these sections.</p>
<p style="-uslm-sgm:P">In addition, <ref href="/us/cfr/t12/s226.58/d/1">§ 226.58(d)(1)</ref> provides that, with respect to an agreement offered solely for accounts under one or more private label credit card plans, an issuer may comply with <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> by posting the agreement on the publicly available Web site of at least one of the merchants at which credit cards issued under each private label credit card plan with 10,000 or more open accounts may be used. This rule is not conditioned on cardholders' ability to access account-specific information through the merchant's Web site.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(b)(5) Offers.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cards offered to limited groups.</inline> A card issuer is deemed to offer a credit card agreement to the public even if the issuer solicits, or accepts applications from, only a limited group of persons. For example, a card issuer may market affinity cards to students and alumni of a particular educational institution, or may solicit only high-net-worth individuals for a particular card; in these cases, the agreement would be considered to be offered to the public. Similarly, agreements for credit cards issued by a credit union are considered to be offered to the public even though such cards are available only to credit union members.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Individualized agreements.</inline> A card issuer is deemed to offer a credit card agreement to the public even if the terms of the agreement are changed immediately upon opening of an account to terms not offered to the public.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(b)(6) Open account.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Open account clarified.</inline> The definition of open account includes a credit card account under an open-end (not home-secured) consumer credit plan if either: (i) The cardholder can obtain extensions of credit on the account; or (ii) there is an outstanding balance on the account that has not been charged off. Under this definition, an account that meets either of these criteria is considered to be open even if the account is inactive. Similarly, if an account has been closed for new activity (for example, due to default by the cardholder), but the cardholder is still making payments to pay off the outstanding balance, the account is considered open.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(b)(8) Private label credit card account and private label credit card plan.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Private label credit card account.</inline> The term private label credit card account means a credit card account under an open-end (not home-secured) consumer credit plan with a credit card that can be used to make purchases only at a single merchant or an affiliated group of merchants. This term applies to any such credit card account, regardless of whether it is issued by the merchant or its affiliate or by an unaffiliated third party.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Co-branded credit cards.</inline> The term private label credit card account does not include accounts with so-called co-branded credit cards. Credit cards that display the name, mark, or logo of a merchant or affiliated group of merchants as well as the mark, logo, or brand of payment network are generally referred to as co-branded cards. While these credit cards may display the brand of the merchant or affiliated group of merchants as the dominant brand on the card, such credit cards are usable at any merchant that participates in the payment network. Because these credit cards can be used at multiple unaffiliated merchants, accounts with such credit cards are not considered private label credit card accounts under <ref href="/us/cfr/t12/s226.58/b/8">§ 226.58(b)(8)</ref>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliated group of merchants.</inline> The term “affiliated group of merchants” means two or more affiliated merchants or other persons that are related by common ownership or common corporate control. For example, the term would include franchisees that are subject to a common set of corporate policies or practices under the terms of their franchise licenses. The term also applies to two or more merchants or other persons that agree among each other, by contract or otherwise, to accept a credit card bearing the same name, mark, or logo (other than the mark, logo, or brand of a payment network), for the purchase of goods or services solely at such merchants or persons. For example, several local clothing retailers jointly agree to issue credit cards called the “Main Street Fashion Card” that can be used to make purchases only at those retailers. For purposes of this section, these retailers would be considered an affiliated group of merchants.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Private label credit card plan.</inline> Which credit card accounts issued by a particular issuer constitute a private label credit card plan is determined by where the credit cards can be used. All of the private label credit card accounts issued by a particular card issuer with credit cards usable at the same merchant or affiliated group of merchants constitute a single private label credit card plan, regardless of whether the rates, fees, or other terms applicable to the individual credit card accounts differ. For example, a card issuer has 3,000 open private label credit card accounts with credit cards usable only at Merchant A and 5,000 open private label credit card accounts with credit cards usable only at Merchant B and its affiliates. The card issuer has two separate private label credit card plans, as defined by <ref href="/us/cfr/t12/s226.58/b/8">§ 226.58(b)(8)</ref>—one plan consisting of 3,000 open accounts with credit cards usable only at Merchant A and another plan consisting of 5,000 open accounts with credit cards usable only at Merchant B and its affiliates.
<?page num="793"?></p>
<p style="-uslm-sgm:P">The example above remains the same regardless of whether (or the extent to which) the terms applicable to the individual open accounts differ. For example, assume that, with respect to the card issuer's 3,000 open accounts with credit cards usable only at Merchant A in the example above, 1,000 of the open accounts have a purchase APR of 12 percent, 1,000 of the open accounts have a purchase APR of 15 percent, and 1,000 of the open accounts have a purchase APR of 18 percent. All of the 5,000 open accounts with credit cards usable only at Merchant B and Merchant B's affiliates have the same 15 percent purchase APR. The card issuer still has only two separate private label credit card plans, as defined by <ref href="/us/cfr/t12/s226.58/b/8">§ 226.58(b)(8)</ref>. The open accounts with credit cards usable only at Merchant A do not constitute three separate private label credit card plans under <ref href="/us/cfr/t12/s226.58/b/8">§ 226.58(b)(8)</ref>, even though the accounts are subject to different terms.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(c) Submission of agreements to Board.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(c)(1) Quarterly submissions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Quarterly submission requirement.</inline> Section 226.58(c)(1) requires card issuers to send quarterly submissions to the Board no later than the first business day on or after January 31, April 30, July 31, and October 31 of each year. For example, a card issuer has already submitted three credit card agreements to the Board. On October 15, the card issuer stops offering agreement A. On November 20, the card issuer amends agreement B. On December 1, the issuer starts offering a new agreement D. The card issuer must submit to the Board no later than the first business day on or after January 31: (i) Notification that the card issuer is withdrawing agreement A, because it is no longer offered to the public; (ii) the amended version of agreement B; and (iii) agreement D.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No quarterly submission required.</inline> Under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>, a card issuer is not required to make any submission to the Board at a particular quarterly submission deadline if, during the previous calendar quarter, the card issuer did not take any of the following actions: (i) Offering a new credit card agreement that was not submitted to the Board previously; (ii) amending an agreement previously submitted to the Board; and (iii) ceasing to offer an agreement previously submitted to the Board. For example, a card issuer offers five agreements to the public as of September 30 and submits these to the Board by October 31, as required by <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. Between September 30 and December 31, the card issuer continues to offer all five of these agreements to the public without amending them and does not begin offering any new agreements. The card issuer is not required to make any submission to the Board by the following January 31.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Quarterly submission of complete set of updated agreements.</inline> Section 226.58(c)(1) permits a card issuer to submit to the Board on a quarterly basis a complete, updated set of the credit card agreements the card issuer offers to the public. For example, a card issuer offers agreements A, B, and C to the public as of March 31. The card issuer submits each of these agreements to the Board by April 30 as required by <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. On May 15, the card issuer amends agreement A, but does not make any changes to agreements B or C. As of June 30, the card issuer continues to offer amended agreement A and agreements B and C to the public. At the next quarterly submission deadline, July 31, the card issuer must submit the entire amended agreement A and is not required to make any submission with respect to agreements B and C. The card issuer may either: (i) Submit the entire amended agreement A and make no submission with respect to agreements B and C; or (ii) submit the entire amended agreement A and also resubmit agreements B and C. A card issuer may choose to resubmit to the Board all of the agreements it offered to the public as of a particular quarterly submission deadline even if the card issuer has not introduced any new agreements or amended any agreements since its last submission and continues to offer all previously submitted agreements.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(c)(3) Amended agreements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No requirement to resubmit agreements not amended.</inline> Under <ref href="/us/cfr/t12/s226.58/c/3">§ 226.58(c)(3)</ref>, if a credit card agreement has been submitted to the Board, the agreement has not been amended, and the card issuer continues to offer the agreement to the public, no additional submission regarding that agreement is required. For example, a credit card issuer begins offering an agreement in October and submits the agreement to the Board the following January 31, as required by <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. As of March 31, the card issuer has not amended the agreement and is still offering the agreement to the public. The card issuer is not required to submit anything to the Board regarding that agreement by April 30.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Submission of amended agreements.</inline> If a card issuer amends a credit card agreement previously submitted to the Board, <ref href="/us/cfr/t12/s226.58/c/3">§ 226.58(c)(3)</ref> requires the card issuer to submit the entire amended agreement to the Board. The issuer must submit the amended agreement to the Board by the first quarterly submission deadline after the last day of the calendar quarter in which the change became effective. However, the issuer is required to submit the amended agreement to the Board only if the issuer offered the amended agreement to the public as of the last business day of the calendar quarter in which the change became effective. For example, a card issuer submits an agreement to the Board on October 31. On November 15, the issuer changes the balance computation method used under the agreement. Because an element of the pricing information has <?page num="794"?>changed, the agreement has been amended for purposes of <ref href="/us/cfr/t12/s226.58/c/3">§ 226.58(c)(3)</ref>. On December 31, the last business day of the calendar quarter in which the change in the balance computation method became effective, the issuer still offers the agreement to the public as amended on November 15. The issuer must submit the entire amended agreement to the Board no later than January 31.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agreements amended but no longer offered to the public.</inline> A card issuer should submit an amended agreement to the Board under <ref href="/us/cfr/t12/s226.58/c/3">§ 226.58(c)(3)</ref> only if the issuer offered the amended agreement to the public as of the last business day of the calendar quarter in which the amendment became effective. Agreements that are not offered to the public as of the last day of the calendar quarter should not be submitted to the Board. For example, on December 31 a card issuer offers two agreements, Agreement A and Agreement B. The issuer submits these agreements to the Board by January 31 as required by <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. On February 15, the issuer amends both Agreement A and Agreement B. On February 28, the issuer stops offering Agreement A to the public. On March 15, the issuer amends Agreement B a second time. As a result, on March 31, the last business day of the calendar quarter, the issuer offers to the public one agreement—Agreement B as amended on March 15. By the April 30 quarterly submission deadline, the issuer must: (1) Notify the Board that it is withdrawing Agreement A because Agreement A is no longer offered to the public; and (2) submit to the Board Agreement B as amended on March 15. The issuer should not submit to the Board either Agreement A as amended on February 15 or the earlier version of Agreement B (as amended on February 15), as neither was offered to the public on March 31, the last business day of the calendar quarter.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change-in-terms notices not permissible.</inline> Section 226.58(c)(3) requires that if an agreement previously submitted to the Board is amended, the card issuer must submit the entire revised agreement to the Board. A card issuer may not fulfill this requirement by submitting a change-in-terms or similar notice covering only the terms that have changed. In addition, amendments must be integrated into the text of the agreement (or the addenda described in <ref href="/us/cfr/t12/s226.58/c/8">§ 226.58(c)(8)</ref>), not provided as separate riders. For example, a card issuer changes the purchase APR associated with an agreement the issuer has previously submitted to the Board. The purchase APR for that agreement was included in the addendum of pricing information, as required by <ref href="/us/cfr/t12/s226.58/c/8">§ 226.58(c)(8)</ref>. The card issuer may not submit a change-in-terms or similar notice reflecting the change in APR, either alone or accompanied by the original text of the agreement and original pricing information addendum. Instead, the card issuer must revise the pricing information addendum to reflect the change in APR and submit to the Board the entire text of the agreement and the entire revised addendum, even though no changes have been made to the provisions of the agreement and only one item on the pricing information addendum has changed.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(c)(4) Withdrawal of agreements.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Notice of withdrawal of agreement.</inline> Section 226.58(c)(4) requires a card issuer to notify the Board if any agreement previously submitted to the Board by that issuer is no longer offered to the public by the first quarterly submission deadline after the last day of the calendar quarter in which the card issuer ceased to offer the agreement. For example, on January 5 a card issuer stops offering to the public an agreement it previously submitted to the Board. The card issuer must notify the Board that the agreement is being withdrawn by April 30, the first quarterly submission deadline after March 31, the last day of the calendar quarter in which the card issuer stopped offering the agreement.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(c)(5) De minimis exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to other exceptions.</inline> The de minimis exception is distinct from the private label credit card exception under <ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref> and the product testing exception under <ref href="/us/cfr/t12/s226.58/c/7">§ 226.58(c)(7)</ref>. The de minimis exception provides that a card issuer with fewer than 10,000 open credit card accounts is not required to submit any agreements to the Board, regardless of whether those agreements qualify for the private label credit card exception or the product testing exception. In contrast, the private label credit card exception and the product testing exception provide that a card issuer is not required to submit to the Board agreements offered solely in connection with certain types of credit card plans with fewer than 10,000 open accounts, regardless of the card issuer's total number of open accounts.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">De minimis exception.</inline> Under <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref>, a card issuer is not required to submit any credit card agreements to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref> if the card issuer has fewer than 10,000 open credit card accounts as of the last business day of the calendar quarter. For example, a card issuer offers five credit card agreements to the public as of September 30. However, the card issuer has only 2,000 open credit card accounts as of September 30. The card issuer is not required to submit any agreements to the Board by October 31 because the issuer qualifies for the de minimis exception.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date for determining whether card issuer qualifies clarified.</inline> Whether a card issuer qualifies for the de minimis exception is determined as of the last business day of each calendar quarter. For example, as of December 31, a card issuer offers three agreements to the public and has 9,500 open credit card accounts. As of January 30, the card issuer still offers three agreements, but has 10,100 <?page num="795"?>open accounts. As of March 31, the card issuer still offers three agreements, but has only 9,700 open accounts. Even though the card issuer had 10,100 open accounts at one time during the calendar quarter, the card issuer qualifies for the de minimis exception because the number of open accounts was less than 10,000 as of March 31. The card issuer therefore is not required to submit any agreements to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref> by April 30.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Date for determining whether card issuer ceases to qualify clarified.</inline> Whether a card issuer has ceased to qualify for the de minimis exception under <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref> is determined as of the last business day of the calendar quarter, For example, as of June 30, a card issuer offers three agreements to the public and has 9,500 open credit card accounts. The card issuer is not required to submit any agreements to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref> because the card issuer qualifies for the de minimis exception. As of July 15, the card issuer still offers the same three agreements, but now has 10,000 open accounts. The card issuer is not required to take any action at this time, because whether a card issuer qualifies for the de minimis exception under <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref> is determined as of the last business day of the calendar quarter. As of September 30, the card issuer still offers the same three agreements and still has 10,000 open accounts. Because the card issuer had 10,000 open accounts as of September 30, the card issuer ceased to qualify for the de minimis exception and must submit the three agreements it offers to the Board by October 31, the next quarterly submission deadline.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Option to withdraw agreements clarified.</inline> Section 226.58(c)(5) provides that if a card issuer that did not previously qualify for the de minimis exception qualifies for the de minimis exception, the card issuer must continue to make quarterly submissions to the Board as required by <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref> until the card issuer notifies the Board that the issuer is withdrawing all agreements it previously submitted to the Board. For example, a card issuer has 10,001 open accounts and offers three agreements to the public as of December 31. The card issuer has submitted each of the three agreements to the Board as required under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. As of March 31, the card issuer has only 9,999 open accounts. The card issuer has two options. First, the card issuer may notify the Board that the card issuer is withdrawing each of the three agreements it previously submitted. Once the card issuer has notified the Board, the card issuer is no longer required to make quarterly submissions to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. Alternatively, the card issuer may choose not to notify the Board that it is withdrawing its agreements. In this case, the card issuer must continue making quarterly submissions to the Board as required by <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. The card issuer might choose not to withdraw its agreements if, for example, the card issuer believes that it likely will cease to qualify for the de minimis exception again in the near future.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(c)(6) Private label credit card exception.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Private label credit card exception.</inline> Under <ref href="/us/cfr/t12/s226.58/c/6/i">§ 226.58(c)(6)(i)</ref>, a card issuer is not required to submit to the Board a credit card agreement if, as of the last business day of the calendar quarter, the agreement: (A) Is offered for accounts under one or more private label credit card plans each of which has fewer than 10,000 open accounts; and (B) is not offered to the public other than for accounts under such a plan. For example, a card issuer offers to the public a credit card agreement offered solely for private label credit card accounts with credit cards that can be used only at Merchant A. The card issuer has 8,000 open accounts with such credit cards usable only at Merchant A. The card issuer is not required to submit this agreement to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref> because the agreement is offered for a private label credit card plan with fewer than 10,000 open accounts, and the credit card agreement is not offered to the public other than for accounts under that private label credit card plan.</p>
<p style="-uslm-sgm:P">In contrast, assume the same card issuer also offers to the public a different credit card agreement that is offered solely for private label credit card accounts with credit cards usable only at Merchant B. The card issuer has 12,000 open accounts with such credit cards usable only at Merchant B. The private label credit card exception does not apply. Although this agreement is offered for a private label credit card plan (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the 12,000 private label credit card accounts with credit cards usable only at Merchant B), and the agreement is not offered to the public other than for accounts under that private label credit card plan, the private label credit card plan has more than 10,000 open accounts. (The card issuer still is not required to submit to the Board the agreement offered in connection with credit cards usable only at Merchant A, as each agreement is evaluated separately under the private label credit card exception.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuers with small private label and other credit card plans.</inline> Whether the private label credit card exception applies is determined on an agreement-by-agreement basis. Therefore, some agreements offered by a card issuer may qualify for the private label credit card exception even though the card issuer also offers other agreements that do not qualify, such as agreements offered for accounts with cards usable at multiple unaffiliated merchants or agreements offered for accounts under private label plans with 10,000 or more open accounts.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">De minimis exception distinguished.</inline> The private label credit card exception under <?page num="796"?><ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref> is distinct from the de minimis exception under <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref>. The private label credit card exception exempts card issuers from submitting certain agreements to the Board regardless of the card issuer's overall size as measured by total number of open accounts. In contrast, the de minimis exception exempts a particular card issuer from submitting any credit card agreements to the Board if the card issuer has fewer than 10,000 total open accounts. For example, a card issuer offers to the public two credit card agreements. Agreement A is offered solely for private label credit card accounts with credit cards usable only at Merchant A. The card issuer has 5,000 open credit card accounts with such credit cards usable only at Merchant A. Agreement B is offered solely for credit card accounts with cards usable at multiple unaffiliated merchants that participate in a major payment network. The card issuer has 40,000 open credit card accounts with such payment network cards. The card issuer is not required to submit agreement A to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref> because agreement A qualifies for the private label credit card exception under <ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref>. Agreement A is offered for accounts under a private label credit card plan with fewer than 10,000 open accounts (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the 5,000 accounts with credit cards usable only at Merchant A) and is not otherwise offered to the public. The card issuer is required to submit agreement B to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. The card issuer does not qualify for the de minimis exception under <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref> because it has more than 10,000 open accounts, and agreement B does not qualify for the private label credit card exception under <ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref> because it is not offered solely for accounts under a private label credit card plan with fewer than 10,000 open accounts.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agreement otherwise offered to the public.</inline> An agreement qualifies for the private label exception only if it is offered for accounts under one or more private label credit card plans with fewer than 10,000 open accounts and is not offered to the public other than for accounts under such a plan. For example, a card issuer offers a single agreement to the public. The agreement is offered for private label credit card accounts with credit cards usable only at Merchant A. The card issuer has 9,000 such open accounts with credit cards usable only at Merchant A. The agreement also is offered for credit card accounts with credit cards usable at multiple unaffiliated merchants that participate in a major payment network. The agreement does not qualify for the private label credit card exception. The agreement is offered for accounts under a private label credit card plan with fewer than 10,000 open accounts. However, the agreement also is offered to the public for accounts that are not part of a private label credit card plan and therefore does not qualify for the private label credit card exception.</p>
<p style="-uslm-sgm:P">Similarly, an agreement does not qualify for the private label credit card exception if it is offered in connection with one private label credit card plan with fewer than 10,000 open accounts and one private label credit card plan with 10,000 or more open accounts. For example, a card issuer offers a single credit card agreement to the public. The agreement is offered for two types of accounts. The first type of account is a private label credit card account with a credit card usable only at Merchant A. The second type of account is a private label credit card account with a credit card usable only at Merchant B. The card issuer has 10,000 such open accounts with credit cards usable only at Merchant A and 5,000 such open accounts with credit cards usable only at Merchant B. The agreement does not qualify for the private label credit card exception. While the agreement is offered for accounts under a private label credit card plan with fewer than 10,000 open accounts (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the 5,000 open accounts with credit cards usable only at Merchant B), the agreement is also offered for accounts not under such a plan (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the 10,000 open accounts with credit cards usable only at Merchant A).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Agreement used for multiple small private label plans.</inline> The private label exception applies even if the same agreement is used for more than one private label credit card plan with fewer than 10,000 open accounts. For example, a card issuer has 15,000 total open private label credit card accounts. Of these, 7,000 accounts have credit cards usable only at Merchant A, 5,000 accounts have credit cards usable only at Merchant B, and 3,000 accounts have credit cards usable only at Merchant C. The card issuer offers to the public a single credit card agreement that is offered for all three types of accounts and is not offered for any other type of account. The card issuer is not required to submit the agreement to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. The agreement is used for three different private label credit card plans (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the accounts with credit cards usable at Merchant A, the accounts with credit cards usable at Merchant B, and the accounts with credit cards usable at Merchant C), each of which has fewer than 10,000 open accounts, and the card issuer does not offer the agreement for any other type of account. The agreement therefore qualifies for the private label credit card exception under <ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref>.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple agreements used for one private label credit card plan.</inline> The private label credit card exception applies even if a card issuer offers more than one agreement in connection with a particular private label credit card plan. For example, a card issuer has 5,000 open private label credit card accounts with credit cards usable only at Merchant A. <?page num="797"?>The card issuer offers to the public three different agreements each of which may be used in connection with private label credit card accounts with credit cards usable only at Merchant A. The agreements are not offered for any other type of credit card account. The card issuer is not required to submit any of the three agreements to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref> because each of the agreements is used for a private label credit card plan which has fewer than 10,000 open accounts and none of the three is offered to the public other than for accounts under such a plan.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(c)(8) Form and content of agreements submitted to the Board.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">“As of” date clarified.</inline> Agreements submitted to the Board must contain the provisions of the agreement and pricing information in effect as of the last business day of the preceding calendar quarter. For example, on June 1, a card issuer decides to decrease the purchase APR associated with one of the agreements it offers to the public. The change in the APR will become effective on August 1. If the card issuer submits the agreement to the Board on July 31 (for example, because the agreement has been otherwise amended), the agreement submitted should not include the new lower APR because that APR was not in effect on June 30, the last business day of the preceding calendar quarter.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pricing agreement addendum.</inline> Pricing information must be set forth in the separate addendum described in <ref href="/us/cfr/t12/s226.58/c/8/ii/A">§ 226.58(c)(8)(ii)(A)</ref> even if it is also stated elsewhere in the agreement.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pricing agreement variations do not constitute separate agreements.</inline> Pricing information that may vary from one cardholder to another depending on the cardholder's creditworthiness or state of residence or other factors must be disclosed by setting forth all the possible variations or by providing a range of possible variations. Two agreements that differ only with respect to variations in the pricing information do not constitute separate agreements for purposes of this section. For example, a card issuer offers two types of credit card accounts that differ only with respect to the purchase APR. The purchase APR for one type of account is 15 percent, while the purchase APR for the other type of account is 18 percent. The provisions of the agreement and pricing information for the two types of accounts are otherwise identical. The card issuer should not submit to the Board one agreement with a pricing information addendum listing a 15 percent purchase APR and another agreement with a pricing information addendum listing an 18 percent purchase APR. Instead, the card issuer should submit to the Board one agreement with a pricing information addendum listing possible purchase APRs of 15 or 18 percent.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Optional variable terms addendum.</inline> Examples of provisions that might be included in the variable terms addendum include a clause that is required by law to be included in credit card agreements in a particular state but not in other states (unless, for example, a clause is included in the agreement used for all cardholders under a heading such as “For State X Residents”), the name of the credit card plan to which the agreement applies (if this information is included in the agreement), or the name of a charitable organization to which donations will be made in connection with a particular card (if this information is included in the agreement).</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Integrated agreement requirement.</inline> Card issuers may not provide provisions of the agreement or pricing information in the form of change-in-terms notices or riders. The only two addenda that may be submitted as part of an agreement are the pricing information addendum and optional variable terms addendum described in <ref href="/us/cfr/t12/s226.58/c/8">§ 226.58(c)(8)</ref>. Changes in provisions or pricing information must be integrated into the body of the agreement, pricing information addendum, or optional variable terms addendum described in <ref href="/us/cfr/t12/s226.58/c/8">§ 226.58(c)(8)</ref>. For example, it would be impermissible for a card issuer to submit to the Board an agreement in the form of a terms and conditions document dated <date date="2005-01-01">January 1, 2005</date>, four subsequent change in terms notices, and 2 addenda showing variations in pricing information. Instead, the card issuer must submit a document that integrates the changes made by each of the change in terms notices into the body of the original terms and conditions document and a single addendum displaying variations in pricing information.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(d) Posting of agreements offered to the public.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Requirement applies only to agreements submitted to the Board.</inline> Card issuers are only required to post and maintain on their publicly available Web site the credit card agreements that the card issuer must submit to the Board under <ref href="/us/cfr/t12/s226.58/c">§ 226.58(c)</ref>. If, for example, a card issuer is not required to submit any agreements to the Board because the card issuer qualifies for the de minimis exception under <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref>, the card issuer is not required to post and maintain any agreements on its Web site under <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref>. Similarly, if a card issuer is not required to submit a specific agreement to the Board, such as an agreement that qualifies for the private label exception under <ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref>, the card issuer is not required to post and maintain that agreement under <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> (either on the card issuer's publicly available Web site or on the publicly available Web sites of merchants at which private label credit cards can be used). (The card issuer in both of these cases is still required to provide each individual cardholder with access to his or her specific credit card agreement under <?page num="798"?><ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref> by posting and maintaining the agreement on the card issuer's Web site or by providing a copy of the agreement upon the cardholder's request.)</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Card issuers that do not otherwise maintain Web sites.</inline> Unlike <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref>, <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> does not include a special rule for card issuers that do not otherwise maintain a Web site. If a card issuer is required to submit one or more agreements to the Board under <ref href="/us/cfr/t12/s226.58/c">§ 226.58(c)</ref>, that card issuer must post those agreements on a publicly available Web site it maintains (or, with respect to an agreement for a private label credit card, on the publicly available Web site of at least one of the merchants at which the card may be used, as provided in <ref href="/us/cfr/t12/s226.58/d/1">§ 226.58(d)(1)</ref>).</p>
<p style="-uslm-sgm:P">If an issuer provides cardholders with access to specific information about their individual accounts, such as balance information or copies of statements, through a third-party Web site, the issuer is considered to maintain that Web site for purposes of <ref href="/us/cfr/t12/s226.58">§ 226.58</ref>. Such a third-party Web site is deemed to be maintained by the issuer for purposes of <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> even where, for example, an unaffiliated entity designs the Web site and owns and maintains the information technology infrastructure that supports the Web site, cardholders with credit cards from multiple issuers can access individual account information through the same Web site, and the Web site is not labeled, branded, or otherwise held out to the public as belonging to the issuer. Therefore, issuers that provide cardholders with access to account-specific information through a third-party Web site can comply with <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> by ensuring that the agreements the issuer submits to the Board are posted on the third-party Web site in accordance with <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref>. (In contrast, the <ref href="/us/cfr/t12/s226.58/d/1">§ 226.58(d)(1)</ref> rule regarding agreements for private label credit cards is not conditioned on cardholders' ability to access account-specific information through the merchant's Web site.)</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Private label credit card plans.</inline> Section 226.58(d) provides that, with respect to an agreement offered solely for accounts under one or more private label credit card plans, a card issuer may comply by posting and maintaining the agreement on the Web site of at least one of the merchants at which the cards issued under each private label credit card plan with 10,000 or more open accounts may be used. For example, a card issuer has 100,000 open private label credit card accounts. Of these, 75,000 open accounts have credit cards usable only at Merchant A and 25,000 open accounts have credit cards usable only at Merchant B and Merchant B's affiliates, Merchants C and D. The card issuer offers to the public a single credit card agreement that is offered for both of these types of accounts and is not offered for any other type of account.</p>
<p style="-uslm-sgm:P">The card issuer is required to submit the agreement to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. (The card issuer has more than 10,000 open accounts, so the <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref> de minimis exception does not apply. The agreement is offered solely for two different private label credit card plans (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> one plan consisting of the accounts with credit cards usable at Merchant A and one plan consisting of the accounts with credit cards usable at Merchant B and its affiliates, Merchants C and D), but both of these plans have more than 10,000 open accounts, so the <ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref> private label credit card exception does not apply. Finally, the agreement is not offered solely in connection with a product test by the card issuer, so the <ref href="/us/cfr/t12/s226.58/c/7">§ 226.58(c)(7)</ref> product test exception does not apply.)</p>
<p style="-uslm-sgm:P">Because the card issuer is required to submit the agreement to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>, the card issuer is required to post and maintain the agreement on the card issuer's publicly available Web site under <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref>. However, because the agreement is offered solely for accounts under one or more private label credit card plans, the card issuer may comply with <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> in either of two ways. First, the card issuer may comply by posting and maintaining the agreement on the card issuer's own publicly available Web site. Alternatively, the card issuer may comply by posting and maintaining the agreement on the publicly available Web site of Merchant A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">and</inline> the publicly available Web site of at least one of Merchants B, C and D. It would not be sufficient for the card issuer to post the agreement on Merchant A's Web site alone because <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> requires the card issuer to post the agreement on the publicly available Web site of “at least one of the merchants at which cards issued under <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">each</inline> private label credit card plan may be used” (emphasis added).</p>
<p style="-uslm-sgm:P">In contrast, assume that a card issuer has 100,000 open private label credit card accounts. Of these, 5,000 open accounts have credit cards usable only at Merchant A and 95,000 open accounts have credit cards usable only at Merchant B and Merchant B's affiliates, Merchants C and D. The card issuer offers to the public a single credit card agreement that is offered for both of these types of accounts and is not offered for any other type of account.</p>
<p style="-uslm-sgm:P">The card issuer is required to submit the agreement to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>. (The card issuer has more than 10,000 open accounts, so the <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref> de minimis exception does not apply. The agreement is offered solely for two different private label credit card plans (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> one plan consisting of the accounts with credit cards usable at Merchant A and one plan consisting of the accounts with credit cards usable at Merchant B and its affiliates, Merchants C and D), but one of these plans has more than 10,000 open accounts, so the <ref href="/us/cfr/t12/s226.58/c/6">§ 226.58(c)(6)</ref> private label <?page num="799"?>credit card exception does not apply. Finally, the agreement is not offered solely in connection with a product test by the card issuer, so the <ref href="/us/cfr/t12/s226.58/c/7">§ 226.58(c)(7)</ref> product test exception does not apply.)</p>
<p style="-uslm-sgm:P">Because the card issuer is required to submit the agreement to the Board under <ref href="/us/cfr/t12/s226.58/c/1">§ 226.58(c)(1)</ref>, the card issuer is required to post and maintain the agreement on the card issuer's publicly available Web site under <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref>. However, because the agreement is offered solely for accounts under one or more private label credit card plans, the card issuer may comply with <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref> in either of two ways. First, the card issuer may comply by posting and maintaining the agreement on the card issuer's own publicly available Web site. Alternatively, the card issuer may comply by posting and maintaining the agreement on the publicly available Web site of at least one of Merchants B, C and D. The card issuer is not required to post and maintain the agreement on the publicly available Web site of Merchant A because the card issuer's private label credit card plan consisting of accounts with cards usable only at Merchant A has fewer than 10,000 open accounts.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">58(e) Agreements for all open accounts.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Requirement applies to all open accounts.</inline> The requirement to provide access to credit card agreements under <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref> applies to all open credit card accounts, regardless of whether such agreements are required to be submitted to the Board pursuant to <ref href="/us/cfr/t12/s226.58/c">§ 226.58(c)</ref> (or posted on the card issuer's Web site pursuant to <ref href="/us/cfr/t12/s226.58/d">§ 226.58(d)</ref>). For example, a card issuer that is not required to submit agreements to the Board because it qualifies for the de minimis exception under <ref href="/us/cfr/t12/s226.58/c/5">§ 226.58(c)(5)</ref>) would still be required to provide cardholders with access to their specific agreements under <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref>. Similarly, an agreement that is no longer offered to the public would not be required to be submitted to the Board under <ref href="/us/cfr/t12/s226.58/c">§ 226.58(c)</ref>, but would still need to be provided to the cardholder to whom it applies under <ref href="/us/cfr/t12/s226.58/e">§ 226.58(e)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Readily available telephone line.</inline> Section 226.58(e) provides that card issuers that provide copies of cardholder agreements upon request must provide the cardholder with the ability to request a copy of their agreement by calling a readily available telephone line. To satisfy the readily available standard, the financial institution must provide enough telephone lines so that consumers get a reasonably prompt response. The institution need only provide telephone service during normal business hours. Within its primary service area, an institution must provide a local or toll-free telephone number. It need not provide a toll-free number or accept collect long-distance calls from outside the area where it normally conducts business.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Issuers without interactive Web sites.</inline> Section 226.58(e)(2) provides that a card issuer that does not maintain a Web site from which cardholders can access specific information about their individual accounts is not required to provide a cardholder with the ability to request a copy of the agreement by using the card issuer's Web site. A card issuer without a Web site of any kind could comply by disclosing the telephone number on each periodic statement; a card issuer with a non-interactive Web site could comply in the same way, or alternatively could comply by displaying the telephone number on the card issuer's Web site. An issuer is considered to maintain an interactive Web site for purposes of the <ref href="/us/cfr/t12/s226.58/e/2">§ 226.58(e)(2)</ref> special rule if the issuer provide cardholders with access to specific information about their individual accounts, such as balance information or copies of statements, through a third-party interactive Web site. Such a Web site is deemed to be maintained by the issuer for purposes of <ref href="/us/cfr/t12/s226.58/e/2">§ 226.58(e)(2)</ref> even where, for example, an unaffiliated entity designs the Web site and owns and maintains the information technology infrastructure that supports the Web site, cardholders with credit cards from multiple issuers can access individual account information through the same Web site, and the Web site is not labeled, branded, or otherwise held out to the public as belonging to the issuer. An issuer that provides cardholders with access to specific information about their individual accounts through such a Web site is not permitted to comply with the special rule in <ref href="/us/cfr/t12/s226.58/e/2">§ 226.58(e)(2)</ref>. Instead, such an issuer must comply with <ref href="/us/cfr/t12/s226.58/e/1">§ 226.58(e)(1)</ref>.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Deadline for providing requested agreements clarified.</inline> Sections 226.58(e)(1)(ii) and (e)(2) require that credit card agreements provided upon request must be sent to the cardholder or otherwise made available to the cardholder in electronic or paper form no later than 30 days after the cardholder's request is received. For example, if a card issuer chooses to respond to a cardholder's request by mailing a paper copy of the cardholder's agreement, the card issuer must mail the agreement no later than 30 days after receipt of the cardholder's request. Alternatively, if a card issuer chooses to respond to a cardholder's request by posting the cardholder's agreement on the card issuer's Web site, the card issuer must post the agreement on its Web site no later than 30 days after receipt of the cardholder's request. Section 226.58(e)(3)(v) provides that a card issuer may provide cardholder agreements in either electronic or paper form regardless of the form of the cardholder's request.</p>
<heading style="-uslm-sgm:HD2">Section 226.59–Reevaluation of Rate Increases.</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(a) General rule.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(a)(1) Evaluation of increased rate.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Types of rate increases covered.</inline> Section 226.59(a) applies both to increases in annual <?page num="800"?>percentage rates imposed on a consumer's account based on that consumer's credit risk or other circumstances specific to that consumer and to increases in annual percentage rates imposed based on factors that are not specific to the consumer, such as changes in market conditions or the issuer's cost of funds.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate increases actually imposed.</inline> Under <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>, a card issuer must review changes in factors only if the increased rate is actually imposed on the consumer's account. For example, if a card issuer increases the penalty rate for a credit card account under an open-end (not home-secured) consumer credit plan and the consumer's account has no balances that are currently subject to the penalty rate, the card issuer is required to provide a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> of the change in terms, but the requirements of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> do not apply. However, if the consumer's account later becomes subject to the penalty rate, the card issuer is required to provide a notice pursuant to <ref href="/us/cfr/t12/s226.9/g">§ 226.9(g)</ref> and the requirements of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> begin to apply upon imposition of the penalty rate. Similarly, if a card issuer raises the cash advance rate applicable to a consumer's account but the consumer engages in no cash advance transactions to which that increased rate is applied, the card issuer is required to provide a notice pursuant to <ref href="/us/cfr/t12/s226.9/c">§ 226.9(c)</ref> of the change in terms, but the requirements of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> do not apply. If the consumer subsequently engages in a cash advance transaction, the requirements of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> begin to apply at that time.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in type of rate.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Generally.</inline> A change from a variable rate to a non-variable rate or from a non-variable rate to a variable rate is not a rate increase for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>, if the rate in effect immediately prior to the change in type of rate is equal to or greater than the rate in effect immediately after the change. For example, a change from a variable rate of 15.99% to a non-variable rate of 15.99% is not a rate increase for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> at the time of the change. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> for limitations on the permissibility of changing from a non-variable rate to a variable rate.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change from non-variable rate to variable rate.</inline> A change from a non-variable to a variable rate constitutes a rate increase for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> if the variable rate exceeds the non-variable rate that would have applied if the change in type of rate had not occurred. For example, assume a new credit card account under an open-end (not home-secured) consumer credit plan is opened on January 1 of year 1 and that a non-variable annual percentage rate of 12% applies to all transactions on the account. On January 1 of year 2, upon 45 days' advance notice pursuant to <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref>, the rate on all new transactions is changed to a variable rate that is currently 12% and is determined by adding a margin of 10 percentage points to a publicly-available index not under the card issuer's control. The change from the 12% non-variable rate to the 12% variable rate on January 1 of year 2 is not a rate increase for purposes of <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>. On April 1 of year 2, the value of the variable rate increases to 12.5%. The increase in the rate from 12% to 12.5% is a rate increase for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>, and the card issuer must begin periodically conducting reviews of the account pursuant to <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>. The increase that must be evaluated for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> is the increase from a non-variable rate of 12% to a variable rate of 12.5%.</p>
<p style="-uslm-sgm:P">iii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change from variable rate to non-variable rate.</inline> A change from a variable to a non-variable rate constitutes a rate increase for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> if the non-variable rate exceeds the variable rate that would have applied if the change in type of rate had not occurred. For example, assume a new credit card account under an open-end (not home-secured) consumer credit plan is opened on January 1 of year 1 and that a variable annual percentage rate that is currently 15% and is determined by adding a margin of 10 percentage points to a publicly-available index not under the card issuer's control applies to all transactions on the account. On January 1 of year 2, upon 45 days' advance notice pursuant to <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref>, the rate on all existing balances and new transactions is changed to a non-variable rate that is currently 15%. The change from the 15% variable rate to the 15% non-variable rate on January 1 of year 2 is not a rate increase for purposes of <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>. On April 1 of year 2, the value of the variable rate that would have applied to the account decreases to 12.5%. Accordingly, on April 1 of year 2, the non-variable rate of 15% exceeds the 12.5% variable rate that would have applied but for the change in type of rate. At this time, the change to the non-variable rate of 15% constitutes a rate increase for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>, and the card issuer must begin periodically conducting reviews of the account pursuant to <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>. The increase that must be evaluated for purposes of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> is the increase from a variable rate of 12.5% to a non-variable rate of 15%.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate increases prior to effective date of rule.</inline> For increases in annual percentage rates made on or after <date date="2009-01-01">January 1, 2009</date>, and prior to <date date="2010-08-22">August 22, 2010</date>, <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> requires the card issuer to review the factors described in <ref href="/us/cfr/t12/s226.59/d">§ 226.59(d)</ref> and reduce the rate, as appropriate, if the rate increase is of a type for which 45 days' advance notice would currently be required under <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> or (g). For example, 45 days' notice is not required under <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref> if the rate increase results from the increase in the index by which a properly-disclosed variable rate is determined in accordance with <ref href="/us/cfr/t12/s226.9/c/2/v/C">§ 226.9(c)(2)(v)(C)</ref> or if the increase occurs upon expiration of a <?page num="801"?>specified period of time and disclosures complying with <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> have been provided. The requirements of <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> do not apply to such rate increases.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of rate decrease.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Even in circumstances where a rate reduction is required, <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> does not require that a card issuer decrease the rate that applies to a credit card account to the rate that was in effect prior to the rate increase subject to <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>. The amount of the rate decrease that is required must be determined based upon the card issuer's reasonable policies and procedures under <ref href="/us/cfr/t12/s226.59/b">§ 226.59(b)</ref> for consideration of factors described in <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> and (d). For example, assume a consumer's rate on new purchases is increased from a variable rate of 15.99% to a variable rate of 23.99% based on the consumer's making a required minimum periodic payment five days late. The consumer makes all of the payments required on the account on time for the six months following the rate increase. Assume that the card issuer evaluates the account by reviewing the factors on which the increase in an annual percentage rate was originally based, in accordance with <ref href="/us/cfr/t12/s226.59/d/1/i">§ 226.59(d)(1)(i)</ref>. The card issuer is not required to decrease the consumer's rate to the 15.99% that applied prior to the rate increase. However, the card issuer's policies and procedures for performing the review required by <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> must be reasonable, as required by <ref href="/us/cfr/t12/s226.59/b">§ 226.59(b)</ref>, and must take into account any reduction in the consumer's credit risk based upon the consumer's timely payments.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in type of rate.</inline> If the rate increase subject to <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> involves a change from a variable rate to a non-variable rate or from a non-variable rate to a variable rate, <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> does not require that the issuer reinstate the same type of rate that applied prior to the change. However, the amount of any rate decrease that is required must be determined based upon the card issuer's reasonable policies and procedures under <ref href="/us/cfr/t12/s226.59/b">§ 226.59(b)</ref> for consideration of factors described in <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> and (d).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(a)(2) Rate reductions.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(a)(2)(ii) Applicability of rate reduction.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Applicability of reduced rate to new transactions.</inline> Section 226.59(a)(2)(ii) requires, in part, that any reduction in rate required pursuant to <ref href="/us/cfr/t12/s226.59/a/1">§ 226.59(a)(1)</ref> must apply to new transactions that occur after the effective date of the rate reduction, if those transactions would otherwise have been subject to the increased rate described in <ref href="/us/cfr/t12/s226.59/a/1">§ 226.59(a)(1)</ref>. A credit card account may have multiple types of balances, for example, purchases, cash advances, and balance transfers, to which different rates apply. For example, assume a new credit card account opened on January 1 of year one has a rate applicable to purchases of 15% and a rate applicable to cash advances and balance transfers of 20%. Effective March 1 of year two, consistent with the limitations in <ref href="/us/cfr/t12/s226.55">§ 226.55</ref> and upon giving notice required by <ref href="/us/cfr/t12/s226.9/c/2">§ 226.9(c)(2)</ref>, the card issuer raises the rate applicable to new purchases to 18% based on market conditions. The only transaction in which the consumer engages in year two is a $1,000 purchase made on July 1. The rate for cash advances and balance transfers remains at 20%. Based on a subsequent review required by <ref href="/us/cfr/t12/s226.59/a/1">§ 226.59(a)(1)</ref>, the card issuer determines that the rate on purchases must be reduced to 16%. Section 226.59(a)(2)(ii) requires that the 16% rate be applied to the $1,000 purchase made on July 1 and to all new purchases. The rate for new cash advances and balance transfers may remain at 20%, because there was no rate increase applicable to those types of transactions and, therefore, the requirements of <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> do not apply.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(c) Timing.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> The issuer may review all of its accounts subject to <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> at the same time once every six months, may review each account once each six months on a rolling basis based on the date on which the rate was increased for that account, or may otherwise review each account not less frequently than once every six months.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A card issuer increases the rates applicable to one half of its credit card accounts on <date date="2011-06-01">June 1, 2011</date>. The card issuer increases the rates applicable to the other half of its credit card accounts on <date date="2011-09-01">September 1, 2011</date>. The card issuer may review the rate increases for all of its credit card accounts on or before <date date="2011-12-01">December 1, 2011</date>, and at least every six months thereafter. In the alternative, the card issuer may first review the rate increases for the accounts that were repriced on <date date="2011-06-01">June 1, 2011</date> on or before <date date="2011-12-01">December 1, 2011</date>, and may first review the rate increases for the accounts that were repriced on <date date="2011-09-01">September 1, 2011</date> on or before <date date="2012-03-01">March 1, 2012</date>.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rate increases prior to effective date of rule.</inline> For increases in annual percentage rates applicable to a credit card account under an open-end (not home-secured) consumer credit plan on or after <date date="2009-01-01">January 1, 2009</date> and prior to <date date="2010-08-22">August 22, 2010</date>, <ref href="/us/cfr/t12/s226.59/c">§ 226.59(c)</ref> requires that the first review for such rate increases be conducted prior to <date date="2011-02-22">February 22, 2011</date>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(d) Factors.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Change in factors.</inline> A creditor that complies with <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> by reviewing the factors it currently considers in determining the annual percentage rates applicable to similar new credit card accounts may change those factors from time to time. When a creditor changes the factors it considers in determining the annual percentage rates applicable to similar new credit card accounts from time to time, it may comply with <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> by reviewing the set of factors it considered immediately prior to the change in factors for a brief transition period, or may consider <?page num="802"?>the new factors. For example, a creditor changes the factors it uses to determine the rates applicable to similar new credit card accounts on <date date="2012-01-01">January 1, 2012</date>. The creditor reviews the rates applicable to its existing accounts that have been subject to a rate increase pursuant to <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> on <date date="2012-01-25">January 25, 2012</date>. The creditor complies with <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> by reviewing, at its option, either the factors that it considered on <date date="2011-12-31">December 31, 2011</date> when determining the rates applicable to similar new credit card accounts or the factors that it considers as of <date date="2012-01-25">January 25, 2012</date>. For purposes of compliance with <ref href="/us/cfr/t12/s226.59/d">§ 226.59(d)</ref>, a transition period of 60 days from the change of factors constitutes a brief transition period.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Comparison of existing account to factors used for similar new accounts.</inline> Under <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>, if a creditor evaluates an existing account using the same factors that it considers in determining the rates applicable to similar new accounts, the review of factors need not result in existing accounts being subject to exactly the same rates and rate structure as a creditor imposes on similar new accounts. For example, a creditor may offer variable rates on similar new accounts that are computed by adding a margin that depends on various factors to the value of the LIBOR index. The account that the creditor is required to review pursuant to <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> may have variable rates that were determined by adding a different margin, depending on different factors, to a published prime rate. In performing the review required by <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>, the creditor may review the factors it uses to determine the rates applicable to similar new accounts. If a rate reduction is required, however, the creditor need not base the variable rate for the existing account on the LIBOR index but may continue to use the published prime rate. Section 226.59(a) requires, however, that the rate on the existing account after the reduction, as determined by adding the published prime rate and margin, be comparable to the rate, as determined by adding the margin and LIBOR, charged on a new account for which the factors are comparable.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Similar new credit card accounts.</inline> A card issuer complying with <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref> is required to consider the factors that the card issuer currently considers when determining the annual percentage rates applicable to similar new credit card accounts under an open-end (not home-secured) consumer credit plan. For example, a card issuer may review different factors in determining the annual percentage rate that applies to credit card plans for which the consumer pays an annual fee and receives rewards points than it reviews in determining the rates for credit card plans with no annual fee and no rewards points. Similarly, a card issuer may review different factors in determining the annual percentage rate that applies to private label credit cards than it reviews in determining the rates applicable to credit cards that can be used at a wider variety of merchants. In addition, a card issuer may review different factors in determining the annual percentage rate that applies to private label credit cards usable only at Merchant A than it may review for private label credit cards usable only at Merchant B. However, <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref> requires a card issuer to review the factors it considers when determining the rates for new credit card accounts with similar features that are offered for similar purposes.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">No similar new credit card accounts.</inline> In some circumstances, a card issuer that complies with <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> by reviewing the factors that it currently considers in determining the annual percentage rates applicable to similar new accounts may not be able to identify a class of new accounts that are similar to the existing accounts on which a rate increase has been imposed. For example, consumers may have existing credit card accounts under an open-end (not home-secured) consumer credit plan but the card issuer may no longer offer a product to new consumers with similar characteristics, such as the availability of rewards, size of credit line, or other features. Similarly, some consumers' accounts may have been closed and therefore cannot be used for new transactions, while all new accounts can be used for new transactions. In those circumstances, <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> requires that the card issuer nonetheless perform a review of the rate increase on the existing customers' accounts. A card issuer does not comply with <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> by maintaining an increased rate without performing such an evaluation. In such circumstances, <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref> requires that the card issuer compare the existing accounts to the most closely comparable new accounts that it offers.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consideration of consumer's conduct on existing account.</inline> A card issuer that complies with <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> by reviewing the factors that it currently considers in determining the annual percentage rates applicable to similar new accounts may consider the consumer's payment or other account behavior on the existing account only to the same extent and in the same manner that the issuer considers such information when one of its current cardholders applies for a new account with the card issuer. For example, a card issuer might obtain consumer reports for all of its applicants. The consumer reports contain certain information regarding the applicant's past performance on existing credit card accounts. However, the card issuer may have additional information about an existing cardholder's payment history or account usage that does not appear in the consumer report and that, accordingly, it would not <?page num="803"?>generally have for all new applicants. For example, a consumer may have made a payment that is five days late on his or her account with the card issuer, but this information does not appear on the consumer report. The card issuer may consider this additional information in performing its review under <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>, but only to the extent and in the manner that it considers such information if a current cardholder applies for a new account with the issuer.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Multiple rate increases between <date date="2009-01-01">January 1, 2009</date> and <date date="2010-02-21">February 21, 2010</date>.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Section 226.59(d)(2) applies if an issuer increased the rate applicable to a credit card account under an open-end (not home-secured) consumer credit plan between <date date="2009-01-01">January 1, 2009</date> and <date date="2010-02-21">February 21, 2010</date>, and the increase was not based solely upon factors specific to the consumer. In some cases, a credit card account may have been subject to multiple rate increases during the period from <date date="2009-01-01">January 1, 2009</date> to <date date="2010-02-21">February 21, 2010</date>. Some such rate increases may have been based solely upon factors specific to the consumer, while others may have been based on factors not specific to the consumer, such as the issuer's cost of funds or market conditions. In such circumstances, when conducting the first two reviews required under <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>, the card issuer may separately review: (i) Rate increases imposed based on factors not specific to the consumer, using the factors described in <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref> (as required by <ref href="/us/cfr/t12/s226.59/d/2">§ 226.59(d)(2)</ref>); and (ii) rate increases imposed based on consumer-specific factors, using the factors described in <ref href="/us/cfr/t12/s226.59/d/1/i">§ 226.59(d)(1)(i)</ref>. If the review of factors described in <ref href="/us/cfr/t12/s226.59/d/1/i">§ 226.59(d)(1)(i)</ref> indicates that it is appropriate to continue to apply a penalty or other increased rate to the account as a result of the consumer's payment history or other factors specific to the consumer, <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> permits the card issuer to continue to impose the penalty or other increased rate, even if the review of the factors described in <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref> would otherwise require a rate decrease.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Assume a credit card account was subject to a rate of 15% on all transactions as of <date date="2009-01-01">January 1, 2009</date>. On <date date="2009-05-01">May 1, 2009</date>, the issuer increased the rate on existing balances and new transactions to 18%, based upon market conditions or other factors not specific to the consumer or the consumer's account. Subsequently, on <date date="2009-09-01">September 1, 2009</date>, based on a payment that was received five days after the due date, the issuer increased the applicable rate on existing balances and new transactions from 18% to a penalty rate of 25%. When conducting the first review required under <ref href="/us/cfr/t12/s226.59">§ 226.59</ref>, the card issuer reviews the rate increase from 15% to 18% using the factors described in <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref> (as required by <ref href="/us/cfr/t12/s226.59/d/2">§ 226.59(d)(2)</ref>), and separately but concurrently reviews the rate increase from 18% to 25% using the factors described in paragraph <ref href="/us/cfr/t12/s226.59/d/1/i">§ 226.59(d)(1)(i)</ref>. The review of the rate increase from 15% to 18% based upon the factors described in <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref> indicates that a similarly situated new consumer would receive a rate of 17%. The review of the rate increase from 18% to 25% based upon the factors described in <ref href="/us/cfr/t12/s226.59/d/1/i">§ 226.59(d)(1)(i)</ref> indicates that it is appropriate to continue to apply the 25% penalty rate based upon the consumer's late payment. Section 226.59 permits the rate on the account to remain at 25%.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(f) Termination of obligation to review factors.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Revocation of temporary rates.</inline> i. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">In general.</inline> If an annual percentage rate is increased due to revocation of a temporary rate, <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> requires that the card issuer periodically review the increased rate. In contrast, if the rate increase results from the expiration of a temporary rate previously disclosed in accordance with <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref>, the review requirements in <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> do not apply. If a temporary rate is revoked such that the requirements of <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> apply, <ref href="/us/cfr/t12/s226.59/f">§ 226.59(f)</ref> permits an issuer to terminate the review of the rate increase if and when the applicable rate is the same as the rate that would have applied if the increase had not occurred.</p>
<p style="-uslm-sgm:P">ii. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Examples.</inline> Assume that on <date date="2011-01-01">January 1, 2011</date>, a consumer opens a new credit card account under an open-end (not home-secured) consumer credit plan. The annual percentage rate applicable to purchases is 15%. The card issuer offers the consumer a 10% rate on purchases made between <date date="2012-02-01">February 1, 2012</date> and <date date="2013-08-01">August 1, 2013</date> and discloses pursuant to <ref href="/us/cfr/t12/s226.9/c/2/v/B">§ 226.9(c)(2)(v)(B)</ref> that on <date date="2013-08-01">August 1, 2013</date> the rate on purchases will revert to the original 15% rate. The consumer makes a payment that is five days late in July 2012.</p>
<p style="-uslm-sgm:P">A. Upon providing 45 days' advance notice and to the extent permitted under <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>, the card issuer increases the rate applicable to new purchases to 15%, effective on <date date="2012-09-01">September 1, 2012</date>. The card issuer must review that rate increase under <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> at least once each six months during the period from <date date="2012-09-01">September 1, 2012</date> to <date date="2013-08-01">August 1, 2013</date>, unless and until the card issuer reduces the rate to 10%. The card issuer performs reviews of the rate increase on <date date="2013-01-01">January 1, 2013</date> and <date date="2013-07-01">July 1, 2013</date>. Based on those reviews, the rate applicable to purchases remains at 15%. Beginning on <date date="2013-08-01">August 1, 2013</date>, the card issuer is not required to continue periodically reviewing the rate increase, because if the temporary rate had expired in accordance with its previously disclosed terms, the 15% rate would have applied to purchase balances as of <date date="2013-08-01">August 1, 2013</date> even if the rate increase had not occurred on <date date="2012-09-01">September 1, 2012</date>.</p>
<p style="-uslm-sgm:P">B. Same facts as above except that the review conducted on <date date="2013-07-01">July 1, 2013</date> indicates that a reduction to the original temporary rate of 10% is appropriate. Section 226.59(a)(2)(i) requires that the rate be reduced no later than <?page num="804"?>45 days after completion of the review, or no later than <date date="2013-08-15">August 15, 2013</date>. Because the temporary rate would have expired prior to the date on which the rate decrease is required to take effect, the card issuer may, at its option, reduce the rate to 10% for any portion of the period from <date date="2013-07-01">July 1, 2013</date>, to <date date="2013-08-01">August 1, 2013</date>, or may continue to impose the 15% rate for that entire period. The card issuer is not required to conduct further reviews of the 15% rate on purchases.</p>
<p style="-uslm-sgm:P">C. Same facts as above except that on <date date="2012-09-01">September 1, 2012</date> the card issuer increases the rate applicable to new purchases to the penalty rate on the consumer's account, which is 25%. The card issuer conducts reviews of the increased rate in accordance with <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> on <date date="2013-01-01">January 1, 2013</date> and <date date="2013-07-01">July 1, 2013</date>. Based on those reviews, the rate applicable to purchases remains at 25%. The card issuer's obligation to review the rate increase continues to apply after <date date="2013-08-01">August 1, 2013</date>, because the 25% penalty rate exceeds the 15% rate that would have applied if the temporary rate expired in accordance with its previously disclosed terms. The card issuer's obligation to review the rate terminates if and when the annual percentage rate applicable to purchases is reduced to the 15% rate.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example—relationship to <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>.</inline> Assume that on <date date="2011-01-01">January 1, 2011</date>, a consumer opens a new credit card account under an open-end (not home-secured) consumer credit plan. The annual percentage rate applicable to purchases is 15%. Upon providing 45 days' advance notice and to the extent permitted under <ref href="/us/cfr/t12/s226.55">§ 226.55</ref>, the card issuer increases the rate applicable to new purchases to 18%, effective on <date date="2012-09-01">September 1, 2012</date>. The card issuer conducts reviews of the increased rate in accordance with <ref href="/us/cfr/t12/s226.59">§ 226.59</ref> on <date date="2013-01-01">January 1, 2013</date> and <date date="2013-07-01">July 1, 2013</date>, based on the factors described in <ref href="/us/cfr/t12/s226.59/d/1/ii">§ 226.59(d)(1)(ii)</ref>. Based on the <date date="2013-01-01">January 1, 2013</date> review, the rate applicable to purchases remains at 18%. In the review conducted on <date date="2013-07-01">July 1, 2013</date>, the card issuer determines that, based on the relevant factors, the rate it would offer on a comparable new account would be 14%. Consistent with <ref href="/us/cfr/t12/s226.59/f">§ 226.59(f)</ref>, <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref> requires that the card issuer reduce the rate on the existing account to the 15% rate that was in effect prior to the <date date="2012-09-01">September 1, 2012</date> rate increase.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(g) Acquired accounts.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(g)(1) General.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relationship to <ref href="/us/cfr/t12/s226.59/d/2">§ 226.59(d)(2)</ref> for rate increases imposed between <date date="2009-01-01">January 1, 2009</date> and <date date="2010-02-21">February 21, 2010</date>.</inline> Section 226.59(d)(2) applies to acquired accounts. Accordingly, if a card issuer acquires accounts on which a rate increase was imposed between <date date="2009-01-01">January 1, 2009</date> and <date date="2010-02-21">February 21, 2010</date> that was not based solely upon consumer-specific factors, that acquiring card issuer must consider the factors that it currently considers when determining the annual percentage rates applicable to similar new credit card accounts, if it conducts either or both of the first two reviews of such accounts that are required after <date date="2010-08-22">August 22, 2010</date> under <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">59(g)(2) Review of acquired portfolio.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example—general.</inline> A card issuer acquires a portfolio of accounts that currently are subject to annual percentage rates of 12%, 15%, and 18%. Not later than six months after the acquisition of such accounts, the card issuer reviews all of these accounts in accordance with the factors that it currently uses in determining the rates applicable to similar new credit card accounts. As a result of that review, the card issuer decreases the rate on the accounts that are currently subject to a 12% annual percentage rate to 10%, leaves the rate applicable to the accounts currently subject to a 15% annual percentage rate at 15%, and increases the rate applicable to the accounts currently subject to a rate of 18% to 20%. Section 226.59(g)(2) requires the card issuer to review, no less frequently than once every six months, the accounts for which the rate has been increased to 20%. The card issuer is not required to review the accounts subject to 10% and 15% rates pursuant to <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>, unless and until the card issuer makes a subsequent rate increase applicable to those accounts.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example—penalty rates.</inline> A card issuer acquires a portfolio of accounts that currently are subject to standard annual percentage rates of 12% and 15%. In addition, several acquired accounts are subject to a penalty rate of 24%. Not later than six months after the acquisition of such accounts, the card issuer reviews all of these accounts in accordance with the factors that it currently uses in determining the rates applicable to similar new credit card accounts. As a result of that review, the card issuer leaves the standard rates applicable to the accounts at 12% and 15%, respectively. The card issuer decreases the rate applicable to the accounts currently at 24% to its penalty rate of 23%. Section 226.59(g)(2) requires the card issuer to review, no less frequently than once every six months, the accounts that are subject to a penalty rate of 23%. The card issuer is not required to review the accounts subject to 12% and 15% rates pursuant to <ref href="/us/cfr/t12/s226.59/a">§ 226.59(a)</ref>, unless and until the card issuer makes a subsequent rate increase applicable to those accounts.</p>
<heading style="-uslm-sgm:HD1">Appendix A—Effect on State Laws</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Who may make requests.</inline> Appendix A sets forth the procedures for preemption determinations. As discussed in <ref href="/us/cfr/t12/s226.28">§ 226.28</ref>, which contains the standards for preemption, a request for a determination of whether a state law is inconsistent with the requirements of chapters 1, 2, or 3 may be made by creditors, states, or any interested party. However, only states may request and receive determinations in connection with the fair credit billing provisions of chapter 4.
<?page num="805"?></p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 111 and 171(a).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.28.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Sections 226.6(b) and 226.70 (Supplement V, Section II).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> The procedures in appendix A were largely adapted from Supplement V, Section II of the previous regulation (<ref href="/us/cfr/t12/s226.70">§ 226.70</ref>), with changes made to streamline the procedures.</p>
<heading style="-uslm-sgm:HD1">Appendix B—State Exemptions</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> Appendix B sets forth the procedures for exemption applications. The exemption standards are found in <ref href="/us/cfr/t12/s226.29">§ 226.29</ref> and are discussed in the commentary to that section.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 123 and 171(b).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.29.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Sections 226.12, 226.50 (Supplement II), 226.60 (Supplement IV), and 226.70 (Supplement V, Section I).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> The procedures in appendix B represent a combination and streamlining of the procedures set forth in the supplements to the previous regulation.</p>
<heading style="-uslm-sgm:HD1">Appendix C—Issuance of Staff Interpretations</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> This commentary is the vehicle for providing official staff interpretations. Individual interpretations generally will not be issued separately from the commentary.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Sections 105 and 130(f).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.1(d).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> Appendix C reflects the Board's intention that this commentary serve as the vehicle for interpreting the regulation, rather than individual interpretive letters.</p>
<heading style="-uslm-sgm:HD1">Appendix D—Multiple-Advance Construction Loans</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General rule.</inline> Appendix D provides a special procedure that creditors may use, at their option, to estimate and disclose the terms of multiple-advance construction loans when the amounts or timing of advances is unknown at consummation of the transaction. This appendix reflects the approach taken in <ref href="/us/cfr/t12/s226.17/c/6/ii">§ 226.17(c)(6)(ii)</ref>, which permits creditors to provide separate or combined disclosures for the construction period and for the permanent financing, if any; i.e., the construction phase and the permanent phase may be treated as one transaction or more than one transaction. Appendix D may also be used in multiple-advance transactions other than construction loans, when the amounts or timing of advances is unknown at consummation. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Variable-rate multiple-advance loans.</inline> The hypothetical disclosure required in variable-rate transactions by <ref href="/us/cfr/t12/s226.18/f/1/iv">§ 226.18(f)(1)(iv)</ref> is not required for multiple-advance loans disclosed pursuant to appendix D, part I.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Calculation of the total of payments.</inline> When disclosures are made pursuant to appendix D, the total of payments may reflect either the sum of the payments or the sum of the amount financed and the finance charge.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Annual percentage rate.</inline> Appendix D does not require the use of Volume I of the Board's Annual Percentage Rate Tables for calculation of the annual percentage rate. Creditors utilizing appendix D in making calculations and disclosures may use other computation tools to determine the estimated annual percentage rate, based on the finance charge and payment schedule obtained by use of the appendix.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest reserves.</inline> In a multiple-advance construction loan, a creditor may establish an “interest reserve” to ensure that interest is paid as it accrues by designating a portion of the loan to be used for paying the interest that accrues on the loan. An interest reserve is not treated as a prepaid finance charge, whether the interest reserve is the same as or different from the estimated interest figure calculated under appendix D. </p>
<p style="-uslm-sgm:P">• If a creditor permits a consumer to make interest payments as they become due, the interest reserve should be disregarded in the disclosures and calculations under appendix D. </p>
<p style="-uslm-sgm:P">• If a creditor requires the establishment of an interest reserve and automatically deducts interest payments from the reserve amount rather than allow the consumer to make interest payments as they become due, the fact that interest will accrue on those interest payments as well as the other loan proceeds must be reflected in the calculations and disclosures. To reflect the effects of such compounding, a creditor should first calculate interest on the commitment amount (exclusive of the interest reserve) and then add the figure obtained by assuming that one-half of that interest is outstanding at the contract interest rate for the entire construction period. For example, using the example shown under paragraph A, part I of appendix D, the estimated interest would be $1,117.68 ($1093.75 plus an additional $23.93 calculated by assuming half of $1093.75 is outstanding at the contract interest rate for the entire construction period), and the estimated annual percentage rate would be 21.18%. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>.</inline> A creditor must disclose an interest rate and payment summary table for transactions secured by real property or a dwelling, pursuant to <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>, <?page num="806"?>instead of the general payment schedule required by <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>. Accordingly, home construction loans that are secured by real property or a dwelling are subject to <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> and not <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>. Under <ref href="/us/cfr/t12/s226.176/c/6/ii">§ 226.176(c)(6)(ii)</ref>, when a multiple-advance construction loan may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction.</p>
<p style="-uslm-sgm:P">i. If a creditor uses Appendix D and elects pursuant to <ref href="/us/cfr/t12/s226.17/c/6/ii">§ 226.17(c)(6)(ii)</ref> to disclose the construction and permanent phases as separate transactions, the construction phase must be disclosed according to the rules in <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>. Under <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref>, the creditor must disclose the applicable interest rates and corresponding periodic payments during the construction phase in an interest rate and payment summary table. The provision in Appendix D, Part I.A.3, which allows the creditor to omit the number and amounts of any interest payments “in disclosing the payment schedule under <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>” does not apply because the transaction is governed by <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> rather than <ref href="/us/cfr/t12/s226.18/g">§ 226.18(g)</ref>. Also, because the construction phase is being disclosed as a separate transaction and its terms do not repay all principal, the creditor must disclose a balloon payment, pursuant to <ref href="/us/cfr/t12/s226.18/s/5">§ 226.18(s)(5)</ref>.</p>
<p style="-uslm-sgm:P">ii. On the other hand, if the creditor elects to disclose the construction and permanent phases as a single transaction, the construction phase must be disclosed pursuant to Appendix D, Part II.C, which provides that the creditor shall disclose the repayment schedule without reflecting the number or amounts of payments of interest only that are made during the construction phase. Appendix D also provides, however, that creditors must disclose (outside of the table) the fact that interest payments must be made and the timing of such payments. The rate and payment summary table disclosed under <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> must reflect only the permanent phase of the transaction. Therefore, in determining the rates and payments that must be disclosed in the columns of the table, creditors should apply the requirements of <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> to the permanent phase only. For example, under <ref href="/us/cfr/t12/s226.18/s/2/i/A">§ 226.18(s)(2)(i)(A)</ref> or <ref href="/us/cfr/t12/s226.18/s/2/i/B">§ 226.18(s)(2)(i)(B)</ref>(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1</inline>), as applicable, the creditor should disclose the interest rate corresponding to the first installment due under the permanent phase and not any rate applicable during the construction phase.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Sections 226.17 and 226.22.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Interpretation <ref href="/us/cfr/t12/s226.813">§ 226.813</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 Changes:</inline> The use of appendix D is limited to multiple-advance loans for construction purposes or analogous types of transactions.</p>
<heading style="-uslm-sgm:HD1">Appendix E—Rules for Card Issuers That Bill on a Transaction-by-Transaction Basis</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Interpretation <ref href="/us/cfr/t12/s226.709">§ 226.709</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Sections 226.6 through 226.13, and 226.15.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> The rules in this appendix have been streamlined and clarified to indicate how certain card issuers that bill on a transaction basis may comply with the requirements of Subpart B.</p>
<heading style="-uslm-sgm:HD1">Appendix F—Optional Annual Percentage Rate Computations for Creditors Offering Open-End Plans Subject to the Requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref></heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Daily rate with specific transaction charge.</inline> If the finance charge results from a charge relating to a specific transaction and the application of a daily periodic rate, see comment 14(c)(3)–2 for guidance on an appropriate calculation method.</p>
<heading style="-uslm-sgm:HD1">Appendices G and H—Open-End and Closed-End Model Forms and Clauses</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible changes.</inline> Although use of the model forms and clauses is not required, creditors using them properly will be deemed to be in compliance with the regulation with regard to those disclosures. Creditors may make certain changes in the format or content of the forms and clauses and may delete any disclosures that are inapplicable to a transaction or a plan without losing the act's protection from liability, except formatting changes may not be made to model forms and samples in H–18, H–19, H–20, H–21, H–22, H–23, G–2(A), G–3(A), G–4(A), G–10(A)–(E), G–17(A)–(D), G–18(A) (except as permitted pursuant to <ref href="/us/cfr/t12/s226.7/b/2">§ 226.7(b)(2)</ref>), G–18(B)–(C), G–19, G–20, and G–21, or to the model clauses in H–4(E), H–4(F), H–4(G), and H–4(H). Creditors may modify the heading of the second column shown in Model Clause H–4(H) to read “first adjustment” or “first increase,” as applicable, pursuant to <ref href="/us/cfr/t12/s226.18/s/2/i/C">§ 226.18(s)(2)(i)(C)</ref>. The rearrangement of the model forms and clauses may not be so extensive as to affect the substance, clarity, or meaningful sequence of the forms and clauses. Creditors making revisions with that effect will lose their protection from civil liability. Except as otherwise specifically required, acceptable changes include, for example</p>
<p style="-uslm-sgm:P">i. Using the first person, instead of the second person, in referring to the borrower.</p>
<p style="-uslm-sgm:P">ii. Using “borrower” and “creditor” instead of pronouns.</p>
<p style="-uslm-sgm:P">iii. Rearranging the sequences of the disclosures.</p>
<p style="-uslm-sgm:P">iv. Not using bold type for headings.</p>
<p style="-uslm-sgm:P">v. Incorporating certain state “plain English” requirements.</p>
<p style="-uslm-sgm:P">vi. Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” <?page num="807"?>(not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items. (This should permit use of multipurpose standard forms.)</p>
<p style="-uslm-sgm:P">vii. Using a vertical, rather than a horizontal, format for the boxes in the closed-end disclosures.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Debt-cancellation coverage.</inline> This regulation does not authorize creditors to characterize debt-cancellation fees as insurance premiums for purposes of this regulation. Creditors may provide a disclosure that refers to debt cancellation or debt suspension coverage whether or not the coverage is considered insurance. Creditors may use the model credit insurance disclosures only if the debt cancellation coverage constitutes insurance under state law.</p>
<heading style="-uslm-sgm:HD1">Appendixes G and H—Open-End and Closed-End Model Forms and Clauses</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permissible changes.</inline> Although use of the model forms and clauses is not required, creditors using them properly will be deemed to be in compliance with the regulation with regard to those disclosures. Creditors may make certain changes in the format or content of the forms and clauses and may delete any disclosures that are inapplicable to a transaction or a plan without losing the act's protection from liability, except formatting changes may not be made to model forms and samples in H–18, H–19, H–20, H–21, H–22, H–23, G–2(A), G–3(A), G–4(A), G–10(A)–(E), G–17(A)–(D), G–18(A) (except as permitted pursuant to <ref href="/us/cfr/t12/s226.7/b/2">§ 226.7(b)(2)</ref>), G–18(B)–(C), G–19, G–20, and G–21. The rearrangement of the model forms and clauses may not be so extensive as to affect the substance, clarity, or meaningful sequence of the forms and clauses. Creditors making revisions with that effect will lose their protection from civil liability. Except as otherwise specifically required, acceptable changes include, for example:</p>
<p style="-uslm-sgm:P">i. Using the first person, instead of the second person, in referring to the borrower.</p>
<p style="-uslm-sgm:P">ii. Using “borrower” and “creditor” instead of pronouns.</p>
<p style="-uslm-sgm:P">iii. Rearranging the sequences of the disclosures.</p>
<p style="-uslm-sgm:P">iv. Not using bold type for headings.</p>
<p style="-uslm-sgm:P">v. Incorporating certain state “plain English” requirements.</p>
<p style="-uslm-sgm:P">vi. Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” (not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items. (This should permit use of multipurpose standard forms.)</p>
<p style="-uslm-sgm:P">vii. Using a vertical, rather than a horizontal, format for the boxes in the closed-end disclosures.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Debt cancellation coverage.</inline> This regulation does not authorize creditors to characterize debt cancellation fees as insurance premiums for purposes of this regulation. Creditors may provide a disclosure that refers to debt cancellation coverage whether or not the coverage is considered insurance. Creditors may use the model credit insurance disclosures only if the debt cancellation coverage constitutes insurance under state law. </p>
<heading style="-uslm-sgm:HD1">Appendix G—Open-End Model Forms and Clauses</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models G–1 and G–1(A).</inline> The model disclosures in G–1 and G–1(A) (different balance computation methods) may be used in both the account-opening disclosures under <ref href="/us/cfr/t12/s226.6">§ 226.6</ref> and the periodic disclosures under <ref href="/us/cfr/t12/s226.7">§ 226.7</ref>. As is clear from the models given, “shorthand” descriptions of the balance computation methods are not sufficient, except where <ref href="/us/cfr/t12/s226.7/b/5">§ 226.7(b)(5)</ref> applies. For creditors using model G–1, the phrase “a portion of” the finance charge should be included if the total finance charge includes other amounts, such as transaction charges, that are not due to the application of a periodic rate. If unpaid interest or finance charges are subtracted in calculating the balance, that fact must be stated so that the disclosure of the computation method is accurate. Only model G–1(b) contains a final sentence appearing in brackets, which reflects the total dollar amount of payments and credits received during the billing cycle. The other models do not contain this language because they reflect plans in which payments and credits received during the billing cycle are subtracted. If this is not the case, however, the language relating to payments and credits should be changed, and the creditor should add either the disclosure of the dollar amount as in model G–1(b) or an indication of which credits (disclosed elsewhere on the periodic statement) will not be deducted in determining the balance. (Such an indication may also substitute for the bracketed sentence in model G–1(b).) (See the commentary to <ref href="/us/cfr/t12/s226.7/a/5">§ 226.7(a)(5)</ref> and (b)(5).) For open-end plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, creditors may, at their option, use the clauses in G–1 or G–1(A).</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models G–2 and G–2(A).</inline> These models contain the notice of liability for unauthorized use of a credit card. For home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, at the creditor's option, a creditor either may use G–2 or G–2(A). For open-end plans not subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, creditors properly use G–2(A).</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models G–3, G–3(A), G–4 and G–4(A).</inline>
</p>
<p style="-uslm-sgm:P">i. These set out models for the long-form billing-error rights statement (for use with the account-opening disclosures and as an annual disclosure or, at the creditor's option, with each periodic statement) and the alternative billing-error rights statement (for use with each periodic statement), respectively. For home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, at the creditor's option, a creditor either may use G–3 or G–<?page num="808"?>3(A), and for creditors that use the short form, G–4 or G–4(A). For open-end (not home-secured) plans that not subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, creditors properly use G–3(A) and G–4(A). Creditors must provide the billing-error rights statements in a form substantially similar to the models in order to comply with the regulation. The model billing-rights statements may be modified in any of the ways set forth in the first paragraph to the commentary on appendices G and H. The models may, furthermore, be modified by deleting inapplicable information, such as:</p>
<p style="-uslm-sgm:P">A. The paragraph concerning stopping a debit in relation to a disputed amount, if the creditor does not have the ability to debit automatically the consumer's savings or checking account for payment.</p>
<p style="-uslm-sgm:P">B. The rights stated in the special rule for credit card purchases and any limitations on those rights.</p>
<p style="-uslm-sgm:P">ii. The model billing rights statements also contain optional language that creditors may use. For example, the creditor may:</p>
<p style="-uslm-sgm:P">A. Include a statement to the effect that notice of a billing error must be submitted on something other than the payment ticket or other material accompanying the periodic disclosures.</p>
<p style="-uslm-sgm:P">B. Insert its address or refer to the address that appears elsewhere on the bill.</p>
<p style="-uslm-sgm:P">C. Include instructions for consumers, at the consumer's option, to communicate with the creditor electronically or in writing.</p>
<p style="-uslm-sgm:P">iii. Additional information may be included on the statements as long as it does not detract from the required disclosures. For instance, information concerning the reporting of errors in connection with a checking account may be included on a combined statement as long as the disclosures required by the regulation remain clear and conspicuous. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models G–5 through G–9.</inline> These models set out notices of the right to rescind that would be used at different times in an open-end plan. The last paragraph of each of the rescission model forms contains a blank for the date by which the consumer's notice of cancellation must be sent or delivered. A parenthetical is included to address the situation in which the consumer's right to rescind the transaction exists beyond 3 business days following the date of the transaction, for example, when the notice or material disclosures are delivered late or when the date of the transaction in paragraph 1 of the notice is an estimate. The language of the parenthetical is not optional. See the commentary to section 226.2(a)(25) regarding the specificity of the security interest disclosure for model form G-7.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model G–10(A), samples G–10(B) and G–10(C), model G–10(D), sample G–10(E), model G–17(A), and samples G–17(B), 17(C) and 17(D).</inline> i. Model G–10(A) and Samples G–10(B) and G–10(C) illustrate, in the tabular format, the disclosures required under <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> for applications and solicitations for credit cards other than charge cards. Model G–10(D) and Sample G–10(E) illustrate the tabular format disclosure for charge card applications and solicitations and reflect the disclosures in the table. Model G–17(A) and Samples G–17(B), G–17(C) and G–17(D) illustrate, in the tabular format, the disclosures required under <ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref> for account-opening disclosures.</p>
<p style="-uslm-sgm:P">ii. Except as otherwise permitted, disclosures must be substantially similar in sequence and format to Models G–10(A), G–10(D) and G–17(A). While proper use of the model forms will be deemed in compliance with the regulation, card issuers and other creditors offering open-end (not home-secured) plans are permitted to disclose the annual percentage rates for purchases, cash advances, or balance transfers in the same row in the table for any transaction types for which the issuer or creditor charges the same annual percentage rate. Similarly, card issuer and other creditors offering open-end (not home-secured) plans are permitted to disclose fees of the same amount in the same row if the fees are in the same category. Fees in different categories may not be disclosed in the same row. For example, a transaction fee and a penalty fee that are of the same amount may not be disclosed in the same row. Card issuers and other creditors offering open-end (not home-secured) plans are also permitted to use headings other than those in the forms if they are clear and concise and are substantially similar to the headings contained in model forms, with the following exceptions. The heading “penalty APR” must be used when describing rates that may increase due to default or delinquency or as a penalty, and in relation to required insurance, or debt cancellation or suspension coverage, the term “required” and the name of the product must be used. (See also <ref href="/us/cfr/t12/s226.5a/b/5">§§ 226.5a(b)(5)</ref> and 226.6(b)(2)(v) for guidance on headings that must be used to describe the grace period, or lack of grace period, in the disclosures required under <ref href="/us/cfr/t12/s226.5a">§ 226.5a</ref> for applications and solicitations for credit cards other than charge cards, and the disclosures required under <ref href="/us/cfr/t12/s226.6/b/2">§ 226.6(b)(2)</ref> for account-opening disclosures, respectively.)</p>
<p style="-uslm-sgm:P">iii. Models G–10(A) and G–17(A) contain two alternative headings (“Minimum Interest Charge” and “Minimum Charge”) for disclosing a minimum interest or fixed finance charge under <ref href="/us/cfr/t12/s226.5a/b/3">§§ 226.5a(b)(3)</ref> and 226.6(b)(2)(iii). If a creditor imposes a minimum charge in lieu of interest in those months where a consumer would otherwise incur an interest charge but that interest charge is less than the minimum charge, the creditor should disclose this charge under the heading “Minimum Interest Charge” or a substantially similar heading. Other minimum or <?page num="809"?>fixed finance charges should be disclosed under the heading “Minimum Charge” or a substantially similar heading.</p>
<p style="-uslm-sgm:P">iv. Models G–10(A), G–10(D) and G–17(A) contain two alternative headings (“Annual Fees” and “Set-up and Maintenance Fees”) for disclosing fees for issuance or availability of credit under <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref> or <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref>. If the only fee for issuance or availability of credit disclosed under <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref> or <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref> is an annual fee, a creditor should use the heading “Annual Fee” or a substantially similar heading to disclose this fee. If a creditor imposes fees for issuance or availability of credit disclosed under <ref href="/us/cfr/t12/s226.5a/b/2">§ 226.5a(b)(2)</ref> or <ref href="/us/cfr/t12/s226.6/b/2/ii">§ 226.6(b)(2)(ii)</ref> other than, or in addition to, an annual fee, the creditor should use the heading “Set-up and Maintenance Fees” or a substantially similar heading to disclose fees for issuance or availability of credit, including the annual fee.</p>
<p style="-uslm-sgm:P">v. Although creditors are not required to use a certain paper size in disclosing the <ref href="/us/cfr/t12/s226.5a">§§ 226.5a</ref> or 226.6(b)(1) and (2) disclosures, samples G–10(B), G–10(C), G–17(B), G–17(C) and G–17(D) are designed to be printed on an 8<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> × 14 inch sheet of paper. A creditor may use a smaller sheet of paper, such as 8<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> × 11 inch sheet of paper. If the table is not provided on a single side of a sheet of paper, the creditor must include a reference or references, such as “SEE BACK OF PAGE for more important information about your account.” at the bottom of each page indicating that the table continues onto an additional page or pages. A creditor that splits the table onto two or more pages must disclose the table on consecutive pages and may not include any intervening information between portions of the table. In addition, the following formatting techniques were used in presenting the information in the sample tables to ensure that the information is readable:</p>
<p style="-uslm-sgm:P">A. A readable font style and font size (10-point Arial font style, except for the purchase annual percentage rate which is shown in 16-point type).</p>
<p style="-uslm-sgm:P">B. Sufficient spacing between lines of the text.</p>
<p style="-uslm-sgm:P">C. Adequate spacing between paragraphs when several pieces of information were included in the same row of the table, as appropriate. For example, in the samples in the row of the tables with the heading “APR for Balance Transfers,” the forms disclose two components: the applicable balance transfer rate and a cross reference to the balance transfer fee. The samples show these two components on separate lines with adequate space between each component. On the other hand, in the samples, in the disclosure of the late payment fee, the forms disclose two components: the late payment fee, and the cross reference to the penalty rate. Because the disclosure of both these components is short, these components are disclosed on the same line in the tables.</p>
<p style="-uslm-sgm:P">D. Standard spacing between words and characters. In other words, the text was not compressed to appear smaller than 10-point type.</p>
<p style="-uslm-sgm:P">E. Sufficient white space around the text of the information in each row, by providing sufficient margins above, below and to the sides of the text.</p>
<p style="-uslm-sgm:P">F. Sufficient contrast between the text and the background. Generally, black text was used on white paper.</p>
<p style="-uslm-sgm:P">vi. While the Board is not requiring issuers to use the above formatting techniques in presenting information in the table (except for the 10-point and 16-point font requirement), the Board encourages issuers to consider these techniques when deciding how to disclose information in the table, to ensure that the information is presented in a readable format.</p>
<p style="-uslm-sgm:P">vii. Creditors are allowed to use color, shading and similar graphic techniques with respect to the table, so long as the table remains substantially similar to the model and sample forms in appendix G.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model G–11.</inline> Model G–11 contains clauses that illustrate the general disclosures required under <ref href="/us/cfr/t12/s226.5a/e">§ 226.5a(e)</ref> in applications and solicitations made available to the general public.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models G–13(A) and G–13(B).</inline> These model forms illustrate the disclosures required under <ref href="/us/cfr/t12/s226.9/f">§ 226.9(f)</ref> when the card issuer changes the entity providing insurance on a credit card account. Model G–13(A) contains the items set forth in <ref href="/us/cfr/t12/s226.9/f/3">§ 226.9(f)(3)</ref> as examples of significant terms of coverage that may be affected by the change in insurance provider. The card issuer may either list all of these potential changes in coverage and place a check mark by the applicable changes, or list only the actual changes in coverage. Under either approach, the card issuer must either explain the changes or refer to an accompanying copy of the policy or group certificate for details of the new terms of coverage. Model G–13(A) also illustrates the permissible combination of the two notices required by <ref href="/us/cfr/t12/s226.9/f">§ 226.9(f)</ref>—the notice required for a planned change in provider and the notice required once a change has occurred. This form may be modified for use in providing only the disclosures required before the change if the card issuer chooses to send two separate notices. Thus, for example, the references to the attached policy or certificate would not be required in a separate notice prior to a change in the insurance provider since the policy or certificate need not be provided at that time. Model G–13(B) illustrates the disclosures required under <ref href="/us/cfr/t12/s226.9/f/2">§ 226.9(f)(2)</ref> when the insurance provider is changed.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Samples G–18(A)–(D).</inline> For home-equity plans subject to the requirements of <ref href="/us/cfr/t12/s226.5b">§ 226.5b</ref>, <?page num="810"?>if a creditor chooses to comply with the requirements in <ref href="/us/cfr/t12/s226.7/b">§ 226.7(b)</ref>, the creditor may use Samples G–18(A) through G–18(D) to comply with these requirements, as applicable.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Samples G–18(D).</inline> Sample G–18(D) illustrates how credit card issuers may comply with proximity requirements for payment information on periodic statements. Creditors that offer card accounts with a charge card feature and a revolving feature may change the disclosure to make clear to which feature the disclosures apply.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Forms G–18(F)–(G).</inline> Forms G–18(F) and G–18(G) are intended as a compliance aid to illustrate front sides of a periodic statement, and how a periodic statement for open-end (not home-secured) plans might be designed to comply with the requirements of <ref href="/us/cfr/t12/s226.7">§ 226.7</ref>. The samples contain information that is not required by Regulation Z. The samples also present information in additional formats that are not required by Regulation Z.</p>
<p style="-uslm-sgm:P">i. Creditors are not required to use a certain paper size in disclosing the <ref href="/us/cfr/t12/s226.7">§ 226.7</ref> disclosures. However, Forms G–18(F) and G–18(G) are designed to be printed on an 8 × 14 inch sheet of paper.</p>
<p style="-uslm-sgm:P">ii. The due date for a payment, if a late payment fee or penalty rate may be imposed, must appear on the front of the first page of the statement. See Sample G–18(D) that illustrates how a creditor may comply with proximity requirements for other disclosures. The payment information disclosures appear in the upper right-hand corner on Samples G–18(F) and G–18(G), but may be located elsewhere, as long as they appear on the front of the first page of the periodic statement. The summary of account activity presented on Samples G–18(F) and G–18(G) is not itself a required disclosure, although the previous balance and the new balance, presented in the summary, must be disclosed in a clear and conspicuous manner on periodic statements.</p>
<p style="-uslm-sgm:P">iii. Additional information not required by Regulation Z may be presented on the statement. The information need not be located in any particular place or be segregated from disclosures required by Regulation Z, although the effect of proximity requirements for required disclosures, such as the due date, may cause the additional information to be segregated from those disclosures required to be disclosed in close proximity to one another. Any additional information must be presented consistent with the creditor's obligation to provide required disclosures in a clear and conspicuous manner.</p>
<p style="-uslm-sgm:P">iv. Model Forms G–18(F) and G–18(G) demonstrate two examples of ways in which transactions could be presented on the periodic statement. Model Form G–18(G) presents transactions grouped by type and Model Form G–18(F) presents transactions in a list in chronological order. Neither of these approaches to presenting transactions is required; a creditor may present transactions differently, such as in a list grouped by authorized user or other means.</p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model Form G–19.</inline> See <ref href="/us/cfr/t12/s226.9/b/3">§ 226.9(b)(3)</ref> regarding the headings required to be disclosed when describing in the tabular disclosure a grace period (or lack of a grace period) offered on check transactions that access a credit card account.</p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample G–24.</inline> Sample G–24 includes two model clauses for use in complying with <ref href="/us/cfr/t12/s226.16/h/4">§ 226.16(h)(4)</ref>. Model clause (a) is for use in connection with credit card accounts under an open-end (not home-secured) consumer credit plan. Model clause (b) is for use in connection with other open-end credit plans.</p>
<heading style="-uslm-sgm:HD1">Appendix H—Closed-End Model Forms and Clauses </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models H–1 and H–2.</inline> Creditors may make several types of changes to closed-end model forms H–1 (credit sale) and H–2 (loan) and still be deemed to be in compliance with the regulation, provided that the required disclosures are made clearly and conspicuously. Permissible changes include the addition of the information permitted by footnote 37 to <ref href="/us/cfr/t12/s226.17">§ 226.17</ref> and “directly related” information as set forth in the commentary to <ref href="/us/cfr/t12/s226.17/a">§ 226.17(a)</ref>. </p>
<p style="-uslm-sgm:P">The creditor may also delete or, on multi-purpose forms, indicate inapplicable disclosures, such as:</p>
<p style="-uslm-sgm:P">• The itemization of the amount financed option. (See Samples H–12 through H–15.) </p>
<p style="-uslm-sgm:P">• The credit life and disability insurance disclosures. (See Samples H–11 and H–12.)</p>
<p style="-uslm-sgm:P">• The property insurance disclosures. (See Samples H–10 through H–12, and H–14.)</p>
<p style="-uslm-sgm:P">• The “filing fees” and “non-filing insurance” disclosures. (See Samples H–11 and H–12.)</p>
<p style="-uslm-sgm:P">• The prepayment penalty or rebate disclosures. (See Samples H–12 and H–14.)</p>
<p style="-uslm-sgm:P">• The total sale price. (See Samples H–11 through H–15.)</p>
<p style="-uslm-sgm:P">Other permissible changes include:</p>
<p style="-uslm-sgm:P">• Adding the creditor's address or telephone number. (See the commentary to <ref href="/us/cfr/t12/s226.18/a">§ 226.18(a)</ref>.)</p>
<p style="-uslm-sgm:P">• Combining required terms where several numerical disclosures are the same, for instance, if the “total of payments” equals the “total sale price.” (See the commentary to <ref href="/us/cfr/t12/s226.18">§ 226.18</ref>.)</p>
<p style="-uslm-sgm:P">• Rearranging the sequence or location of the disclosures—for instance, by placing the descriptive phrases outside the boxes containing the corresponding disclosures, or by grouping the descriptors together as a glossary of terms in a separate section of the segregated disclosures; by placing the payment schedule at the top of the form; or by changing the order of the disclosures in the boxes, including the annual percentage rate and finance charge boxes.</p>
<p style="-uslm-sgm:P">• Using brackets, instead of checkboxes, to indicate inapplicable disclosures.
<?page num="811"?></p>
<p style="-uslm-sgm:P">• Using a line for the consumer to initial, rather than a checkbox, to indicate an election to receive an itemization of the amount financed.</p>
<p style="-uslm-sgm:P">• Deleting captions for disclosures.</p>
<p style="-uslm-sgm:P">• Using a symbol, such as an asterisk, for estimated disclosures, instead of an “e.”</p>
<p style="-uslm-sgm:P">• Adding a signature line to the insurance disclosures to reflect joint policies.</p>
<p style="-uslm-sgm:P">• Separately itemizing the filing fees.</p>
<p style="-uslm-sgm:P">• Revising the late charge disclosure in accordance with the commentary to <ref href="/us/cfr/t12/s226.18/l">§ 226.18(l)</ref>.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model H–3.</inline> Creditors have considerable flexibility in filling out Model H–3 (itemization of the amount financed). Appropriate revisions, such as those set out in the commentary to <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>, may be made to this form without loss of protection from civil liability for proper use of the model forms.</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models H–4 through H–7.</inline> The model clauses are not included in the model forms although they are mandatory for certain transactions. Creditors using the model clauses when applicable to a transaction are deemed to be in compliance with the regulation with regard to that disclosure.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model H–4(A).</inline> This model contains the variable rate model clauses applicable to transactions subject to <ref href="/us/cfr/t12/s226.18/f/1">§ 226.18(f)(1)</ref> and is intended to give creditors considerable flexibility in structuring variable rate disclosures to fit individual plans. The information about circumstances, limitations, and effects of an increase may be given in terms of the contract interest rate or the annual percentage rate. Clauses are shown for hypothetical examples based on the specific amount of the transaction and based on a representative amount. Creditors may preprint the variable rate disclosures based on a representative amount for similar types of transactions, instead of constructing an individualized example for each transaction. In both representative examples and transaction-specific examples, creditors may refer either to the incremental change in rate, payment amount, or number of payments, or to the resulting rate, payment amount, or number of payments. For example, creditors may state that the rate will increase by 2%, with a corresponding $150 increase in the payment, or creditors may state that the rate will increase to 16%, with a corresponding payment of $850.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model H–4(B).</inline> This model clause illustrates the variable-rate disclosure required under <ref href="/us/cfr/t12/s226.18/f/2">§ 226.18(f)(2)</ref>, which would alert consumers to the fact that the transaction contains a variable-rate feature and that disclosures were provided earlier.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model H–4(C).</inline> This model clause illustrates the early disclosures required generally under <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref>. It includes information on how the consumer's interest rate is determined and how it can change over the term of the loan, and explains changes that may occur in the borrower's monthly payment. It contains an example of how to disclose historical changes in the index or formula values used to compute interest rates for the preceding 15 years. The model clause also illustrates the disclosure of the initial and maximum interest rates and payments based on an initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure and illustrates how to provide consumers with a method for calculating the monthly payment for the loan amount to be borrowed.</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models H–4(D) through H–4(J).</inline> These model clauses illustrate certain notices, statements, and other disclosures required as follows</p>
<p style="-uslm-sgm:P">i. Model H–4(D) illustrates the adjustment notice required under <ref href="/us/cfr/t12/s226.20/c">§ 226.20(c)</ref>, and provides examples of payment change notices and annual notices of interest rate changes.</p>
<p style="-uslm-sgm:P">ii. Model H–4(E) illustrates the interest rate and payment summary table required under <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> for a fixed-rate mortgage transaction.</p>
<p style="-uslm-sgm:P">iii. Model H–4(F) illustrates the interest rate and payment summary table required under <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> for an adjustable-rate or a step-rate mortgage transaction.</p>
<p style="-uslm-sgm:P">iv. Model H–4(G) illustrates the interest rate and payment summary table required under <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> for a mortgage transaction with negative amortization.</p>
<p style="-uslm-sgm:P">v. Model H–4(H) illustrates the interest rate and payment summary table required under <ref href="/us/cfr/t12/s226.18/s">§ 226.18(s)</ref> for a fixed-rate, interest-only mortgage transaction.</p>
<p style="-uslm-sgm:P">vi. Model H–4(I) illustrates the introductory rate disclosure required by <ref href="/us/cfr/t12/s226.18/s/2/iii">§ 226.18(s)(2)(iii)</ref> for an adjustable-rate mortgage transaction with an introductory rate.</p>
<p style="-uslm-sgm:P">vii. Model H–4(J) illustrates the balloon payment disclosure required by <ref href="/us/cfr/t12/s226.18/s/5">§ 226.18(s)(5)</ref> for a mortgage transaction with a balloon payment term.</p>
<p style="-uslm-sgm:P">viii. Model H–4(K) illustrates the no-guarantee-to-refinance statement required by <ref href="/us/cfr/t12/s226.18/t">§ 226.18(t)</ref> for a mortgage transaction.</p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model H–5.</inline> This contains the demand feature clause.</p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model H–6.</inline> This contains the assumption clause.</p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model H–7.</inline> This contains the required deposit clause.</p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models H–8 and H–9.</inline> These models contain the rescission notices for a typical closed-end transaction and a refinancing, respectively. The last paragraph of each model form contains a blank for the date by which the consumer's notice of cancellation must be sent or delivered. A parenthetical is included to address the situation in which the consumer's right to rescind the transaction exists beyond 3 business days following the date of the transaction, for example, where <?page num="812"?>the notice or material disclosures are delivered late or where the date of the transaction in paragraph 1 of the notice is an estimate. The language of the parenthetical is not optional. See the commentary to section 226.2(a)(25) regarding the specificity of the security interest disclosure for model form H-9. The prior version of model form H–9 is substantially similar to the current version and creditors may continue to use it, as appropriate. Creditors are encouraged, however, to use the current version when reordering or reprinting forms. </p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample forms.</inline> The sample forms (H–10 through H–15) serve a different purpose than the model forms. The samples illustrate various ways of adapting the model forms to the individual transactions described in the commentary to appendix H. The deletions and rearrangments shown relate only to the specific transactions described. As a result, the samples do not provide the general protection from civil liability provided by the model forms and clauses.</p>
<p style="-uslm-sgm:P">13. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–10.</inline> This sample illustrates an automobile credit sale. The cash price is $7,500 with a downpayment of $1,500. There is an 8% add-on interest rate and a term of 3 years, with 36 equal monthly payments. The credit life insurance premium and the filing fees are financed by the creditor. There is a $25 credit report fee paid by the consumer before consummation, which is a prepaid finance charge.</p>
<p style="-uslm-sgm:P">14. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–11.</inline> This sample illustrates an installment loan. The amount of the loan is $5,000. There is a 12% simple interest rate and a term of 2 years. The date of the transaction is expected to be <date date="1981-04-15">April 15, 1981</date>, with the first payment due on <date date="1981-06-01">June 1, 1981</date>. The first payment amount is labelled as an estimate since the transaction date is uncertain. The odd days' interest ($26.67) is collected with the first payment. The remaining 23 monthly payments are equal.</p>
<p style="-uslm-sgm:P">15. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–12.</inline> This sample illustrates a refinancing and consolidation loan. The amount of the loan is $5,000. There is a 15% simple interest rate and a term of 3 years. The date of the transaction is <date date="1981-04-01">April 1, 1981</date>, with the first payment due on <date date="1981-05-01">May 1, 1981</date>. The first 35 monthly payments are equal, with an odd final payment. The credit disability insurance premium is financed. In calculating the annual percentage rate, the U.S. Rule has been used. Since an itemization of the amount financed is included with the disclosures, the statement regarding the consumer's option to receive an itemization is deleted.</p>
<p style="-uslm-sgm:P">16. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Samples H–13 through H–15.</inline> These samples illustrate various mortgage transactions. They assume that the mortgages are subject to the Real Estate Settlement Procedures Act (RESPA). As a result, no option regarding the itemization of the amount financed has been included in the samples, because providing the good faith estimates of settlement costs required by RESPA satisfies Truth in Lending's amount financed itemization requirement. (See footnote 39 to <ref href="/us/cfr/t12/s226.18/c">§ 226.18(c)</ref>.)</p>
<p style="-uslm-sgm:P">17. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–13.</inline> This sample illustrates a mortgage with a demand feature. The loan amount is $44,900, payable in 360 monthly installments at a simple interest rate of 14.75%. The 15 days of interim interest ($294.34) is collected as a prepaid finance charge at the time of consummation of the loan (April 15, 1981). In calculating the disclosure amounts, the minor irregularities provision in <ref href="/us/cfr/t12/s226.17/c/4">§ 226.17(c)(4)</ref> has been used. The property insurance premiums are not included in the payment schedule. This disclosure statement could be used for notes with the 7-year call option required by the Federal National Mortgage Association (FNMA) in states where due-on-sale clauses are prohibited.</p>
<p style="-uslm-sgm:P">18. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–14.</inline> This sample disclosure form illustrates the disclosures under <ref href="/us/cfr/t12/s226.19/b">§ 226.19(b)</ref> for a variable-rate transaction secured by the consumer's principal dwelling with a term greater than one year. The sample form shows a creditor how to adapt the model clauses in appendix H–4(C) to the creditor's own particular variable-rate program. The sample disclosure form describes the features of a specific variable-rate mortgage program and alerts the consumer to the fact that information on the creditor's other closed-end variable-rate programs is available upon request. It includes information on how the interest rate is determined and how it can change over time. Section 226.19(b)(2)(viii) permits creditors the option to provide either a historical example or an initial and maximum interest rates and payments disclosure; both are illustrated in the sample disclosure. The historical example explains how the monthly payment can change based on a $10,000 loan amount, payable in 360 monthly installments, based on historical changes in the values for the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of one year. Index values are measured for 15 years, as of the first week ending in July. This reflects the requirement that the index history be based on values for the same date or period each year in the example. The sample disclosure also illustrates the alternative disclosure under <ref href="/us/cfr/t12/s226.19/b/2/viii/B">§ 226.19(b)(2)(viii)(B)</ref> that the initial and the maximum interest rates and payments be shown for a $10,000 loan originated at an initial interest rate of 12.41 percent (which was in effect July 1996) and to have 2 percentage point annual (and 5 percentage point overall) interest rate limitations or caps. Thus, the maximum amount that the interest rate could rise under this program is 5 percentage points higher than the 12.41 percent initial rate to 17.41 percent, and the monthly payment could rise from <?page num="813"?>$106.03 to a maximum of $145.34. The loan would not reach the maximum interest rate until its fourth year because of the 2 percentage point annual rate limitations, and the maximum payment disclosed reflects the amortization of the loan during that period. The sample form also illustrates how to provide consumers with a method for calculating their actual monthly payment for a loan amount other than $10,000.</p>
<p style="-uslm-sgm:P">19. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–15.</inline> This sample illustrates a graduated payment mortgage with a 5-year graduation period and a 7<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> percent yearly increase in payments. The loan amount is $44,900, payable in 360 monthly installments at a simple interest rate of 14.75%. Two points ($898), as well as an initial mortgage guarantee insurance premium of $225.00, are included in the prepaid finance charge. The mortgage guarantee insurance premiums are calculated on the basis of <inline role="fraction" style="-uslm-sgm:FR">1/4</inline> of 1% of the outstanding principal balance under an annual reduction plan. The abbreviated disclosure permitted under <ref href="/us/cfr/t12/s226.18/g/2">§ 226.18(g)(2)</ref> is used for the payment schedule for years 6 through 30. The prepayment disclosure refers to both penalties and rebates because information about penalties is required for the simple interest portion of the obligation and information about rebates is required for the mortgage insurance portion of the obligation.</p>
<p style="-uslm-sgm:P">20. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–16.</inline> This sample illustrates the disclosures required under <ref href="/us/cfr/t12/s226.32/c">§ 226.32(c)</ref>. The sample illustrates the amount borrowed and the disclosures about optional insurance that are required for mortgage refinancings under <ref href="/us/cfr/t12/s226.32/c/5">§ 226.32(c)(5)</ref>. Creditors may, at their option, include these disclosures for all loans subject to <ref href="/us/cfr/t12/s226.32">§ 226.32</ref>. The sample also includes disclosures required under <ref href="/us/cfr/t12/s226.32/c/3">§ 226.32(c)(3)</ref> when the legal obligation includes a balloon payment. </p>
<p style="-uslm-sgm:P">21. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">HRSA–500–1 9–82.</inline> Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA–500–1 9–82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all Health Education Assistance Loans (HEAL) with a variable interest rate that were considered interim student credit extensions as defined in Regulation Z.</p>
<p style="-uslm-sgm:P">22. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">HRSA–500–2 9–82.</inline> Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA–500–2 9–82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all HEAL loans with a fixed interest rate that were considered interim student credit extensions as defined in Regulation Z.</p>
<p style="-uslm-sgm:P">23. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">HRSA–502–1 9–82.</inline> Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA–502–1 9–82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all HEAL loans with a variable interest rate in which the borrower has reached repayment status and is making payments of both interest and principal.</p>
<p style="-uslm-sgm:P">24. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">HRSA–502–2 9–82.</inline> Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA–502–2 9–82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all HEAL loans with a fixed interest rate in which the borrower has reached repayment status and is making payments of both interest and principal.</p>
<p style="-uslm-sgm:P">25. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models H–18, H–19, H–20.</inline>
</p>
<p style="-uslm-sgm:P">i. These model forms illustrate disclosures required under <ref href="/us/cfr/t12/s226.47">§ 226.47</ref> on or with an application or solicitation, at approval, and after acceptance of a private education loan. Although use of the model forms is not required, creditors using them properly will be deemed to be in compliance with the regulation with regard to private education loan disclosures. Creditors may make certain types of changes to private education loan model forms H–18 (application and solicitation), H–19 (approval), and H–20 (final) and still be deemed to be in compliance with the regulation, provided that the required disclosures are made clearly and conspicuously. The model forms aggregate disclosures into groups under specific headings. Changes may not include rearranging the sequence of disclosures, for instance, by rearranging which disclosures are provided under each heading or by rearranging the sequence of the headings and grouping of disclosures. Changes to the model forms may not be so extensive as to affect the substance or clarity of the forms. Creditors making revisions with that effect will lose their protection from civil liability.</p>
<p style="-uslm-sgm:P">The creditor may delete inapplicable disclosures, such as:</p>
<p style="-uslm-sgm:P">• The Federal student financial assistance alternatives disclosures</p>
<p style="-uslm-sgm:P">• The self-certification disclosure</p>
<p style="-uslm-sgm:P">Other permissible changes include, for example:</p>
<p style="-uslm-sgm:P">• Adding the creditor's address, telephone number, or Web site</p>
<p style="-uslm-sgm:P">• Adding loan identification information, such as a loan identification number</p>
<p style="-uslm-sgm:P">• Adding the date on which the form was printed or produced</p>
<p style="-uslm-sgm:P">• Placing the notice of the right to cancel in the top left or top right of the disclosure to accommodate a window envelope
<?page num="814"?></p>
<p style="-uslm-sgm:P">• Combining required terms where several numerical disclosures are the same. For instance, if the itemization of the amount financed is provided, the amount financed need not be separately disclosed</p>
<p style="-uslm-sgm:P">• Combining the disclosure of loan term and payment deferral options required in <ref href="/us/cfr/t12/s226.47/a/3">§ 226.47(a)(3)</ref> with the disclosure of cost estimates required in <ref href="/us/cfr/t12/s226.47/a/4">§ 226.47(a)(4)</ref> in the same chart or table (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> comment 47(a)(3)–4.)</p>
<p style="-uslm-sgm:P">• Using the first person, instead of the second person, in referring to the borrower</p>
<p style="-uslm-sgm:P">• Using “borrower” and “creditor” instead of pronouns</p>
<p style="-uslm-sgm:P">• Incorporating certain state “plain English” requirements</p>
<p style="-uslm-sgm:P">• Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” (not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items</p>
<p style="-uslm-sgm:P">ii. Although creditors are not required to use a certain paper size in disclosing the <ref href="/us/cfr/t12/s226.47/a">§§ 226.47(a)</ref>, (b) and (c) disclosures, samples H–21, H–22, and H–23 are designed to be printed on two 8<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> × 11 inch sheets of paper. A creditor may use a larger sheet of paper, such as 8<inline role="fraction" style="-uslm-sgm:FR">1/2</inline> × 14 inch sheets of paper, or may use multiple pages. If the disclosures are provided on two sides of a single sheet of paper, the creditor must include a reference or references, such as “SEE BACK OF PAGE” at the bottom of each page indicating that the disclosures continue onto the back of the page. If the disclosures are on two or more pages, a creditor may not include any intervening information between portions of the disclosure. In addition, the following formatting techniques were used in presenting the information in the sample tables to ensure that the information is readable:</p>
<p style="-uslm-sgm:P">A. A readable font style and font size (10-point Helvetica font style for body text).</p>
<p style="-uslm-sgm:P">B. Sufficient spacing between lines of the text.</p>
<p style="-uslm-sgm:P">C. Standard spacing between words and characters. In other words, the body text was not compressed to appear smaller than the 10-point type size.</p>
<p style="-uslm-sgm:P">D. Sufficient white space around the text of the information in each row, by providing sufficient margins above, below and to the sides of the text.</p>
<p style="-uslm-sgm:P">E. Sufficient contrast between the text and the background. Generally, black text was used on white paper.</p>
<p style="-uslm-sgm:P">iii. While the Board is not requiring issuers to use the above formatting techniques in presenting information in the disclosure, the Board encourages issuers to consider these techniques when deciding how to disclose information in the disclosure to ensure that the information is presented in a readable format.</p>
<p style="-uslm-sgm:P">iv. Creditors are allowed to use color, shading and similar graphic techniques in the disclosures, so long as the disclosures remain substantially similar to the model and sample forms in appendix H.</p>
<p style="-uslm-sgm:P">26. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–21.</inline> This sample illustrates a disclosure required under <ref href="/us/cfr/t12/s226.47/a">§ 226.47(a)</ref>. The sample assumes a range of interest rates between 7.375% and 17.375%. The sample assumes a variable interest rate that will never exceed 25% over the life of the loan. The term of the sample loan is 20 years for an amount up to $20,000 and 30 years for an amount more than $20,000. The repayment options and sample costs have been combined into a single table, as permitted in the commentary to <ref href="/us/cfr/t12/s226.47/a/3">§ 226.47(a)(3)</ref>. It demonstrates the loan amount, interest rate, and total paid when a consumer makes loan payments while in school, pays only interest while in school, and defers all payments while in school.</p>
<p style="-uslm-sgm:P">27. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–22.</inline> This sample illustrates a disclosure required under <ref href="/us/cfr/t12/s226.47/b">§ 226.47(b)</ref>. The sample assumes the consumer financed $10,000 at an 8.23% annual percentage rate. The sample assumes a variable interest rate that will never exceed 25% over the life of the loan. The payment schedule and terms assumes a 20-year loan term and that the consumer elected to defer payments while enrolled in school. This includes a sample disclosure of a total loan amount of $10,600 and prepaid finance charges totaling $600, for a total amount financed of $10,000.</p>
<p style="-uslm-sgm:P">28. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Sample H–22.</inline> This sample illustrates a disclosure required under <ref href="/us/cfr/t12/s226.47/c">§ 226.47(c)</ref>. The sample assumes the consumer financed $10,000 at an 8.23% annual percentage rate. The sample assumes a variable annual percentage rate in an instance where there is no maximum interest rate. The sample demonstrates disclosure of an assumed maximum rate, and the statement that the consumer's actual maximum rate and payment amount could be higher. The payment schedule and terms assumes a 20-year loan term, the assumed maximum interest rate, and that the consumer elected to defer payments while enrolled in school. This includes a sample disclosure of a total loan amount of $10,600 and prepaid finance charges totaling $600, for a total amount financed of $10,000.</p>
<heading style="-uslm-sgm:HD1">Appendix I—Federal Enforcement Agencies</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Section 108.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> None.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.1(b).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> None.</p>
<heading style="-uslm-sgm:HD1">Appendix J—Annual Percentage Rate Computations for Closed-End Credit Transactions</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Use of appendix J.</inline> Appendix J sets forth the actuarial equations and instructions for calculating the annual percentage rate in <?page num="815"?>closed-end credit transactions. While the formulas contained in this appendix may be directly applied to calculate the annual percentage rate for an individual transaction, they may also be utilized to program calculators and computers to perform the calculations.</p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Relation to Board tables.</inline> The Board's Annual Percentage Rate Tables also provide creditors with a calculation tool that applies the technical information in appendix J. An annual percentage rate computed in accordance with the instructions in the tables is deemed to comply with the regulation. Volume I of the tables may be used for credit transactions involving equal payment amounts and periods, as well as for transactions involving any of the following irregularities: odd first period, odd first payment and odd last payment. Volume II of the tables may be used for transactions that involve any type of irregularities. These tables may be obtained from any Federal Reserve Bank or from the Board in Washington, DC 20551, upon request.</p>
<heading style="-uslm-sgm:HD3">References</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Statute:</inline> Section 107.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other sections:</inline> Section 226.22.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Previous regulation:</inline> Section 226.40 (Supplement I).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1981 changes:</inline> Paragraph (b)(2) has been revised to clarify that the term of the transaction never begins earlier than consummation of the transaction. Paragraph (b)(5)(vi) has been revised to permit creditors in single-advance, single-payment transactions in which the term is less than a year and is equal to a whole number of months, to use either the 12-month method or the 365-day method to compute the number of unit-periods per year.</p>
<heading style="-uslm-sgm:HD1">Appendix K—Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The calculation of total annual loan cost rates under appendix K is based on the principles set forth and the estimation or “iteration” procedure used to compute annual percentage rates under appendix J. Rather than restate this iteration process in full, the regulation cross-references the procedures found in appendix J. In other aspects the appendix reflects the special nature of reverse mortgage transactions. Special definitions and instructions are included where appropriate. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">(b) Instructions and equations for the total annual loan cost rate.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">(b)(5) Number of unit-periods between two given dates.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assumption as to when transaction begins.</inline> The computation of the total annual loan cost rate is based on the assumption that the reverse mortgage transaction begins on the first day of the month in which consummation is estimated to occur. Therefore, fractional unit-periods (used under appendix J for calculating annual percentage rates) are not used. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">(b)(9) Assumption for discretionary cash advances.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Amount of credit.</inline> Creditors should compute the total annual loan cost rates for transactions involving discretionary cash advances by assuming that 50 percent of the initial amount of the credit available under the transaction is advanced at closing or, in an open-end transaction, when the consumer becomes obligated under the plan. (For the purposes of this assumption, the initial amount of the credit is the principal loan amount less any costs to the consumer under section 226.33(c)(1).) </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">(b)(10) Assumption for variable-rate reverse mortgage transactions.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Initial discount or premium rate.</inline> Where a variable-rate reverse mortgage transaction includes an initial discount or premium rate, the creditor should apply the same rules for calculating the total annual loan cost rate as are applied when calculating the annual percentage rate for a loan with an initial discount or premium rate (see the commentary to <ref href="/us/cfr/t12/s226.17/c">§ 226.17(c)</ref>). </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">(d) Reverse mortgage model form and sample form.</inline>
</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">(d)(2) Sample form.</inline>
</p>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The “clear and conspicuous” standard for reverse mortgage disclosures does not require disclosures to be printed in any particular type size. Disclosures may be made on more than one page, and use both the front and the reverse sides, as long as the pages constitute an integrated document and the table disclosing the total annual loan cost rates is on a single page. </p>
<heading style="-uslm-sgm:HD1">Appendix L—Assumed Loan Periods for Computations of Total Annual Loan Cost Rates </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">General.</inline> The life expectancy figures used in appendix L are those found in the U.S. Decennial Life Tables for women, as rounded to the nearest whole year and as published by the U. S. Department of Health and Human Services. The figures contained in appendix L must be used by creditors for all consumers (men and women). Appendix L will be revised periodically by the Board to incorporate revisions to the figures made in the Decennial Tables.</p>
<heading style="-uslm-sgm:HD1">Appendix O—Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Title commitment report.</inline> The “title commitment report” is a document from a title insurance company describing the property interest and status of its title, parties with interests in the title and the nature of their <?page num="816"?>claims, issues with the title that must be resolved prior to closing of the transaction between the parties to the transfer, amount and disposition of the premiums, and endorsements on the title policy. This document is issued by the title insurance company prior to the company's issuance of an actual title insurance policy to the property's transferee and/or creditor financing the transaction. In different jurisdictions, this instrument may be referred to by different terms, such as a title commitment, title binder, title opinion, or title report.</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/46/50288">46 FR 50288</ref>, <date date="1981-10-09">Oct. 9, 1981</date>] </source>
<editorialNote style="-uslm-sgm:EDNOTE">
<heading style="-uslm-sgm:HED">Editorial Note:</heading>
<p style="-uslm-sgm:P">For <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> citations affecting supplement I of part 226, see the List of CFR Sections Affected, which appears in the Finding Aids section of the printed volume and at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.govinfo.gov.</inline>
</p>
</editorialNote>
</content>
</appendix>
</part>
<ear style="-uslm-sgm:EAR">Pt. 228</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p228">
<num value="228" style="-uslm-sgm:HED">PART 228—</num>
<heading style="-uslm-sgm:HED">COMMUNITY REINVESTMENT (REGULATION BB)</heading>
<toc style="-uslm-sgm:CONTENTS">
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.1-228.2">228.1–228.2</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]
</label>
</referenceItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p228/spA">Subpart A—</designator>
<label>General</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.11">228.11</designator>
<label style="-uslm-sgm:SUBJECT">Authority, purposes, and scope. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.12">228.12</designator>
<label style="-uslm-sgm:SUBJECT">Definitions.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p228/spB">Subpart B—</designator>
<label>Standards for Assessing Performance </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.21">228.21</designator>
<label style="-uslm-sgm:SUBJECT">Performance tests, standards, and ratings, in general. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.22">228.22</designator>
<label style="-uslm-sgm:SUBJECT">Lending test. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.23">228.23</designator>
<label style="-uslm-sgm:SUBJECT">Investment test. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.24">228.24</designator>
<label style="-uslm-sgm:SUBJECT">Service test. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.25">228.25</designator>
<label style="-uslm-sgm:SUBJECT">Community development test for wholesale or limited purpose banks. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.26">228.26</designator>
<label style="-uslm-sgm:SUBJECT">Small bank performance standards. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.27">228.27</designator>
<label style="-uslm-sgm:SUBJECT">Strategic plan. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.28">228.28</designator>
<label style="-uslm-sgm:SUBJECT">Assigned ratings. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.29">228.29</designator>
<label style="-uslm-sgm:SUBJECT">Effect of CRA performance on applications.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p228/spC">Subpart C—</designator>
<label>Records, Reporting, and Disclosure Requirements</label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.41">228.41</designator>
<label style="-uslm-sgm:SUBJECT">Assessment area delineation. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.42">228.42</designator>
<label style="-uslm-sgm:SUBJECT">Data collection, reporting, and disclosure. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.43">228.43</designator>
<label style="-uslm-sgm:SUBJECT">Content and availability of public file. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.44">228.44</designator>
<label style="-uslm-sgm:SUBJECT">Public notice by banks. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s228.45">228.45</designator>
<label style="-uslm-sgm:SUBJECT">Publication of planned examination schedule. </label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p228/spC/appA">Appendix A to Part 228—</designator>
<label>Ratings</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p228/spC/appB">Appendix B to Part 228—</designator>
<label>CRA Notice</label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t12/s321">12 U.S.C. 321</ref>, 325, 1828(c), 1842, 1843, 1844, and 2901 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>
</authority>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/43/47148">43 FR 47148</ref>, <date date="1978-10-12">Oct. 12, 1978</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s228.1-228.2">
<num value="228.1-228.2" style="-uslm-sgm:SECTNO">§§ 228.1–228.2</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p228/spA">
<num value="A" style="-uslm-sgm:HED">Subpart A—</num>
<heading style="-uslm-sgm:HED">General </heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. BB, <ref href="/us/fr/60/22190">60 FR 22190</ref>, <date date="1995-05-04">May 4, 1995</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.11">
<num value="228.11" style="-uslm-sgm:SECTNO">§ 228.11 </num>
<heading style="-uslm-sgm:SUBJECT">Authority, purposes, and scope. </heading>
<paragraph identifier="/us/cfr/t12/s228.11/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority.</heading>
<chapeau> The Board of Governors of the Federal Reserve System (the Board) issues this part to implement the Community Reinvestment Act (<ref href="/us/usc/t12/s2901">12 U.S.C. 2901</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) (CRA). The regulations comprising this part are issued under the authority of the CRA and under the provisions of the United States Code authorizing the Board: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.11/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> To conduct examinations of State-chartered banks that are members of the Federal Reserve System (<ref href="/us/usc/t12/s325">12 U.S.C. 325</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> To conduct examinations of bank holding companies and their subsidiaries (<ref href="/us/usc/t12/s1844">12 U.S.C. 1844</ref>) and savings and loan holding companies and their subsidiaries (<ref href="/us/usc/t12/s1467a">12 U.S.C. 1467a</ref>); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> To consider applications for: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.11/a/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Domestic branches by State member banks (<ref href="/us/usc/t12/s321">12 U.S.C. 321</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Mergers in which the resulting bank would be a State member bank (<ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/a/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Formations of, acquisitions of banks by, and mergers of, bank holding companies (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/a/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The acquisition of savings associations by bank holding companies (<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/a/3/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Formations of, acquisitions of savings associations by, conversions of, and mergers of, savings and loan holding companies (<ref href="/us/usc/t12/s1467a">12 U.S.C. 1467a</ref>).</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Purposes.</heading>
<chapeau> In enacting the CRA, the Congress required each appropriate Federal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution, and to take this record into account in the agency's evaluation of an application for a deposit facility by the institution. This part is intended to carry out the purposes of the CRA by: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.11/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Establishing the framework and criteria by which the Board assesses a bank's record of helping to meet the <?page num="817"?>credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Providing that the Board takes that record into account in considering certain applications. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Scope—</heading>
<paragraph identifier="/us/cfr/t12/s228.11/c/1" class="inline">
<num value="1">(1) </num>
<heading>General.</heading>
<content> This part applies to all banks except as provided in paragraph (c)(3) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Foreign bank acquisitions.</heading>
<content> This part also applies to an uninsured State branch (other than a limited branch) of a foreign bank that results from an acquisition described in section 5(a)(8) of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3103/a/8">12 U.S.C. 3103(a)(8)</ref>). The terms “State branch” and “foreign bank” have the same meanings as in section 1(b) of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>); the term “uninsured State branch” means a State branch the deposits of which are not insured by the Federal Deposit Insurance Corporation; the term “limited branch” means a State branch that accepts only deposits that are permissible for a corporation organized under section 25A of the Federal Reserve Act (<ref href="/us/usc/t12/s611">12 U.S.C. 611</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.11/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Certain special purpose banks.</heading>
<content> This part does not apply to special purpose banks that do not perform commercial or retail banking services by granting credit to the public in the ordinary course of business, other than as incident to their specialized operations. These banks include banker's banks, as defined in <ref href="/us/usc/t12/s24">12 U.S.C. 24</ref> (Seventh), and banks that engage only in one or more of the following activities: providing cash management controlled disbursement services or serving as correspondent banks, trust companies, or clearing agents. </content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/43/47148">43 FR 47148</ref>, <date date="1978-10-12">Oct. 12, 1978</date>, as amended at <ref href="/us/fr/76/56532">76 FR 56532</ref>, <date date="2011-09-13" role="amended">Sept. 13, 2011</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s228.12">
<num value="228.12" style="-uslm-sgm:SECTNO">§ 228.12 </num>
<heading style="-uslm-sgm:SUBJECT">Definitions.
</heading>
<content>
<p style="-uslm-sgm:P">For purposes of this part, the following definitions apply: </p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Affiliate</inline> means any company that controls, is controlled by, or is under common control with another company. The term “control” has the meaning given to that term in <ref href="/us/usc/t12/s1841/a/2">12 U.S.C. 1841(a)(2)</ref>, and a company is under common control with another company if both companies are directly or indirectly controlled by the same company. </p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Area median income</inline> means: </p>
<p style="-uslm-sgm:P">(1) The median family income for the MSA, if a person or geography is located in an MSA, or for the metropolitan division, if a person or geography is located in an MSA that has been subdivided into metropolitan divisions; or </p>
<p style="-uslm-sgm:P">(2) The statewide nonmetropolitan median family income, if a person or geography is located outside an MSA. </p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Assessment area</inline> means a geographic area delineated in accordance with <ref href="/us/cfr/t12/s228.41">§ 228.41</ref>. </p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automated teller machine (ATM)</inline> means an automated, unstaffed banking facility owned or operated by, or operated exclusively for, the bank at which deposits are received, cash dispersed, or money lent. </p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank</inline> means a State member bank as that term is defined in section 3(d)(2) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813/d/2">12 U.S.C. 1813(d)(2)</ref>), except as provided in <ref href="/us/cfr/t12/s228.11/c/3">§ 228.11(c)(3)</ref>, and includes an uninsured State branch (other than a limited branch) of a foreign bank described in <ref href="/us/cfr/t12/s228.11/c/2">§ 228.11(c)(2)</ref>. </p>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Branch</inline> means a staffed banking facility approved as a branch, whether shared or unshared, including, for example, a mini-branch in a grocery store or a branch operated in conjunction with any other local business or nonprofit organization. </p>
<p style="-uslm-sgm:P">(g) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Community development</inline> means: </p>
<p style="-uslm-sgm:P">(1) Affordable housing (including multifamily rental housing) for low- or moderate-income individuals; </p>
<p style="-uslm-sgm:P">(2) Community services targeted to low- or moderate-income individuals; </p>
<p style="-uslm-sgm:P">(3) Activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration's Development Company or Small Business Investment Company programs (<ref href="/us/cfr/t13/s121.301">13 CFR 121.301</ref>) or have gross annual revenues of $1 million or less; or</p>
<p style="-uslm-sgm:P">(4) Activities that revitalize or stabilize—</p>
<p style="-uslm-sgm:P">(i) Low-or moderate-income geographies;</p>
<p style="-uslm-sgm:P">(ii) Designated disaster areas; or
<?page num="818"?></p>
<p style="-uslm-sgm:P">(iii) Distressed or underserved nonmetropolitan middle-income geographies designated by the Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, based on—</p>
<p style="-uslm-sgm:P">(A) Rates of poverty, unemployment, and population loss; or</p>
<p style="-uslm-sgm:P">(B) Population size, density, and dispersion. Activities revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of low- and moderate-income individuals.</p>
<p style="-uslm-sgm:P">(h) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Community development loan</inline> means a loan that: </p>
<p style="-uslm-sgm:P">(1) Has as its primary purpose community development; and </p>
<p style="-uslm-sgm:P">(2) Except in the case of a wholesale or limited purpose bank: </p>
<p style="-uslm-sgm:P">(i) Has not been reported or collected by the bank or an affiliate for consideration in the bank's assessment as a home mortgage, small business, small farm, or consumer loan, unless the loan is for a multifamily dwelling (as defined in <ref href="/us/cfr/t12/s1003.2/n">§ 1003.2(n)</ref> of this title); and </p>
<p style="-uslm-sgm:P">(ii) Benefits the bank's assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s). </p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Community development service</inline> means a service that: </p>
<p style="-uslm-sgm:P">(1) Has as its primary purpose community development; </p>
<p style="-uslm-sgm:P">(2) Is related to the provision of financial services; and </p>
<p style="-uslm-sgm:P">(3) Has not been considered in the evaluation of the bank's retail banking services under <ref href="/us/cfr/t12/s228.24/d">§ 228.24(d)</ref>. </p>
<p style="-uslm-sgm:P">(j) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer loan</inline> means a loan to one or more individuals for household, family, or other personal expenditures. A consumer loan does not include a home mortgage, small business, or small farm loan. Consumer loans include the following categories of loans: </p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Motor vehicle loan,</inline> which is a consumer loan extended for the purchase of and secured by a motor vehicle; </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Credit card loan,</inline> which is a line of credit for household, family, or other personal expenditures that is accessed by a borrower's use of a “credit card,” as this term is defined in <ref href="/us/cfr/t12/s1026.2">§ 1026.2</ref> of this chapter; </p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other secured consumer loan,</inline> which is a secured consumer loan that is not included in one of the other categories of consumer loans; and </p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Other unsecured consumer loan,</inline> which is an unsecured consumer loan that is not included in one of the other categories of consumer loans. </p>
<p style="-uslm-sgm:P">(k) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Geography</inline> means a census tract delineated by the United States Bureau of the Census in the most recent decennial census.</p>
<p style="-uslm-sgm:P">(l) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Home mortgage loan</inline> means a closed-end mortgage loan or an open-end line of credit as these terms are defined under <ref href="/us/cfr/t12/s1003.2">§ 1003.2</ref> of this title and that is not an excluded transaction under <ref href="/us/cfr/t12/s1003.3/c/1">§ 1003.3(c)(1)</ref> through (10) and (13) of this title.</p>
<p style="-uslm-sgm:P">(m) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Income level</inline> includes: </p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Low-income,</inline> which means an individual income that is less than 50 percent of the area median income, or a median family income that is less than 50 percent, in the case of a geography. </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Moderate-income,</inline> which means an individual income that is at least 50 percent and less than 80 percent of the area median income, or a median family income that is at least 50 and less than 80 percent, in the case of a geography. </p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Middle-income,</inline> which means an individual income that is at least 80 percent and less than 120 percent of the area median income, or a median family income that is at least 80 and less than 120 percent, in the case of a geography. </p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Upper-income,</inline> which means an individual income that is 120 percent or more of the area median income, or a median family income that is 120 percent or more, in the case of a geography. </p>
<p style="-uslm-sgm:P">(n) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Limited purpose bank</inline> means a bank that offers only a narrow product line (such as credit card or motor vehicle loans) to a regional or broader market and for which a designation as a limited purpose bank is in effect, in accordance with <ref href="/us/cfr/t12/s228.25/b">§ 228.25(b)</ref>. </p>
<p style="-uslm-sgm:P">(o) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan location.</inline> A loan is located as follows: </p>
<p style="-uslm-sgm:P">(1) A consumer loan is located in the geography where the borrower resides; </p>
<p style="-uslm-sgm:P">(2) A home mortgage loan is located in the geography where the property to which the loan relates is located; and </p>
<p style="-uslm-sgm:P">(3) A small business or small farm loan is located in the geography where <?page num="819"?>the main business facility or farm is located or where the loan proceeds otherwise will be applied, as indicated by the borrower. </p>
<p style="-uslm-sgm:P">(p) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Loan production office</inline> means a staffed facility, other than a branch, that is open to the public and that provides lending-related services, such as loan information and applications. </p>
<p style="-uslm-sgm:P">(q) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Metropolitan division</inline> means a metropolitan division as defined by the Director of the Office of Management and Budget.</p>
<p style="-uslm-sgm:P">(r) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">MSA</inline> means a metropolitan statistical area as defined by the Director of the Office of Management and Budget.</p>
<p style="-uslm-sgm:P">(s) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonmetropolitan area</inline> means any area that is not located in an MSA.</p>
<p style="-uslm-sgm:P">(t) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualified investment</inline> means a lawful investment, deposit, membership share, or grant that has as its primary purpose community development. </p>
<p style="-uslm-sgm:P">(u) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Small bank</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Definition.</inline>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Small bank</inline> means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.284 billion. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Intermediate small bank</inline> means a small bank with assets of at least $321 million as of December 31 of both of the prior two calendar years and less than $1.284 billion as of December 31 of either of the prior two calendar years.
</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Adjustment.</inline> The dollar figures in paragraph (u)(1) of this section shall be adjusted annually and published by the Board, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each twelve-month period ending in November, with rounding to the nearest million. </p>
<p style="-uslm-sgm:P">(v) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Small business loan</inline> means a loan included in “loans to small businesses” as defined in the instructions for preparation of the Consolidated Report of Condition and Income. </p>
<p style="-uslm-sgm:P">(w) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Small farm loan</inline> means a loan included in “loans to small farms” as defined in the instructions for preparation of the Consolidated Report of Condition and Income. </p>
<p style="-uslm-sgm:P">(x) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wholesale bank</inline> means a bank that is not in the business of extending home mortgage, small business, small farm, or consumer loans to retail customers, and for which a designation as a wholesale bank is in effect, in accordance with <ref href="/us/cfr/t12/s228.25/b">§ 228.25(b)</ref>. </p>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22190">60 FR 22190</ref>, <date date="1995-05-04">May 4, 1995</date>]
</source>
<editorialNote style="-uslm-sgm:EDNOTE">
<heading style="-uslm-sgm:HED">Editorial Note:</heading>
<p style="-uslm-sgm:P">For <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> citations affecting <ref href="/us/cfr/t12/s228.12">§ 228.12</ref>, see the List of CFR Sections Affected, which appears in the Finding Aids section of the printed volume and at www.govinfo.gov.</p>
</editorialNote>
</content>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p228/spB">
<num value="B" style="-uslm-sgm:HED">Subpart B—</num>
<heading style="-uslm-sgm:HED">Standards for Assessing Performance </heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. BB, <ref href="/us/fr/60/22191">60 FR 22191</ref>, <date date="1995-05-04">May 4, 1995</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.21">
<num value="228.21" style="-uslm-sgm:SECTNO">§ 228.21 </num>
<heading style="-uslm-sgm:SUBJECT">Performance tests, standards, and ratings, in general. </heading>
<paragraph identifier="/us/cfr/t12/s228.21/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Performance tests and standards.</heading>
<chapeau> The Board assesses the CRA performance of a bank in an examination as follows: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.21/a/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Lending, investment, and service tests.</heading>
<content> The Board applies the lending, investment, and service tests, as provided in <ref href="/us/cfr/t12/s228.22">§§ 228.22</ref> through 228.24, in evaluating the performance of a bank, except as provided in paragraphs (a)(2), (a)(3), and (a)(4) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Community development test for wholesale or limited purpose banks.</heading>
<content> The Board applies the community development test for a wholesale or limited purpose bank, as provided in <ref href="/us/cfr/t12/s228.25">§ 228.25</ref>, except as provided in paragraph (a)(4) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Small bank performance standards.</heading>
<content> The Board applies the small bank performance standards as provided in <ref href="/us/cfr/t12/s228.26">§ 228.26</ref> in evaluating the performance of a small bank or a bank that was a small bank during the prior calendar year, unless the bank elects to be assessed as provided in paragraphs (a)(1), (a)(2), or (a)(4) of this section. The bank may elect to be assessed as provided in paragraph (a)(1) of this section only if it collects and reports the data required for other banks under <ref href="/us/cfr/t12/s228.42">§ 228.42</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/a/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Strategic plan.</heading>
<content> The Board evaluates the performance of a bank under a strategic plan if the bank submits, and the Board approves, a strategic plan as provided in <ref href="/us/cfr/t12/s228.27">§ 228.27</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Performance context.</heading>
<chapeau> The Board applies the tests and standards in paragraph (a) of this section and also considers whether to approve a proposed strategic plan in the context of:
<?page num="820"?></chapeau>
<paragraph identifier="/us/cfr/t12/s228.21/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Demographic data on median income levels, distribution of household income, nature of housing stock, housing costs, and other relevant data pertaining to a bank's assessment area(s); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Any information about lending, investment, and service opportunities in the bank's assessment area(s) maintained by the bank or obtained from community organizations, state, local, and tribal governments, economic development agencies, or other sources; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The bank's product offerings and business strategy as determined from data provided by the bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Institutional capacity and constraints, including the size and financial condition of the bank, the economic climate (national, regional, and local), safety and soundness limitations, and any other factors that significantly affect the bank's ability to provide lending, investments, or services in its assessment area(s); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The bank's past performance and the performance of similarly situated lenders; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> The bank's public file, as described in <ref href="/us/cfr/t12/s228.43">§ 228.43</ref>, and any written comments about the bank's CRA performance submitted to the bank or the Board; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/b/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Any other information deemed relevant by the Board. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Assigned ratings.</heading>
<content> The Board assigns to a bank one of the following four ratings pursuant to <ref href="/us/cfr/t12/s228.28">§ 228.28</ref> and appendix A of this part: “outstanding”; “satisfactory”; “needs to improve”; or “substantial noncompliance” as provided in <ref href="/us/usc/t12/s2906/b/2">12 U.S.C. 2906(b)(2)</ref>. The rating assigned by the Board reflects the bank's record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Safe and sound operations.</heading>
<content> This part and the CRA do not require a bank to make loans or investments or to provide services that are inconsistent with safe and sound operations. To the contrary, the Board anticipates banks can meet the standards of this part with safe and sound loans, investments, and services on which the banks expect to make a profit. Banks are permitted and encouraged to develop and apply flexible underwriting standards for loans that benefit low- or moderate-income geographies or individuals, only if consistent with safe and sound operations.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Low-cost education loans provided to low-income borrowers.</heading>
<content> In assessing and taking into account the record of a bank under this part, the Board considers, as a factor, low-cost education loans originated by the bank to borrowers, particularly in its assessment area(s), who have an individual income that is less than 50 percent of the area median income. For purposes of this paragraph, “low-cost education loans” means any education loan, as defined in section 140(a)(7) of the Truth in Lending Act (<ref href="/us/usc/t15/s1650/a/7">15 U.S.C. 1650(a)(7)</ref>) (including a loan under a state or local education loan program), originated by the bank for a student at an “institution of higher education,” as that term is generally defined in sections 101 and 102 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1001">20 U.S.C. 1001</ref> and 1002) and the implementing regulations published by the U.S. Department of Education, with interest rates and fees no greater than those of comparable education loans offered directly by the U.S. Department of Education. Such rates and fees are specified in section 455 of the Higher Education Act of 1965 (<ref href="/us/usc/t20/s1087e">20 U.S.C. 1087e</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.21/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Activities in cooperation with minority- or women-owned financial institutions and low-income credit unions.</heading>
<content> In assessing and taking into account the record of a nonminority-owned and nonwomen-owned bank under this part, the Board considers as a factor capital investment, loan participation, and other ventures undertaken by the bank in cooperation with minority- and women-owned financial institutions and low-income credit unions. Such activities must help meet the credit needs of local communities in which the minority- and women-owned financial institutions and low-income credit unions are chartered. To be considered, such activities need not also benefit the bank's assessment area(s) or the broader statewide or regional area that includes the bank's assessment area(s). </content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22191">60 FR 22191</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/75/61044">75 FR 61044</ref>, <date date="2010-10-04" role="amended">Oct. 4, 2010</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.22"><?page num="821"?>
<num value="228.22" style="-uslm-sgm:SECTNO">§ 228.22</num>
<heading style="-uslm-sgm:SUBJECT">Lending test.
</heading>
<paragraph identifier="/us/cfr/t12/s228.22/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope of test.</heading>
<paragraph identifier="/us/cfr/t12/s228.22/a/1" class="inline">
<num value="1"> (1)</num>
<content> The lending test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through its lending activities by considering a bank's home mortgage, small business, small farm, and community development lending. If consumer lending constitutes a substantial majority of a bank's business, the Board will evaluate the bank's consumer lending in one or more of the following categories: motor vehicle, credit card, other secured, and other unsecured loans. In addition, at a bank's option, the Board will evaluate one or more categories of consumer lending, if the bank has collected and maintained, as required in <ref href="/us/cfr/t12/s228.42/c/1">§ 228.42(c)(1)</ref>, the data for each category that the bank elects to have the Board evaluate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The Board considers originations and purchases of loans. The Board will also consider any other loan data the bank may choose to provide, including data on loans outstanding, commitments and letters of credit. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A bank may ask the Board to consider loans originated or purchased by consortia in which the bank participates or by third parties in which the bank has invested only if the loans meet the definition of community development loans and only in accordance with paragraph (d) of this section. The Board will not consider these loans under any criterion of the lending test except the community development lending criterion. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Performance criteria.</heading>
<chapeau> The Board evaluates a bank's lending performance pursuant to the following criteria: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.22/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Lending activity.</heading>
<content> The number and amount of the bank's home mortgage, small business, small farm, and consumer loans, if applicable, in the bank's assessment area(s); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Geographic distribution.</heading>
<chapeau> The geographic distribution of the bank's home mortgage, small business, small farm, and consumer loans, if applicable, based on the loan location, including: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.22/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The proportion of the bank's lending in the bank's assessment area(s); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The dispersion of lending in the bank's assessment area(s); and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The number and amount of loans in low-, moderate-, middle-, and upper-income geographies in the bank's assessment area(s); </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Borrower characteristics.</heading>
<chapeau> The distribution, particularly in the bank's assessment area(s), of the bank's home mortgage, small business, small farm, and consumer loans, if applicable, based on borrower characteristics, including the number and amount of: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.22/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Home mortgage loans to low-, moderate-, middle-, and upper-income individuals; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Small business and small farm loans to businesses and farms with gross annual revenues of $1 million or less; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Small business and small farm loans by loan amount at origination; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Consumer loans, if applicable, to low-, moderate-, middle-, and upper-income individuals; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Community development lending.</heading>
<content> The bank's community development lending, including the number and amount of community development loans, and their complexity and innovativeness; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Innovative or flexible lending practices.</heading>
<content> The bank's use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Affiliate lending.</heading>
<paragraph identifier="/us/cfr/t12/s228.22/c/1" class="inline">
<num value="1"> (1)</num>
<content> At a bank's option, the Board will consider loans by an affiliate of the bank, if the bank provides data on the affiliate's loans pursuant to <ref href="/us/cfr/t12/s228.42">§ 228.42</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> The Board considers affiliate lending subject to the following constraints: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.22/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> No affiliate may claim a loan origination or loan purchase if another institution claims the same loan origination or purchase; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If a bank elects to have the Board consider loans within a particular lending category made by one or more of the bank's affiliates in a particular assessment area, the bank shall elect to have the Board consider, in accordance with paragraph (c)(1) of this section, all the loans within that lending category in that particular assessment area made by all of the bank's affiliates.
<?page num="822"?></content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The Board does not consider affiliate lending in assessing a bank's performance under paragraph (b)(2)(i) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Lending by a consortium or a third party.</heading>
<chapeau> Community development loans originated or purchased by a consortium in which the bank participates or by a third party in which the bank has invested: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.22/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Will be considered, at the bank's option, if the bank reports the data pertaining to these loans under <ref href="/us/cfr/t12/s228.42/b/2">§ 228.42(b)(2)</ref>; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> May be allocated among participants or investors, as they choose, for purposes of the lending test, except that no participant or investor: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.22/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> May claim a loan origination or loan purchase if another participant or investor claims the same loan origination or purchase; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> May claim loans accounting for more than its percentage share (based on the level of its participation or investment) of the total loans originated by the consortium or third party. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.22/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Lending performance rating.</heading>
<content> The Board rates a bank's lending performance as provided in appendix A of this part.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22191">60 FR 22191</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/82/55743">82 FR 55743</ref>, <date date="2017-11-24" role="amended">Nov. 24, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.23">
<num value="228.23" style="-uslm-sgm:SECTNO">§ 228.23 </num>
<heading style="-uslm-sgm:SUBJECT">Investment test. </heading>
<paragraph identifier="/us/cfr/t12/s228.23/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope of test.</heading>
<content> The investment test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Exclusion.</heading>
<content> Activities considered under the lending or service tests may not be considered under the investment test. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Affiliate investment.</heading>
<content> At a bank's option, the Board will consider, in its assessment of a bank's investment performance, a qualified investment made by an affiliate of the bank, if the qualified investment is not claimed by any other institution. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Disposition of branch premises.</heading>
<content> Donating, selling on favorable terms, or making available on a rent-free basis a branch of the bank that is located in a predominantly minority neighborhood to a minority depository institution or women's depository institution (as these terms are defined in <ref href="/us/usc/t12/s2907/b">12 U.S.C. 2907(b)</ref>) will be considered as a qualified investment. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Performance criteria.</heading>
<chapeau> The Board evaluates the investment performance of a bank pursuant to the following criteria: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.23/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The dollar amount of qualified investments; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The innovativeness or complexity of qualified investments; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The responsiveness of qualified investments to credit and community development needs; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/e/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The degree to which the qualified investments are not routinely provided by private investors. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.23/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Investment performance rating.</heading>
<content> The Board rates a bank's investment performance as provided in appendix A of this part.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.24">
<num value="228.24" style="-uslm-sgm:SECTNO">§ 228.24 </num>
<heading style="-uslm-sgm:SUBJECT">Service test. </heading>
<paragraph identifier="/us/cfr/t12/s228.24/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope of test.</heading>
<content> The service test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) by analyzing both the availability and effectiveness of a bank's systems for delivering retail banking services and the extent and innovativeness of its community development services. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Area(s) benefitted.</heading>
<content> Community development services must benefit a bank's assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Affiliate service.</heading>
<content> At a bank's option, the Board will consider, in its assessment of a bank's service performance, a community development service provided by an affiliate of the bank, if the community development service is not claimed by any other institution. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Performance criteria—retail banking services.</heading>
<chapeau> The Board evaluates the availability and effectiveness of a bank's systems for delivering retail banking services, pursuant to the following criteria: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.24/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content>
<p> The current distribution of the bank's branches among low-,</p>
<p style="-uslm-sgm:FP">moderate-, middle-, and upper-income geographies; </p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In the context of its current distribution of the bank's branches, the bank's record of opening and closing <?page num="823"?>branches, particularly branches located in low- or moderate-income geographies or primarily serving low- or moderate-income individuals; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The availability and effectiveness of alternative systems for delivering retail banking services (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> ATMs, ATMs not owned or operated by or exclusively for the bank, banking by telephone or computer, loan production offices, and bank-at-work or bank-by-mail programs) in low- and moderate-income geographies and to low- and moderate-income individuals; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The range of services provided in low-, moderate-, middle-, and upper-income geographies and the degree to which the services are tailored to meet the needs of those geographies. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Performance criteria—community development services.</heading>
<chapeau> The Board evaluates community development services pursuant to the following criteria: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.24/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The extent to which the bank provides community development services; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The innovativeness and responsiveness of community development services. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.24/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Service performance rating.</heading>
<content> The Board rates a bank's service performance as provided in appendix A of this part.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.25">
<num value="228.25" style="-uslm-sgm:SECTNO">§ 228.25 </num>
<heading style="-uslm-sgm:SUBJECT">Community development test for wholesale or limited purpose banks. </heading>
<paragraph identifier="/us/cfr/t12/s228.25/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope of test.</heading>
<content> The Board assesses a wholesale or limited purpose bank's record of helping to meet the credit needs of its assessment area(s) under the community development test through its community development lending, qualified investments, or community development services. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Designation as a wholesale or limited purpose bank.</heading>
<content> In order to receive a designation as a wholesale or limited purpose bank, a bank shall file a request, in writing, with the Board, at least three months prior to the proposed effective date of the designation. If the Board approves the designation, it remains in effect until the bank requests revocation of the designation or until one year after the Board notifies the bank that the Board has revoked the designation on its own initiative. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Performance criteria.</heading>
<chapeau> The Board evaluates the community development performance of a wholesale or limited purpose bank pursuant to the following criteria: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.25/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The number and amount of community development loans (including originations and purchases of loans and other community development loan data provided by the bank, such as data on loans outstanding, commitments, and letters of credit), qualified investments, or community development services; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The use of innovative or complex qualified investments, community development loans, or community development services and the extent to which the investments are not routinely provided by private investors; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The bank's responsiveness to credit and community development needs. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Indirect activities.</heading>
<chapeau> At a bank's option, the Board will consider in its community development performance assessment: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.25/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Qualified investments or community development services provided by an affiliate of the bank, if the investments or services are not claimed by any other institution; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Community development lending by affiliates, consortia and third parties, subject to the requirements and limitations in <ref href="/us/cfr/t12/s228.22/c">§ 228.22(c)</ref> and (d). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Benefit to assessment area(s)—</heading>
<paragraph identifier="/us/cfr/t12/s228.25/e/1" class="inline">
<num value="1">(1) </num>
<heading>Benefit inside assessment area(s).</heading>
<content> The Board considers all qualified investments, community development loans, and community development services that benefit areas within the bank's assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Benefit outside assessment area(s).</heading>
<content> The Board considers the qualified investments, community development loans, and community development services that benefit areas outside the bank's assessment area(s), if the bank has adequately addressed the needs of its assessment area(s). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.25/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Community development performance rating.</heading>
<content> The Board rates a bank's community development performance as provided in appendix A of this part.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.26"><?page num="824"?>
<num value="228.26" style="-uslm-sgm:SECTNO">§ 228.26</num>
<heading style="-uslm-sgm:SUBJECT">Small bank performance standards.</heading>
<paragraph identifier="/us/cfr/t12/s228.26/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Performance criteria—</heading>
<paragraph identifier="/us/cfr/t12/s228.26/a/1" class="inline">
<num value="1">(1) </num>
<heading>Small banks that are not intermediate small banks.</heading>
<content> The Board evaluates the record of a small bank that is not, or that was not during the prior calendar year, an intermediate small bank, of helping to meet the credit needs of its assessment area(s) pursuant to the criteria set forth in paragraph (b) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Intermediate small banks.</heading>
<content> The Board evaluates the record of a small bank that is, or that was during the prior calendar year, an intermediate small bank, of helping to meet the credit needs of its assessment area(s) pursuant to the criteria set forth in paragraphs (b) and (c) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Lending test.</heading>
<chapeau> A small bank's lending performance is evaluated pursuant to the following criteria:</chapeau>
<paragraph identifier="/us/cfr/t12/s228.26/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The bank's loan-to-deposit ratio, adjusted for seasonal variation, and, as appropriate, other lending-related activities, such as loan originations for sale to the secondary markets, community development loans, or qualified investments;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The percentage of loans and, as appropriate, other lending-related activities located in the bank's assessment area(s);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The bank's record of lending to and, as appropriate, engaging in other lending-related activities for borrowers of different income levels and businesses and farms of different sizes;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The geographic distribution of the bank's loans; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The bank's record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment area(s).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Community development test.</heading>
<chapeau> An intermediate small bank's community development performance also is evaluated pursuant to the following criteria:</chapeau>
<paragraph identifier="/us/cfr/t12/s228.26/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The number and amount of community development loans;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The number and amount of qualified investments;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The extent to which the bank provides community development services; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The bank's responsiveness through such activities to community development lending, investment, and services needs.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.26/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Small bank performance rating.</heading>
<content> The Board rates the performance of a bank evaluated under this section as provided in appendix A of this part.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/70/44268">70 FR 44268</ref>, <date date="2005-08-02">Aug. 2, 2005</date>, as amended at <ref href="/us/fr/71/78337">71 FR 78337</ref>, <date date="2006-12-29" role="amended">Dec. 29, 2006</date>; <ref href="/us/fr/72/72573">72 FR 72573</ref>, <date date="2007-12-21" role="amended">Dec. 21, 2007</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.27">
<num value="228.27" style="-uslm-sgm:SECTNO">§ 228.27 </num>
<heading style="-uslm-sgm:SUBJECT">Strategic plan. </heading>
<paragraph identifier="/us/cfr/t12/s228.27/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Alternative election.</heading>
<chapeau> The Board will assess a bank's record of helping to meet the credit needs of its assessment area(s) under a strategic plan if: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.27/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The bank has submitted the plan to the Board as provided for in this section; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The Board has approved the plan; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The plan is in effect; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The bank has been operating under an approved plan for at least one year. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Data reporting.</heading>
<content> The Board's approval of a plan does not affect the bank's obligation, if any, to report data as required by <ref href="/us/cfr/t12/s228.42">§ 228.42</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Plans in general—</heading>
<paragraph identifier="/us/cfr/t12/s228.27/c/1" class="inline">
<num value="1">(1) </num>
<heading>Term.</heading>
<content> A plan may have a term of no more than five years, and any multi-year plan must include annual interim measurable goals under which the Board will evaluate the bank's performance. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Multiple assessment areas.</heading>
<content> A bank with more than one assessment area may prepare a single plan for all of its assessment areas or one or more plans for one or more of its assessment areas. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Treatment of affiliates.</heading>
<content> Affiliated institutions may prepare a joint plan if the plan provides measurable goals for each institution. Activities may be allocated among institutions at the institutions' option, provided that the same activities are not considered for more than one institution. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Public participation in plan development.</heading>
<chapeau> Before submitting a plan to the Board for approval, a bank shall: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.27/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Informally seek suggestions from members of the public in its assessment area(s) covered by the plan while developing the plan; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Once the bank has developed a plan, formally solicit public comment on the plan for at least 30 days by publishing notice in at least one newspaper of general circulation in each assessment area covered by the plan; and
<?page num="825"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> During the period of formal public comment, make copies of the plan available for review by the public at no cost at all offices of the bank in any assessment area covered by the plan and provide copies of the plan upon request for a reasonable fee to cover copying and mailing, if applicable. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Submission of plan.</heading>
<content> The bank shall submit its plan to the Board at least three months prior to the proposed effective date of the plan. The bank shall also submit with its plan a description of its informal efforts to seek suggestions from members of the public, any written public comment received, and, if the plan was revised in light of the comment received, the initial plan as released for public comment. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Plan content—</heading>
<paragraph identifier="/us/cfr/t12/s228.27/f/1" class="inline">
<num value="1">(1) </num>
<heading>Measurable goals.</heading>
<paragraph identifier="/us/cfr/t12/s228.27/f/1/i" class="inline">
<num value="i"> (i)</num>
<content> A bank shall specify in its plan measurable goals for helping to meet the credit needs of each assessment area covered by the plan, particularly the needs of low- and moderate-income geographies and low- and moderate-income individuals, through lending, investment, and services, as appropriate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A bank shall address in its plan all three performance categories and, unless the bank has been designated as a wholesale or limited purpose bank, shall emphasize lending and lending-related activities. Nevertheless, a different emphasis, including a focus on one or more performance categories, may be appropriate if responsive to the characteristics and credit needs of its assessment area(s), considering public comment and the bank's capacity and constraints, product offerings, and business strategy. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/f/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Confidential information.</heading>
<content> A bank may submit additional information to the Board on a confidential basis, but the goals stated in the plan must be sufficiently specific to enable the public and the Board to judge the merits of the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/f/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Satisfactory and outstanding goals.</heading>
<content> A bank shall specify in its plan measurable goals that constitute “satisfactory” performance. A plan may specify measurable goals that constitute “outstanding” performance. If a bank submits, and the Board approves, both “satisfactory” and “outstanding” performance goals, the Board will consider the bank eligible for an “outstanding” performance rating. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/f/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Election if satisfactory goals not substantially met.</heading>
<content> A bank may elect in its plan that, if the bank fails to meet substantially its plan goals for a satisfactory rating, the Board will evaluate the bank's performance under the lending, investment, and service tests, the community development test, or the small bank performance standards, as appropriate. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Plan approval—</heading>
<paragraph identifier="/us/cfr/t12/s228.27/g/1" class="inline">
<num value="1">(1) </num>
<heading>Timing.</heading>
<content> The Board will act upon a plan within 60 calendar days after the Board receives the complete plan and other material required under paragraph (e) of this section. If the Board fails to act within this time period, the plan shall be deemed approved unless the Board extends the review period for good cause. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Public participation.</heading>
<content> In evaluating the plan's goals, the Board considers the public's involvement in formulating the plan, written public comment on the plan, and any response by the bank to public comment on the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/g/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Criteria for evaluating plan.</heading>
<chapeau> The Board evaluates a plan's measurable goals using the following criteria, as appropriate: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.27/g/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The extent and breadth of lending or lending-related activities, including, as appropriate, the distribution of loans among different geographies, businesses and farms of different sizes, and individuals of different income levels, the extent of community development lending, and the use of innovative or flexible lending practices to address credit needs; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/g/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The amount and innovativeness, complexity, and responsiveness of the bank's qualified investments; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/g/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The availability and effectiveness of the bank's systems for delivering retail banking services and the extent and innovativeness of the bank's community development services. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Plan amendment.</heading>
<content> During the term of a plan, a bank may request the Board to approve an amendment to the plan on grounds that there has been a material change in circumstances. The bank shall develop an amendment to a previously approved plan in accordance <?page num="826"?>with the public participation requirements of paragraph (d) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.27/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Plan assessment.</heading>
<content> The Board approves the goals and assesses performance under a plan as provided for in appendix A of this part. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22193">60 FR 22193</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/60/66050">60 FR 66050</ref>, <date date="1995-12-20" role="amended">Dec. 20, 1995</date>; <ref href="/us/fr/69/41187">69 FR 41187</ref>, <date date="2004-07-08" role="amended">July 8, 2004</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.28">
<num value="228.28" style="-uslm-sgm:SECTNO">§ 228.28</num>
<heading style="-uslm-sgm:SUBJECT">Assigned ratings. </heading>
<paragraph identifier="/us/cfr/t12/s228.28/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Ratings in general.</heading>
<content> Subject to paragraphs (b) and (c) of this section, the Board assigns to a bank a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance” based on the bank's performance under the lending, investment and service tests, the community development test, the small bank performance standards, or an approved strategic plan, as applicable. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Lending, investment, and service tests.</heading>
<chapeau> The Board assigns a rating for a bank assessed under the lending, investment, and service tests in accordance with the following principles: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.28/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A bank that receives an “outstanding” rating on the lending test receives an assigned rating of at least “satisfactory”; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A bank that receives an “outstanding” rating on both the service test and the investment test and a rating of at least “high satisfactory” on the lending test receives an assigned rating of “outstanding”; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> No bank may receive an assigned rating of “satisfactory” or higher unless it receives a rating of at least “low satisfactory” on the lending test. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Effect of evidence of discriminatory or other illegal credit practices.</heading>
<paragraph identifier="/us/cfr/t12/s228.28/c/1" class="inline">
<num value="1"> (1)</num>
<chapeau> The Board's evaluation of a bank's CRA performance is adversely affected by evidence of discriminatory or other illegal credit practices in any geography by the bank or in any assessment area by any affiliate whose loans have been considered as part of the bank's lending performance. In connection with any type of lending activity described in <ref href="/us/cfr/t12/s228.22/a">§ 228.22(a)</ref>, evidence of discriminatory or other credit practices that violate an applicable law, rule, or regulation includes, but is not limited to:</chapeau>
<paragraph identifier="/us/cfr/t12/s228.28/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Discrimination against applicants on a prohibited basis in violation, for example, of the Equal Credit Opportunity Act or the Fair Housing Act;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Violations of the Home Ownership and Equity Protection Act;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Violations of section 5 of the Federal Trade Commission Act;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Violations of section 8 of the Real Estate Settlement Procedures Act; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/c/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> Violations of the Truth in Lending Act provisions regarding a consumer's right of rescission.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.28/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In determining the effect of evidence of practices described in paragraph (c)(1) of this section on the bank's assigned rating, the Board considers the nature, extent, and strength of the evidence of the practices; the policies and procedures that the bank (or affiliate, as applicable) has in place to prevent the practices; any corrective action that the bank (or affiliate, as applicable) has taken or has committed to take, including voluntary corrective action resulting from self-assessment; and any other relevant information.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/43/47148">43 FR 47148</ref>, <date date="1978-10-12">Oct. 12, 1978</date>, as amended at <ref href="/us/fr/70/44268">70 FR 44268</ref>, <date date="2005-08-02" role="amended">Aug. 2, 2005</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.29">
<num value="228.29" style="-uslm-sgm:SECTNO">§ 228.29</num>
<heading style="-uslm-sgm:SUBJECT">Effect of CRA performance on applications. </heading>
<paragraph identifier="/us/cfr/t12/s228.29/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>CRA performance.</heading>
<chapeau> Among other factors, the Board takes into account the record of performance under the CRA of: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.29/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Each applicant bank for the: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.29/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Establishment of a domestic branch by a State member bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Merger, consolidation, acquisition of assets, or assumption of liabilities requiring approval under the Bank Merger Act (<ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>) if the acquiring, assuming, or resulting bank is to be a State member bank; and </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Each insured depository institution (as defined in <ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>) controlled by an applicant and subsidiary bank or savings association proposed to be controlled by an applicant: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.29/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> To become a bank holding company in a transaction that requires approval under section 3 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> To acquire ownership or control of shares or all or substantially all of the assets of a bank, to cause a bank to become a subsidiary of a bank holding company, or to merge or consolidate a <?page num="827"?>bank holding company with any other bank holding company in a transaction that requires approval under section 3 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/a/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> To own, control or operate a savings association in a transaction that requires approval under section 4 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1843">12 U.S.C. 1843</ref>);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/a/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> To become a savings and loan holding company in a transaction that requires approval under section 10 of the Home Owners' Loan Act (<ref href="/us/usc/t12/s1467a">12 U.S.C. 1467a</ref>); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/a/2/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<content> To acquire ownership or control of shares or all or substantially all of the assets of a savings association, to cause a savings association to become a subsidiary of a savings and loan holding company, or to merge or consolidate a savings and loan holding company with any other savings and loan holding company in a transaction that requires approval under section 10 of the Home Owners' Loan Act (<ref href="/us/usc/t12/s1467a">12 U.S.C. 1467a</ref>).</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Interested parties.</heading>
<content> In considering CRA performance in an application described in paragraph (a) of this section, the Board takes into account any views expressed by interested parties that are submitted in accordance with the Board's Rules of Procedure set forth in part 262 of this chapter. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.29/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Denial or conditional approval of application.</heading>
<content> A bank or savings association's record of performance may be the basis for denying or conditioning approval of an application listed in paragraph (a) of this section.</content>
</paragraph>
<paragraph role="definitions" identifier="/us/cfr/t12/s228.29/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Definitions.</heading>
<content> For purposes of paragraphs (a)(2)(i), (ii), and (iii) of this section, “bank,” “bank holding company,” “subsidiary,” and “savings association” have the meanings given to those terms in section 2 of the Bank Holding Company Act (<ref href="/us/usc/t12/s1841">12 U.S.C. 1841</ref>). For purposes of paragraphs (a)(2)(iv) and (v) of this section, “savings and loan holding company” and “subsidiary” has the meaning given to that term in section 10 of the Home Owners' Loan Act (<ref href="/us/usc/t12/s1467a">12 U.S.C. 1467a</ref>).</content>
</paragraph>
<source style="-uslm-sgm:CITA">[ Reg. BB, <ref href="/us/fr/60/22191">60 FR 22191</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/76/56532">76 FR 56532</ref>, <date date="2011-09-13" role="amended">Sept. 13, 2011</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p228/spC">
<num value="C" style="-uslm-sgm:HED">Subpart C—</num>
<heading style="-uslm-sgm:HED">Records, Reporting, and Disclosure Requirements </heading>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> Reg. BB, <ref href="/us/fr/60/22195">60 FR 22195</ref>, <date date="1995-05-04">May 4, 1995</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.41">
<num value="228.41" style="-uslm-sgm:SECTNO">§ 228.41</num>
<heading style="-uslm-sgm:SUBJECT">Assessment area delineation. </heading>
<paragraph identifier="/us/cfr/t12/s228.41/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<content> A bank shall delineate one or more assessment areas within which the Board evaluates the bank's record of helping to meet the credit needs of its community. The Board does not evaluate the bank's delineation of its assessment area(s) as a separate performance criterion, but the Board reviews the delineation for compliance with the requirements of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Geographic area(s) for wholesale or limited purpose banks.</heading>
<content> The assessment area(s) for a wholesale or limited purpose bank must consist generally of one or more MSAs or metropolitan divisions (using the MSA or metropolitan division boundaries that were in effect as of January 1 of the calendar year in which the delineation is made) or one or more contiguous political subdivisions, such as counties, cities, or towns, in which the bank has its main office, branches, and deposit-taking ATMs.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Geographic area(s) for other banks.</heading>
<chapeau> The assessment area(s) for a bank other than a wholesale or limited purpose bank must: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.41/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Consist generally of one or more MSAs or metropolitan divisions (using the MSA or metropolitan division boundaries that were in effect as of January 1 of the calendar year in which the delineation is made) or one or more contiguous political subdivisions, such as counties, cities, or towns; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Include the geographies in which the bank has its main office, its branches, and its deposit-taking ATMs, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans (including home mortgage loans, small business and small farm loans, and any other loans the bank chooses, such as those consumer loans on which the bank elects to have its performance assessed). </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Adjustments to geographic area(s).</heading>
<content> A bank may adjust the boundaries of <?page num="828"?>its assessment area(s) to include only the portion of a political subdivision that it reasonably can be expected to serve. An adjustment is particularly appropriate in the case of an assessment area that otherwise would be extremely large, of unusual configuration, or divided by significant geographic barriers. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Limitations on the delineation of an assessment area.</heading>
<chapeau> Each bank's assessment area(s): </chapeau>
<paragraph identifier="/us/cfr/t12/s228.41/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Must consist only of whole geographies; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> May not reflect illegal discrimination; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/e/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> May not arbitrarily exclude low- or moderate-income geographies, taking into account the bank's size and financial condition; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/e/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> May not extend substantially beyond an MSA boundary or beyond a state boundary unless the assessment area is located in a multistate MSA. If a bank serves a geographic area that extends substantially beyond a state boundary, the bank shall delineate separate assessment areas for the areas in each state. If a bank serves a geographic area that extends substantially beyond an MSA boundary, the bank shall delineate separate assessment areas for the areas inside and outside the MSA.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Banks serving military personnel.</heading>
<content> Notwithstanding the requirements of this section, a bank whose business predominantly consists of serving the needs of military personnel or their dependents who are not located within a defined geographic area may delineate its entire deposit customer base as its assessment area. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.41/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Use of assessment area(s).</heading>
<content> The Board uses the assessment area(s) delineated by a bank in its evaluation of the bank's CRA performance unless the Board determines that the assessment area(s) do not comply with the requirements of this section. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22195">60 FR 22195</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/69/41187">69 FR 41187</ref>, <date date="2004-07-08" role="amended">July 8, 2004</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.42">
<num value="228.42" style="-uslm-sgm:SECTNO">§ 228.42</num>
<heading style="-uslm-sgm:SUBJECT">Data collection, reporting, and disclosure.
</heading>
<paragraph identifier="/us/cfr/t12/s228.42/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Loan information required to be collected and maintained.</heading>
<chapeau> A bank, except a small bank, shall collect, and maintain in machine readable form (as prescribed by the Board) until the completion of its next CRA examination, the following data for each small business or small farm loan originated or purchased by the bank: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.42/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A unique number or alpha-numeric symbol that can be used to identify the relevant loan file; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The loan amount at origination; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The loan location; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> An indicator whether the loan was to a business or farm with gross annual revenues of $1 million or less. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Loan information required to be reported.</heading>
<chapeau> A bank, except a small bank or a bank that was a small bank during the prior calendar year, shall report annually by March 1 to the Board in machine readable form (as prescribed by the Board) the following data for the prior calendar year: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.42/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Small business and small farm loan data.</heading>
<chapeau> For each geography in which the bank originated or purchased a small business or small farm loan, the aggregate number and amount of loans: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.42/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> With an amount at origination of $100,000 or less; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> With amount at origination of more than $100,000 but less than or equal to $250,000; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> With an amount at origination of more than $250,000; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> To businesses and farms with gross annual revenues of $1 million or less (using the revenues that the bank considered in making its credit decision); </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Community development loan data.</heading>
<content> The aggregate number and aggregate amount of community development loans originated or purchased; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Home mortgage loans.</heading>
<content> If the bank is subject to reporting under part 1003 of this chapter, the location of each home mortgage loan application, origination, or purchase outside the MSAs in which the bank has a home or branch office (or outside any MSA) in accordance with the requirements of part 1003 of this chapter. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Optional data collection and maintenance—</heading>
<paragraph identifier="/us/cfr/t12/s228.42/c/1" class="inline">
<num value="1">(1) </num>
<heading>Consumer loans.</heading>
<chapeau> A bank may collect and maintain in machine readable form (as prescribed by the Board) data for consumer loans originated or purchased by the bank for consideration under the lending test. A bank may maintain data for one or more of <?page num="829"?>the following categories of consumer loans: motor vehicle, credit card, other secured, and other unsecured. If the bank maintains data for loans in a certain category, it shall maintain data for all loans originated or purchased within that category. The bank shall maintain data separately for each category, including for each loan: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.42/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A unique number or alpha-numeric symbol that can be used to identify the relevant loan file; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The loan amount at origination or purchase; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The loan location; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The gross annual income of the borrower that the bank considered in making its credit decision. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Other loan data.</heading>
<content> At its option, a bank may provide other information concerning its lending performance, including additional loan distribution data. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Data on affiliate lending.</heading>
<content> A bank that elects to have the Board consider loans by an affiliate, for purposes of the lending or community development test or an approved strategic plan, shall collect, maintain, and report for those loans the data that the bank would have collected, maintained, and reported pursuant to paragraphs (a), (b), and (c) of this section had the loans been originated or purchased by the bank. For home mortgage loans, the bank shall also be prepared to identify the home mortgage loans reported under part 1003 of this chapter by the affiliate. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Data on lending by a consortium or a third party.</heading>
<content> A bank that elects to have the Board consider community development loans by a consortium or third party, for purposes of the lending or community development tests or an approved strategic plan, shall report for those loans the data that the bank would have reported under paragraph (b)(2) of this section had the loans been originated or purchased by the bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Small banks electing evaluation under the lending, investment, and service tests.</heading>
<content> A bank that qualifies for evaluation under the small bank performance standards but elects evaluation under the lending, investment, and service tests shall collect, maintain, and report the data required for other banks pursuant to paragraphs (a) and (b) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Assessment area data.</heading>
<content> A bank, except a small bank or a bank that was a small bank during the prior calendar year, shall collect and report to the Board by March 1 of each year a list for each assessment area showing the geographies within the area. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>CRA Disclosure Statement.</heading>
<chapeau> The Board prepares annually for each bank that reports data pursuant to this section a CRA Disclosure Statement that contains, on a state-by-state basis: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.42/h/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> For each county (and for each assessment area smaller than a county) with a population of 500,000 persons or fewer in which the bank reported a small business or small farm loan: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.42/h/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The number and amount of small business and small farm loans reported as originated or purchased located in low-, moderate-, middle-, and upper-income geographies; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A list grouping each geography according to whether the geography is low-, moderate-, middle-, or upper-income; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A list showing each geography in which the bank reported a small business or small farm loan; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The number and amount of small business and small farm loans to businesses and farms with gross annual revenues of $1 million or less; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> For each county (and for each assessment area smaller than a county) with a population in excess of 500,000 persons in which the bank reported a small business or small farm loan: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.42/h/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The number and amount of small business and small farm loans reported as originated or purchased located in geographies with median income relative to the area median income of less than 10 percent, 10 or more but less than 20 percent, 20 or more but less than 30 percent, 30 or more but less than 40 percent, 40 or more but less than 50 percent, 50 or more but less than 60 percent, 60 or more but less than 70 percent, 70 or more but less than 80 percent, 80 or more but less than 90 percent, 90 or more but less than 100 percent, 100 or more but less than 110 percent, 110 or more but less than 120 percent, and 120 percent or more;
<?page num="830"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A list grouping each geography in the county or assessment area according to whether the median income in the geography relative to the area median income is less than 10 percent, 10 or more but less than 20 percent, 20 or more but less than 30 percent, 30 or more but less than 40 percent, 40 or more but less than 50 percent, 50 or more but less than 60 percent, 60 or more but less than 70 percent, 70 or more but less than 80 percent, 80 or more but less than 90 percent, 90 or more but less than 100 percent, 100 or more but less than 110 percent, 110 or more but less than 120 percent, and 120 percent or more; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A list showing each geography in which the bank reported a small business or small farm loan; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> The number and amount of small business and small farm loans to businesses and farms with gross annual revenues of $1 million or less; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The number and amount of small business and small farm loans located inside each assessment area reported by the bank and the number and amount of small business and small farm loans located outside the assessment area(s) reported by the bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/h/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The number and amount of community development loans reported as originated or purchased. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Aggregate disclosure statements.</heading>
<content> The Board, in conjunction with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, prepares annually, for each MSA or metropolitan division (including an MSA or metropolitan division that crosses a state boundary) and the nonmetropolitan portion of each state, an aggregate disclosure statement of small business and small farm lending by all institutions subject to reporting under this part or parts 25, 195, or 345 of this title. These disclosure statements indicate, for each geography, the number and amount of all small business and small farm loans originated or purchased by reporting institutions, except that the Board may adjust the form of the disclosure if necessary, because of special circumstances, to protect the privacy of a borrower or the competitive position of an institution.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.42/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Central data depositories.</heading>
<content> The Board makes the aggregate disclosure statements, described in paragraph (i) of this section, and the individual bank CRA Disclosure Statements, described in paragraph (h) of this section, available to the public at central data depositories. The Board publishes a list of the depositories at which the statements are available. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22195">60 FR 22195</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/69/41187">69 FR 41187</ref>, <date date="2004-07-08" role="amended">July 8, 2004</date>; <ref href="/us/fr/80/81164">80 FR 81164</ref>, <date date="2015-12-29" role="amended">Dec. 29, 2015</date>; <ref href="/us/fr/82/55743">82 FR 55743</ref>, <date date="2017-11-24" role="amended">Nov. 24, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.43">
<num value="228.43" style="-uslm-sgm:SECTNO">§ 228.43</num>
<heading style="-uslm-sgm:SUBJECT">Content and availability of public file.
</heading>
<paragraph identifier="/us/cfr/t12/s228.43/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Information available to the public.</heading>
<chapeau> A bank shall maintain a public file that includes the following information: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.43/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> All written comments received from the public for the current year and each of the prior two calendar years that specifically relate to the bank's performance in helping to meet community credit needs, and any response to the comments by the bank, if neither the comments nor the responses contain statements that reflect adversely on the good name or reputation of any persons other than the bank or publication of which would violate specific provisions of law; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A copy of the public section of the bank's most recent CRA Performance Evaluation prepared by the Board. The bank shall place this copy in the public file within 30 business days after its receipt from the Board; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A list of the bank's branches, their street addresses, and geographies; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A list of branches opened or closed by the bank during the current year and each of the prior two calendar years, their street addresses, and geographies; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> A list of services (including hours of operation, available loan and deposit products, and transaction fees) generally offered at the bank's branches and descriptions of material differences in the availability or cost of services at particular branches, if any. At its option, a bank may include information regarding the availability of alternative systems for delivering retail banking services (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">e.g.,</inline> ATMs, ATMs not owned or operated by or exclusively for the bank, banking by telephone or computer, loan production offices, and <?page num="831"?>bank-at-work or bank-by-mail programs); </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/a/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> A map of each assessment area showing the boundaries of the area and identifying the geographies contained within the area, either on the map or in a separate list; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/a/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Any other information the bank chooses. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Additional information available to the public—</heading>
<paragraph identifier="/us/cfr/t12/s228.43/b/1" class="inline">
<num value="1">(1) </num>
<heading>Banks other than small banks.</heading>
<chapeau> A bank, except a small bank or a bank that was a small bank during the prior calendar year, shall include in its public file the following information pertaining to the bank and its affiliates, if applicable, for each of the prior two calendar years: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.43/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> If the bank has elected to have one or more categories of its consumer loans considered under the lending test, for each of these categories, the number and amount of loans: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.43/b/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> To low-, moderate-, middle-, and upper-income individuals; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Located in low-, moderate-, middle-, and upper-income census tracts; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Located inside the bank's assessment area(s) and outside the bank's assessment area(s); and </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The bank's CRA Disclosure Statement. The bank shall place the statement in the public file within three business days of its receipt from the Board.
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Banks required to report Home Mortgage Disclosure Act (HMDA) data.</heading>
<content> A bank required to report home mortgage loan data pursuant part 1003 of this title shall include in its public file a written notice that the institution's HMDA Disclosure Statement may be obtained on the Consumer Financial Protection Bureau's (Bureau's) Web site at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.consumerfinance.gov/hmda</inline>. In addition, a bank that elected to have the Board consider the mortgage lending of an affiliate shall include in its public file the name of the affiliate and a written notice that the affiliate's HMDA Disclosure Statement may be obtained at the Bureau's Web site. The bank shall place the written notice(s) in the public file within three business days after receiving notification from the Federal Financial Institutions Examination Council of the availability of the disclosure statement(s).
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Small banks.</heading>
<chapeau> A small bank or a bank that was a small bank during the prior calendar year shall include in its public file: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.43/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The bank's loan-to-deposit ratio for each quarter of the prior calendar year and, at its option, additional data on its loan-to-deposit ratio; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The information required for other banks by paragraph (b)(1) of this section, if the bank has elected to be evaluated under the lending, investment, and service tests. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Banks with strategic plans.</heading>
<content> A bank that has been approved to be assessed under a strategic plan shall include in its public file a copy of that plan. A bank need not include information submitted to the Board on a confidential basis in conjunction with the plan. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/b/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Banks with less than satisfactory ratings.</heading>
<content> A bank that received a less than satisfactory rating during its most recent examination shall include in its public file a description of its current efforts to improve its performance in helping to meet the credit needs of its entire community. The bank shall update the description quarterly. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Location of public information.</heading>
<chapeau> A bank shall make available to the public for inspection upon request and at no cost the information required in this section as follows: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.43/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> At the main office and, if an interstate bank, at one branch office in each state, all information in the public file; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> At each branch: </chapeau>
<paragraph identifier="/us/cfr/t12/s228.43/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A copy of the public section of the bank's most recent CRA Performance Evaluation and a list of services provided by the branch; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Within five calendar days of the request, all the information in the public file relating to the assessment area in which the branch is located. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Copies.</heading>
<content> Upon request, a bank shall provide copies, either on paper or in another form acceptable to the person making the request, of the information in its public file. The bank may charge a reasonable fee not to exceed the cost of copying and mailing (if applicable). </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s228.43/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Updating.</heading>
<content> Except as otherwise provided in this section, a bank shall ensure that the information required by <?page num="832"?>this section is current as of April 1 of each year. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22195">60 FR 22195</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/80/81164">80 FR 81164</ref>, <date date="2015-12-29" role="amended">Dec. 29, 2015</date>; <ref href="/us/fr/82/55743">82 FR 55743</ref>, <date date="2017-11-24" role="amended">Nov. 24, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.44">
<num value="228.44" style="-uslm-sgm:SECTNO">§ 228.44 </num>
<heading style="-uslm-sgm:SUBJECT">Public notice by banks. </heading>
<content style="-uslm-sgm:P">A bank shall provide in the public lobby of its main office and each of its branches the appropriate public notice set forth in appendix B of this part. Only a branch of a bank having more than one assessment area shall include the bracketed material in the notice for branch offices. Only a bank that is an affiliate of a holding company shall include the next to the last sentence of the notices. A bank shall include the last sentence of the notices only if it is an affiliate of a holding company that is not prevented by statute from acquiring additional banks.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s228.45">
<num value="228.45" style="-uslm-sgm:SECTNO">§ 228.45 </num>
<heading style="-uslm-sgm:SUBJECT">Publication of planned examination schedule. </heading>
<content style="-uslm-sgm:P">The Board publishes at least 30 days in advance of the beginning of each calendar quarter a list of banks scheduled for CRA examinations in that quarter.
</content>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p228/spNaN">
<heading style="-uslm-sgm:RESERVED"> 
</heading>
</subpart>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 228, App. A</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix A to Part 228—</num>
<heading style="-uslm-sgm:HED">Ratings</heading>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Ratings in general.</inline> (1) In assigning a rating, the Board evaluates a bank's performance under the applicable performance criteria in this part, in accordance with <ref href="/us/cfr/t12/s228.21">§§ 228.21</ref> and 228.28. This includes consideration of low-cost education loans provided to low-income borrowers and activities in cooperation with minority- or women-owned financial institutions and low-income credit unions, as well as adjustments on the basis of evidence of discriminatory or other illegal credit practices. </p>
<p style="-uslm-sgm:P">(2) A bank's performance need not fit each aspect of a particular rating profile in order to receive that rating, and exceptionally strong performance with respect to some aspects may compensate for weak performance in others. The bank's overall performance, however, must be consistent with safe and sound banking practices and generally with the appropriate rating profile as follows. </p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Banks evaluated under the lending, investment, and service tests</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lending performance rating.</inline> The Board assigns each bank's lending performance one of the five following ratings. </p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Outstanding.</inline> The Board rates a bank's lending performance “outstanding” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) Excellent responsiveness to credit needs in its assessment area(s), taking into account the number and amount of home mortgage, small business, small farm, and consumer loans, if applicable, in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) A substantial majority of its loans are made in its assessment area(s); </p>
<p style="-uslm-sgm:P">(C) An excellent geographic distribution of loans in its assessment area(s); </p>
<p style="-uslm-sgm:P">(D) An excellent distribution, particularly in its assessment area(s), of loans among individuals of different income levels and businesses (including farms) of different sizes, given the product lines offered by the bank; </p>
<p style="-uslm-sgm:P">(E) An excellent record of serving the credit needs of highly economically disadvantaged areas in its assessment area(s), low-income individuals, or businesses (including farms) with gross annual revenues of $1 million or less, consistent with safe and sound operations; </p>
<p style="-uslm-sgm:P">(F) Extensive use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies; and </p>
<p style="-uslm-sgm:P">(G) It is a leader in making community development loans. </p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">High satisfactory.</inline> The Board rates a bank's lending performance “high satisfactory” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) Good responsiveness to credit needs in its assessment area(s), taking into account the number and amount of home mortgage, small business, small farm, and consumer loans, if applicable, in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) A high percentage of its loans are made in its assessment area(s); </p>
<p style="-uslm-sgm:P">(C) A good geographic distribution of loans in its assessment area(s); </p>
<p style="-uslm-sgm:P">(D) A good distribution, particularly in its assessment area(s), of loans among individuals of different income levels and businesses (including farms) of different sizes, given the product lines offered by the bank; </p>
<p style="-uslm-sgm:P">(E) A good record of serving the credit needs of highly economically disadvantaged areas in its assessment area(s), low-income individuals, or businesses (including farms) with gross annual revenues of $1 million or less, consistent with safe and sound operations; </p>
<p style="-uslm-sgm:P">(F) Use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies; and </p>
<p style="-uslm-sgm:P">(G) It has made a relatively high level of community development loans. </p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Low satisfactory.</inline> The Board rates a bank's lending performance “low satisfactory” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) Adequate responsiveness to credit needs in its assessment area(s), taking into account the number and amount of home <?page num="833"?>mortgage, small business, small farm, and consumer loans, if applicable, in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) An adequate percentage of its loans are made in its assessment area(s); </p>
<p style="-uslm-sgm:P">(C) An adequate geographic distribution of loans in its assessment area(s); </p>
<p style="-uslm-sgm:P">(D) An adequate distribution, particularly in its assessment area(s), of loans among individuals of different income levels and businesses (including farms) of different sizes, given the product lines offered by the bank; </p>
<p style="-uslm-sgm:P">(E) An adequate record of serving the credit needs of highly economically disadvantaged areas in its assessment area(s), low-income individuals, or businesses (including farms) with gross annual revenues of $1 million or less, consistent with safe and sound operations; </p>
<p style="-uslm-sgm:P">(F) Limited use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies; and </p>
<p style="-uslm-sgm:P">(G) It has made an adequate level of community development loans. </p>
<p style="-uslm-sgm:P">(iv) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Needs to improve.</inline> The Board rates a bank's lending performance “needs to improve” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) Poor responsiveness to credit needs in its assessment area(s), taking into account the number and amount of home mortgage, small business, small farm, and consumer loans, if applicable, in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) A small percentage of its loans are made in its assessment area(s); </p>
<p style="-uslm-sgm:P">(C) A poor geographic distribution of loans, particularly to low- or moderate-income geographies, in its assessment area(s); </p>
<p style="-uslm-sgm:P">(D) A poor distribution, particularly in its assessment area(s), of loans among individuals of different income levels and businesses (including farms) of different sizes, given the product lines offered by the bank; </p>
<p style="-uslm-sgm:P">(E) A poor record of serving the credit needs of highly economically disadvantaged areas in its assessment area(s), low-income individuals, or businesses (including farms) with gross annual revenues of $1 million or less, consistent with safe and sound operations; </p>
<p style="-uslm-sgm:P">(F) Little use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies; and </p>
<p style="-uslm-sgm:P">(G) It has made a low level of community development loans. </p>
<p style="-uslm-sgm:P">(v) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantial noncompliance.</inline> The Board rates a bank's lending performance as being in “substantial noncompliance” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) A very poor responsiveness to credit needs in its assessment area(s), taking into account the number and amount of home mortgage, small business, small farm, and consumer loans, if applicable, in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) A very small percentage of its loans are made in its assessment area(s); </p>
<p style="-uslm-sgm:P">(C) A very poor geographic distribution of loans, particularly to low- or moderate-income geographies, in its assessment area(s); </p>
<p style="-uslm-sgm:P">(D) A very poor distribution, particularly in its assessment area(s), of loans among individuals of different income levels and businesses (including farms) of different sizes, given the product lines offered by the bank; </p>
<p style="-uslm-sgm:P">(E) A very poor record of serving the credit needs of highly economically disadvantaged areas in its assessment area(s), low-income individuals, or businesses (including farms) with gross annual revenues of $1 million or less, consistent with safe and sound operations; </p>
<p style="-uslm-sgm:P">(F) No use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies; and </p>
<p style="-uslm-sgm:P">(G) It has made few, if any, community development loans. </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Investment performance rating.</inline> The Board assigns each bank's investment performance one of the five following ratings. </p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Outstanding.</inline> The Board rates a bank's investment performance “outstanding” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) An excellent level of qualified investments, particularly those that are not routinely provided by private investors, often in a leadership position; </p>
<p style="-uslm-sgm:P">(B) Extensive use of innovative or complex qualified investments; and </p>
<p style="-uslm-sgm:P">(C) Excellent responsiveness to credit and community development needs. </p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">High satisfactory.</inline> The Board rates a bank's investment performance “high satisfactory” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) A significant level of qualified investments, particularly those that are not routinely provided by private investors, occasionally in a leadership position; </p>
<p style="-uslm-sgm:P">(B) Significant use of innovative or complex qualified investments; and </p>
<p style="-uslm-sgm:P">(C) Good responsiveness to credit and community development needs. </p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Low satisfactory.</inline> The Board rates a bank's investment performance “low satisfactory” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) An adequate level of qualified investments, particularly those that are not routinely provided by private investors, although rarely in a leadership position; </p>
<p style="-uslm-sgm:P">(B) Occasional use of innovative or complex qualified investments; and </p>
<p style="-uslm-sgm:P">(C) Adequate responsiveness to credit and community development needs. </p>
<p style="-uslm-sgm:P">(iv) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Needs to improve.</inline> The Board rates a bank's investment performance “needs to improve” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) A poor level of qualified investments, particularly those that are not routinely provided by private investors; </p>
<p style="-uslm-sgm:P">(B) Rare use of innovative or complex qualified investments; and
<?page num="834"?></p>
<p style="-uslm-sgm:P">(C) Poor responsiveness to credit and community development needs. </p>
<p style="-uslm-sgm:P">(v) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantial noncompliance.</inline> The Board rates a bank's investment performance as being in “substantial noncompliance” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(A) Few, if any, qualified investments, particularly those that are not routinely provided by private investors; </p>
<p style="-uslm-sgm:P">(B) No use of innovative or complex qualified investments; and </p>
<p style="-uslm-sgm:P">(C) Very poor responsiveness to credit and community development needs. </p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Service performance rating.</inline> The Board assigns each bank's service performance one of the five following ratings. </p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Outstanding.</inline> The Board rates a bank's service performance “outstanding” if, in general, the bank demonstrates: </p>
<p style="-uslm-sgm:P">(A) Its service delivery systems are readily accessible to geographies and individuals of different income levels in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) To the extent changes have been made, its record of opening and closing branches has improved the accessibility of its delivery systems, particularly in low- or moderate-income geographies or to low- or moderate-income individuals; </p>
<p style="-uslm-sgm:P">(C) Its services (including, where appropriate, business hours) are tailored to the convenience and needs of its assessment area(s), particularly low- or moderate-income geographies or low- or moderate-income individuals; and </p>
<p style="-uslm-sgm:P">(D) It is a leader in providing community development services. </p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">High satisfactory.</inline> The Board rates a bank's service performance “high satisfactory” if, in general, the bank demonstrates: </p>
<p style="-uslm-sgm:P">(A) Its service delivery systems are accessible to geographies and individuals of different income levels in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) To the extent changes have been made, its record of opening and closing branches has not adversely affected the accessibility of its delivery systems, particularly in low- and moderate-income geographies and to low- and moderate-income individuals; </p>
<p style="-uslm-sgm:P">(C) Its services (including, where appropriate, business hours) do not vary in a way that inconveniences its assessment area(s), particularly low- and moderate-income geographies and low- and moderate-income individuals; and </p>
<p style="-uslm-sgm:P">(D) It provides a relatively high level of community development services. </p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Low satisfactory.</inline> The Board rates a bank's service performance “low satisfactory” if, in general, the bank demonstrates: </p>
<p style="-uslm-sgm:P">(A) Its service delivery systems are reasonably accessible to geographies and individuals of different income levels in its assessment area(s); </p>
<p style="-uslm-sgm:P">(B) To the extent changes have been made, its record of opening and closing branches has generally not adversely affected the accessibility of its delivery systems, particularly in low- and moderate-income geographies and to low- and moderate-income individuals; </p>
<p style="-uslm-sgm:P">(C) Its services (including, where appropriate, business hours) do not vary in a way that inconveniences its assessment area(s), particularly low- and moderate-income geographies and low- and moderate-income individuals; and </p>
<p style="-uslm-sgm:P">(D) It provides an adequate level of community development services. </p>
<p style="-uslm-sgm:P">(iv) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Needs to improve.</inline> The Board rates a bank's service performance “needs to improve” if, in general, the bank demonstrates: </p>
<p style="-uslm-sgm:P">(A) Its service delivery systems are unreasonably inaccessible to portions of its assessment area(s), particularly to low- or moderate-income geographies or to low- or moderate-income individuals; </p>
<p style="-uslm-sgm:P">(B) To the extent changes have been made, its record of opening and closing branches has adversely affected the accessibility its delivery systems, particularly in low- or moderate-income geographies or to low- or moderate-income individuals; </p>
<p style="-uslm-sgm:P">(C) Its services (including, where appropriate, business hours) vary in a way that inconveniences its assessment area(s), particularly low- or moderate-income geographies or low- or moderate-income individuals; and </p>
<p style="-uslm-sgm:P">(D) It provides a limited level of community development services. </p>
<p style="-uslm-sgm:P">(v) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantial noncompliance.</inline> The Board rates a bank's service performance as being in “substantial noncompliance” if, in general, the bank demonstrates: </p>
<p style="-uslm-sgm:P">(A) Its service delivery systems are unreasonably inaccessible to significant portions of its assessment area(s), particularly to low- or moderate-income geographies or to low- or moderate-income individuals; </p>
<p style="-uslm-sgm:P">(B) To the extent changes have been made, its record of opening and closing branches has significantly adversely affected the accessibility of its delivery systems, particularly in low- or moderate-income geographies or to low- or moderate-income individuals; </p>
<p style="-uslm-sgm:P">(C) Its services (including, where appropriate, business hours) vary in a way that significantly inconveniences its assessment area(s), particularly low- or moderate-income geographies or low- or moderate-income individuals; and </p>
<p style="-uslm-sgm:P">(D) It provides few, if any, community development services. </p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wholesale or limited purpose banks.</inline> The Board assigns each wholesale or limited purpose bank's community development performance one of the four following ratings. </p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Outstanding.</inline> The Board rates a wholesale or limited purpose bank's community development performance “outstanding” if, in general, it demonstrates:
<?page num="835"?></p>
<p style="-uslm-sgm:P">(i) A high level of community development loans, community development services, or qualified investments, particularly investments that are not routinely provided by private investors; </p>
<p style="-uslm-sgm:P">(ii) Extensive use of innovative or complex qualified investments, community development loans, or community development services; and </p>
<p style="-uslm-sgm:P">(iii) Excellent responsiveness to credit and community development needs in its assessment area(s). </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Satisfactory.</inline> The Board rates a wholesale or limited purpose bank's community development performance “satisfactory” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(i) An adequate level of community development loans, community development services, or qualified investments, particularly investments that are not routinely provided by private investors; </p>
<p style="-uslm-sgm:P">(ii) Occasional use of innovative or complex qualified investments, community development loans, or community development services; and </p>
<p style="-uslm-sgm:P">(iii) Adequate responsiveness to credit and community development needs in its assessment area(s). </p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Needs to improve.</inline> The Board rates a wholesale or limited purpose bank's community development performance as “needs to improve” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(i) A poor level of community development loans, community development services, or qualified investments, particularly investments that are not routinely provided by private investors; </p>
<p style="-uslm-sgm:P">(ii) Rare use of innovative or complex qualified investments, community development loans, or community development services; and </p>
<p style="-uslm-sgm:P">(iii) Poor responsiveness to credit and community development needs in its assessment area(s). </p>
<p style="-uslm-sgm:P">(4) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substantial noncompliance.</inline> The Board rates a wholesale or limited purpose bank's community development performance in “substantial noncompliance” if, in general, it demonstrates: </p>
<p style="-uslm-sgm:P">(i) Few, if any, community development loans, community development services, or qualified investments, particularly investments that are not routinely provided by private investors; </p>
<p style="-uslm-sgm:P">(ii) No use of innovative or complex qualified investments, community development loans, or community development services; and </p>
<p style="-uslm-sgm:P">(iii) Very poor responsiveness to credit and community development needs in its assessment area(s). </p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Banks evaluated under the small bank performance standards</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Lending test ratings.</inline> (i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility for a satisfactory lending test rating.</inline> The Board rates a small bank's lending performance “satisfactory” if, in general, the bank demonstrates:</p>
<p style="-uslm-sgm:P">(A) A reasonable loan-to-deposit ratio (considering seasonal variations) given the bank's size, financial condition, the credit needs of its assessment area(s), and taking into account, as appropriate, other lending-related activities such as loan originations for sale to the secondary markets and community development loans and qualified investments;</p>
<p style="-uslm-sgm:P">(B) A majority of its loans and, as appropriate, other lending-related activities, are in its assessment area;</p>
<p style="-uslm-sgm:P">(C) A distribution of loans to and, as appropriate, other lending-related activities for individuals of different income levels (including low- and moderate-income individuals) and businesses and farms of different sizes that is reasonable given the demographics of the bank's assessment area(s);</p>
<p style="-uslm-sgm:P">(D) A record of taking appropriate action, when warranted, in response to written complaints, if any, about the bank's performance in helping to meet the credit needs of its assessment area(s); and</p>
<p style="-uslm-sgm:P">(E) A reasonable geographic distribution of loans given the bank's assessment area(s).</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility for an “outstanding” lending test rating.</inline> A small bank that meets each of the standards for a “satisfactory” rating under this paragraph and exceeds some or all of those standards may warrant consideration for a lending test rating of “outstanding.”</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Needs to improve or substantial noncompliance ratings.</inline> A small bank may also receive a lending test rating of “needs to improve” or “substantial noncompliance” depending on the degree to which its performance has failed to meet the standard for a “satisfactory” rating.</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Community development test ratings for intermediate small banks</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility for a satisfactory community development test rating.</inline> The Board rates an intermediate small bank's community development performance “satisfactory” if the bank demonstrates adequate responsiveness to the community development needs of its assessment area(s) through community development loans, qualified investments, and community development services. The adequacy of the bank's response will depend on its capacity for such community development activities, its assessment area's need for such community development activities, and the availability of such opportunities for community development in the bank's assessment area(s).</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility for an outstanding community development test rating.</inline> The Board rates an intermediate small bank's community development performance “outstanding” if the bank demonstrates excellent responsiveness to community development needs in its assessment area(s) through community development loans, qualified investments, and community development services, as appropriate, considering the bank's capacity and <?page num="836"?>the need and availability of such opportunities for community development in the bank's assessment area(s).</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Needs to improve or substantial noncompliance ratings.</inline> An intermediate small bank may also receive a community development test rating of “needs to improve” or “substantial noncompliance” depending on the degree to which its performance has failed to meet the standards for a “satisfactory” rating.</p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Overall rating</inline>—(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility for a satisfactory overall rating.</inline> No intermediate small bank may receive an assigned overall rating of “satisfactory” unless it receives a rating of at least “satisfactory” on both the lending test and the community development test.</p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Eligibility for an outstanding overall rating.</inline> (A) An intermediate small bank that receives an “outstanding” rating on one test and at least “satisfactory” on the other test may receive an assigned overall rating of “outstanding.”</p>
<p style="-uslm-sgm:P">(B) A small bank that is not an intermediate small bank that meets each of the standards for a “satisfactory” rating under the lending test and exceeds some or all of those standards may warrant consideration for an overall rating of “outstanding.” In assessing whether a bank's performance is “outstanding,” the Board considers the extent to which the bank exceeds each of the performance standards for a “satisfactory” rating and its performance in making qualified investments and its performance in providing branches and other services and delivery systems that enhance credit availability in its assessment area(s).</p>
<p style="-uslm-sgm:P">(iii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Needs to improve or substantial noncompliance overall ratings.</inline> A small bank may also receive a rating of “needs to improve” or “substantial noncompliance” depending on the degree to which its performance has failed to meet the standards for a “satisfactory” rating. </p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Strategic plan assessment and rating</inline>—(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Satisfactory goals.</inline> The Board approves as “satisfactory” measurable goals that adequately help to meet the credit needs of the bank's assessment area(s). </p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Outstanding goals.</inline> If the plan identifies a separate group of measurable goals that substantially exceed the levels approved as “satisfactory,” the Board will approve those goals as “outstanding.” </p>
<p style="-uslm-sgm:P">(3) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Rating.</inline> The Board assesses the performance of a bank operating under an approved plan to determine if the bank has met its plan goals: </p>
<p style="-uslm-sgm:P">(i) If the bank substantially achieves its plan goals for a satisfactory rating, the Board will rate the bank's performance under the plan as “satisfactory.” </p>
<p style="-uslm-sgm:P">(ii) If the bank exceeds its plan goals for a satisfactory rating and substantially achieves its plan goals for an outstanding rating, the Board will rate the bank's performance under the plan as “outstanding.” </p>
<p style="-uslm-sgm:P">(iii) If the bank fails to meet substantially its plan goals for a satisfactory rating, the Board will rate the bank as either “needs to improve” or “substantial noncompliance,” depending on the extent to which it falls short of its plan goals, unless the bank elected in its plan to be rated otherwise, as provided in <ref href="/us/cfr/t12/s228.27/f/4">§ 228.27(f)(4)</ref>. </p>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22198">60 FR 22198</ref>, <date date="1995-05-04">May 4, 1995</date>, as amended at <ref href="/us/fr/70/44268">70 FR 44268</ref>, <date date="2005-08-02" role="amended">Aug. 2, 2005</date>; <ref href="/us/fr/75/61044">75 FR 61044</ref>, <date date="2010-10-04" role="amended">Oct. 4, 2010</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 228, App. B</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix B to Part 228—</num>
<heading style="-uslm-sgm:HED">CRA Notice</heading>
<p style="-uslm-sgm:P">(a) Notice for main offices and, if an interstate bank, one branch office in each state. </p>
<heading style="-uslm-sgm:HD1">Community Reinvestment Act Notice</heading>
<p style="-uslm-sgm:P">Under the Federal Community Reinvestment Act (CRA), the Federal Reserve Board (Board) evaluates our record of helping to meet the credit needs of this community consistent with safe and sound operations. The Board also takes this record into account when deciding on certain applications submitted by us. </p>
<p style="-uslm-sgm:P">Your involvement is encouraged. </p>
<p style="-uslm-sgm:P">You are entitled to certain information about our operations and our performance under the CRA, including, for example, information about our branches, such as their location and services provided at them; the public section of our most recent CRA Performance Evaluation, prepared by the Federal Reserve Bank of ____ (Reserve Bank); and comments received from the public relating to our performance in helping to meet community credit needs, as well as our responses to those comments. You may review this information today. </p>
<p style="-uslm-sgm:P">At least 30 days before the beginning of each quarter, the Federal Reserve System publishes a list of the banks that are scheduled for CRA examination by the Reserve Bank in that quarter. This list is available from (title of responsible official), Federal Reserve Bank of ____ (address). You may send written comments about our performance in helping to meet community credit needs to (name and address of official at bank) and (title of responsible official), Federal Reserve Bank of ____ (address). Your letter, together with any response by us, will be considered by the Federal Reserve System in evaluating our CRA performance and may be made public. </p>
<p style="-uslm-sgm:P">You may ask to look at any comments received by the Reserve Bank. You may also request from the Reserve Bank an announcement of our applications covered by the CRA filed with the Reserve Bank. We are an affiliate of (name of holding company), a bank holding company. You may request from (title of responsible official), Federal Reserve <?page num="837"?>Bank of ____ (address) an announcement of applications covered by the CRA filed by bank holding companies. </p>
<p style="-uslm-sgm:P">(b) Notice for branch offices. </p>
<heading style="-uslm-sgm:HD1">Community Reinvestment Act Notice</heading>
<p style="-uslm-sgm:P">Under the Federal Community Reinvestment Act (CRA), the Federal Reserve Board (Board) evaluates our record of helping to meet the credit needs of this community consistent with safe and sound operations. The Board also takes this record into account when deciding on certain applications submitted by us. </p>
<p style="-uslm-sgm:P">Your involvement is encouraged. </p>
<p style="-uslm-sgm:P">You are entitled to certain information about our operations and our performance under the CRA. You may review today the public section of our most recent CRA evaluation, prepared by the Federal Reserve Bank of ____ (address), and a list of services provided at this branch. You may also have access to the following additional information, which we will make available to you at this branch within five calendar days after you make a request to us: (1) a map showing the assessment area containing this branch, which is the area in which the Board evaluates our CRA performance in this community; (2) information about our branches in this assessment area; (3) a list of services we provide at those locations; (4) data on our lending performance in this assessment area; and (5) copies of all written comments received by us that specifically relate to our CRA performance in this assessment area, and any responses we have made to those comments. If we are operating under an approved strategic plan, you may also have access to a copy of the plan. </p>
<p style="-uslm-sgm:P">[If you would like to review information about our CRA performance in other communities served by us, the public file for our entire bank is available at (name of office located in state), located at (address).] </p>
<p style="-uslm-sgm:P">At least 30 days before the beginning of each quarter, the Federal Reserve System publishes a list of the banks that are scheduled for CRA examination by the Reserve Bank in that quarter. This list is available from (title of responsible official), Federal Reserve Bank of ____ (address). You may send written comments about our performance in helping to meet community credit needs to (name and address of official at bank) and (title of responsible official), Federal Reserve Bank of ____ (address). Your letter, together with any response by us, will be considered by the Federal Reserve System in evaluating our CRA performance and may be made public. </p>
<p style="-uslm-sgm:P">You may ask to look at any comments received by the Reserve Bank. You may also request from the Reserve Bank an announcement of our applications covered by the CRA filed with the Reserve Bank. We are an affiliate of (name of holding company), a bank holding company. You may request from (title of responsible official), Federal Reserve Bank of ____ (address) an announcement of applications covered by the CRA filed by bank holding companies. </p>
<source style="-uslm-sgm:CITA">[Reg. BB, <ref href="/us/fr/60/22200">60 FR 22200</ref>, <date date="1995-05-04">May 4, 1995</date>]
</source>
</content>
</appendix>
</part>
<ear style="-uslm-sgm:EAR">Pt. 229</ear>
<part style="-uslm-sgm:PART" identifier="/us/cfr/t12/p229">
<num value="229" style="-uslm-sgm:HED">PART 229—</num>
<heading style="-uslm-sgm:HED">AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS (REGULATION CC)</heading>
<toc style="-uslm-sgm:CONTENTS">
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p229/spA">Subpart A—</designator>
<label>General</label>
</headingItem>
<headingItem style="-uslm-sgm:SECHD" role="columnHeader">
<designator>Sec.</designator>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.1">229.1</designator>
<label style="-uslm-sgm:SUBJECT">Authority and purpose; organization. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.2">229.2</designator>
<label style="-uslm-sgm:SUBJECT">Definitions. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.3">229.3</designator>
<label style="-uslm-sgm:SUBJECT">Administrative enforcement.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p229/spB">Subpart B—</designator>
<label>Availability of Funds and Disclosure of Funds Availability Policies </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.10">229.10</designator>
<label style="-uslm-sgm:SUBJECT">Next-day availability. </label>
</referenceItem>
<referenceItem role="reserved">
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.11">229.11</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.12">229.12</designator>
<label style="-uslm-sgm:SUBJECT">Availability schedule.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.13">229.13</designator>
<label style="-uslm-sgm:SUBJECT">Exceptions. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.14">229.14</designator>
<label style="-uslm-sgm:SUBJECT">Payment of interest. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.15">229.15</designator>
<label style="-uslm-sgm:SUBJECT">General disclosure requirements. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.16">229.16</designator>
<label style="-uslm-sgm:SUBJECT">Specific availability policy disclosure. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.17">229.17</designator>
<label style="-uslm-sgm:SUBJECT">Initial disclosures.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.18">229.18</designator>
<label style="-uslm-sgm:SUBJECT">Additional disclosure requirements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.19">229.19</designator>
<label style="-uslm-sgm:SUBJECT">Miscellaneous.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.20">229.20</designator>
<label style="-uslm-sgm:SUBJECT">Relation to state law.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.21">229.21</designator>
<label style="-uslm-sgm:SUBJECT">Civil liability.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p229/spC">Subpart C—</designator>
<label>Collection of Checks </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.30">229.30 </designator>
<label style="-uslm-sgm:SUBJECT">Electronic checks and electronic information.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.31">229.31</designator>
<label style="-uslm-sgm:SUBJECT">Paying bank's responsibility for return of checks and notices of nonpayment.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.32">229.32 </designator>
<label style="-uslm-sgm:SUBJECT">Returning bank's responsibility for return of checks.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.33">229.33</designator>
<label style="-uslm-sgm:SUBJECT">Depositary bank's responsibility for returned checks and notices of nonpayment.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.34">229.34</designator>
<label style="-uslm-sgm:SUBJECT">Warranties and indemnities.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.35">229.35</designator>
<label style="-uslm-sgm:SUBJECT">Indorsements.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.36">229.36</designator>
<label style="-uslm-sgm:SUBJECT">Presentment and issuance of checks.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.37">229.37</designator>
<label style="-uslm-sgm:SUBJECT">Variation by agreement.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.38">229.38</designator>
<label style="-uslm-sgm:SUBJECT">Liability.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.39">229.39</designator>
<label style="-uslm-sgm:SUBJECT">Insolvency of bank.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.40">229.40</designator>
<label style="-uslm-sgm:SUBJECT">Effect of merger transaction.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.41">229.41</designator>
<label style="-uslm-sgm:SUBJECT">Relation to State law.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.42">229.42</designator>
<label style="-uslm-sgm:SUBJECT">Exclusions.</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.43">229.43</designator>
<label style="-uslm-sgm:SUBJECT">Checks payable in Guam, American Samoa, and the Northern Mariana Islands.
</label>
</referenceItem>
</groupItem>
<groupItem style="-uslm-sgm:SUBPART">
<headingItem style="-uslm-sgm:HED">
<designator href="/us/cfr/t12/p229/spD">Subpart D—</designator>
<label>Substitute Checks </label>
</headingItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.51">229.51</designator>
<label style="-uslm-sgm:SUBJECT">General provisions governing substitute checks. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.52">229.52</designator>
<label style="-uslm-sgm:SUBJECT">Substitute check warranties. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.53">229.53</designator>
<label style="-uslm-sgm:SUBJECT">Substitute check indemnity.
<?page num="838"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.54">229.54</designator>
<label style="-uslm-sgm:SUBJECT">Expedited recredit for consumers. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.55">229.55</designator>
<label style="-uslm-sgm:SUBJECT">Expedited recredit for banks. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.56">229.56</designator>
<label style="-uslm-sgm:SUBJECT">Liability. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.57">229.57</designator>
<label style="-uslm-sgm:SUBJECT">Consumer awareness. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.58">229.58</designator>
<label style="-uslm-sgm:SUBJECT">Mode of delivery of information. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.59">229.59</designator>
<label style="-uslm-sgm:SUBJECT">Relation to other law. </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:SECTNO" href="/us/cfr/t12/s229.60">229.60</designator>
<label style="-uslm-sgm:SUBJECT">Variation by agreement.</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p229/spD/appA">Appendix A to Part 229—</designator>
<label>Routing Number Guide to Next-Day Availability Checks and Local Checks</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p229/spD/appB">Appendix B to Part 229 </designator>
<label>[Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p229/spD/appC">Appendix C to Part 229—</designator>
<label>Model Availability Policy Disclosures, Clauses, and Notices; Model Substitute Check Policy Disclosure and Notices</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="reserved appendixItem">
<designator href="/us/cfr/t12/p229/spD/appD">Appendix D to Part 229 </designator>
<label>[Reserved] </label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p229/spD/appE">Appendix E to Part 229—</designator>
<label>Commentary</label>
</referenceItem>
<referenceItem style="-uslm-sgm:APP" role="appendixItem">
<designator href="/us/cfr/t12/p229/spD/appF">Appendix F to Part 229—</designator>
<label>Official Board Interpretations; Preemption Determinations</label>
</referenceItem>
</groupItem>
</toc>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t12/s4001–4010">12 U.S.C. 4001–4010</ref>, <ref href="/us/usc/t12/s5001–5018">12 U.S.C. 5001–5018</ref>.</authority>
<source style="-uslm-sgm:SOURCE">
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, unless otherwise noted.
</source>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p229/spA">
<num value="A" style="-uslm-sgm:HED">Subpart A—</num>
<heading style="-uslm-sgm:HED">General
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.1">
<num value="229.1" style="-uslm-sgm:SECTNO">§ 229.1</num>
<heading style="-uslm-sgm:SUBJECT">Authority and purpose; organization.</heading>
<paragraph identifier="/us/cfr/t12/s229.1/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Authority and purpose.</heading>
<content> This part is issued by the Board of Governors of the Federal Reserve System (Board) to implement the Expedited Funds Availability Act (<ref href="/us/usc/t12/s4001–4010">12 U.S.C. 4001–4010</ref>) (the EFA Act) and the Check Clearing for the 21st Century Act (<ref href="/us/usc/t12/s5001–5018">12 U.S.C. 5001–5018</ref>) (the Check 21 Act).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Organization.</heading>
<chapeau> This part is divided into subparts and appendices as follows— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.1/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Subpart A contains general information. It sets forth— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.1/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The authority, purpose, and organization; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Definition of terms; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Authority for administrative enforcement of this part's provisions. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Subpart B of this part contains rules regarding the duty of banks to make funds deposited into accounts available for withdrawal, including availability schedules. Subpart B of this part also contains rules regarding exceptions to the schedules, disclosure of funds availability policies, payment of interest, liability of banks for failure to comply with subpart B of this part, and other matters.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Subpart C of this part contains rules to expedite the collection and return of checks and electronic checks by banks. These rules cover the direct return of checks and electronic checks, the manner in which the paying bank and returning banks must return checks and electronic checks to the depositary bank, notification of nonpayment by the paying bank, indorsement and presentment of checks and electronic checks, same-day settlement for certain checks, the liability of banks for failure to comply with subpart C of this part, and other matters.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Subpart D of this part contains rules relating to substitute checks. These rules address the creation and legal status of substitute checks; the substitute check warranties and indemnity; expedited recredit procedures for resolving improper charges and warranty claims associated with substitute checks provided to consumers; and the disclosure and notices that banks must provide.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Appendix A of this part contains a routing number guide to next day-availability checks. The guide lists the routing numbers of checks drawn on Federal Reserve Banks and Federal Home Loan Banks, and U.S. Treasury checks and Postal money orders that are subject to next-day availability.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Appendix B of this part is reserved.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Appendix C of this part contains model funds-availability policy disclosures, clauses, and notices and a model disclosure and notices related to substitute-check policies.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> Appendix D of this part is reserved.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/9" style="-uslm-sgm:P">
<num value="9">(9)</num>
<content> Appendix E of this part contains Board interpretations, which are labeled
“Commentary,” of the provisions of this part. The Commentary provides background material to explain the Board's intent in adopting a particular part of the regulation and provides examples to aid in understanding how a particular requirement is to work. The Commentary is an official Board interpretation under section 611(e) of the EFA Act (<ref href="/us/usc/t12/s4010/e">12 U.S.C. 4010(e)</ref>).</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.1/b/10" style="-uslm-sgm:P">
<num value="10">(10)</num>
<content> Appendix F of this part contains the Board's determinations of the EFA Act and Regulation CC's preemption of <?page num="839"?>state laws that were in effect on <date date="1989-09-01">September 1, 1989</date>.
</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/57/36598">57 FR 36598</ref>, <date date="1992-08-14" role="amended">Aug. 14, 1992</date>; <ref href="/us/fr/57/46972">57 FR 46972</ref>, <date date="1992-10-14" role="amended">Oct. 14, 1992</date>; Reg. CC, <ref href="/us/fr/60/51670">60 FR 51670</ref>, <date date="1995-10-03" role="amended">Oct. 3, 1995</date>; <ref href="/us/fr/69/47309">69 FR 47309</ref>, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>; <ref href="/us/fr/82/27578">82 FR 27578</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" role="definitions" identifier="/us/cfr/t12/s229.2">
<num value="229.2" style="-uslm-sgm:SECTNO">§ 229.2</num>
<heading style="-uslm-sgm:SUBJECT">Definitions. </heading>
<content>
<p style="-uslm-sgm:P">As used in this part, and unless the context requires otherwise, the following terms have the meanings set forth in this section, and the terms not defined in this section have the meanings set forth in the Uniform Commercial Code: </p>
<p style="-uslm-sgm:P">(a) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account.</inline> (1) Except as provided in paragraphs (a)(2) and (a)(3) of this section, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">account</inline> means a deposit as defined in <ref href="/us/cfr/t12/s204.2/a/1/i">12 CFR 204.2(a)(1)(i)</ref> that is a transaction account as described in <ref href="/us/cfr/t12/s204.2/e">12 CFR 204.2(e)</ref>. As defined in these sections, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">account</inline> generally includes accounts at a bank from which the account holder is permitted to make transfers or withdrawals by negotiable or transferable instrument, payment order of withdrawal, telephone transfer, electronic payment, or other similar means for the purpose of making payments or transfers to third persons or others. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Account</inline> also includes accounts at a bank from which the account holder may make third party payments at an ATM, remote service unit, or other electronic device, including by debit card, but the term does not include savings deposits or accounts described in <ref href="/us/cfr/t12/s204.2/d/2">12 CFR 204.2(d)(2)</ref> even though such accounts permit third party transfers. An account may be in the form of— </p>
<p style="-uslm-sgm:P">(i) A demand deposit account, </p>
<p style="-uslm-sgm:P">(ii) A negotiable order of withdrawal account, </p>
<p style="-uslm-sgm:P">(iii) A share draft account, </p>
<p style="-uslm-sgm:P">(iv) An automatic transfer account, or </p>
<p style="-uslm-sgm:P">(v) Any other transaction account described in <ref href="/us/cfr/t12/s204.2/e">12 CFR 204.2(e)</ref>. </p>
<p style="-uslm-sgm:P">(2) For purposes of subpart B of this part and, in connection therewith, this subpart A, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">account</inline> does not include an account where the account holder is a bank, where the account holder is an office of an institution described in paragraphs (e)(1) through (e)(6) of this section or an office of a “foreign bank” as defined in section 1(b) of the International Banking Act (<ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref>) that is located outside the United States, or where the direct or indirect account holder is the Treasury of the United States.</p>
<p style="-uslm-sgm:P">(3) For purposes of subpart D of this part and, in connection therewith, this subpart A, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">account</inline> means any deposit, as defined in <ref href="/us/cfr/t12/s204.2/a/1/i">12 CFR 204.2(a)(1)(i)</ref>, at a bank, including a demand deposit or other transaction account and a savings deposit or other time deposit, as those terms are defined in <ref href="/us/cfr/t12/s204.2">12 CFR 204.2</ref>. </p>
<p style="-uslm-sgm:P">(b) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automated clearinghouse</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ACH</inline> means a facility that processes debit and credit transfers under rules established by a Federal Reserve Bank operating circular on automated clearinghouse items or under rules of an automated clearinghouse association. </p>
<p style="-uslm-sgm:P">(c) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Automated teller machine</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">ATM</inline> means an electronic device at which a natural person may make deposits to an account by cash or check and perform other account transactions. </p>
<p style="-uslm-sgm:P">(d) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Available for withdrawal</inline> with respect to funds deposited means available for all uses generally permitted to the customer for actually and finally collected funds under the bank's account agreement or policies, such as for payment of checks drawn on the account, certification of checks drawn on the account, electronic payments, withdrawals by cash, and transfers between accounts. </p>
<p style="-uslm-sgm:P">(e) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Bank</inline> means— </p>
<p style="-uslm-sgm:P">(1) An <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">insured bank</inline> as defined in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s18I">12 U.S.C. 18I</ref>3) or a bank that is eligible to apply to become an insured bank under section 5 of that Act (<ref href="/us/usc/t12/s1815">12 U.S.C. 1815</ref>); </p>
<p style="-uslm-sgm:P">(2) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">mutual savings bank</inline> as defined in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>); </p>
<p style="-uslm-sgm:P">(3) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">savings bank</inline> as defined in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>); </p>
<p style="-uslm-sgm:P">(4) An <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">insured credit union</inline> as defined in section 101 of the Federal Credit Union Act (<ref href="/us/usc/t12/s1752">12 U.S.C. 1752</ref>) or a credit union that is eligible to make application to become an insured credit union under section 201 of that Act (<ref href="/us/usc/t12/s1781">12 U.S.C. 1781</ref>); </p>
<p style="-uslm-sgm:P">(5) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">member</inline> as defined in section 2 of the Federal Home Loan Bank Act (<ref href="/us/usc/t12/s1422">12 U.S.C. 1422</ref>);
<?page num="840"?></p>
<p style="-uslm-sgm:P">(6) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">savings association</inline> as defined in section 3 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813">12 U.S.C. 1813</ref>) that is an insured depository institution as defined in section 3 of that Act (<ref href="/us/usc/t12/s1813/c/2">12 U.S.C. 1813(c)(2)</ref>) or that is eligible to apply to become an insured depository institution under section 5 of that Act (<ref href="/us/usc/t12/s1815">12 U.S.C. 1815</ref>); or</p>
<p style="-uslm-sgm:P">(7) An <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">agency</inline> or a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">branch</inline> of a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">foreign bank</inline> as defined in section l(b) of the International Banking Act (<ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref>). </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">For purposes of subparts C and D of this part and, in connection therewith, this subpart A, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> also includes any person engaged in the business of banking, as well as a Federal Reserve Bank, a Federal Home Loan Bank, and a state or unit of general local government to the extent that the state or unit of general local government acts as a paying bank. Unless otherwise specified, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> includes all of a bank's offices in the United States, but not offices located outside the United States. </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:NOTE">
<heading style="-uslm-sgm:HED">Note:</heading>
<p style="-uslm-sgm:P">For purposes of subpart D of this part and, in connection therewith, this subpart A, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> also includes the Treasury of the United States or the United States Postal Service to the extent that the Treasury or the Postal Service acts as a paying bank.</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:P">(f) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Banking day</inline> means that part of any business day on which an office of a bank is open to the public for carrying on substantially all of its banking functions. </p>
<p style="-uslm-sgm:P">(g) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business day</inline> means a calendar day other than a Saturday or a Sunday, January 1, the third Monday in January, the third Monday in February, the last Monday in May, July 4, the first Monday in September, the second Monday in October, November 11, the fourth Thursday in November, or December 25. If January 1, July 4, November 11, or December 25 fall on a Sunday, the next Monday is not a business day. </p>
<p style="-uslm-sgm:P">(h) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cash</inline> means United States coins and currency. </p>
<p style="-uslm-sgm:P">(i) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cashier's check</inline> means a check that is— </p>
<p style="-uslm-sgm:P">(1) Drawn on a bank; </p>
<p style="-uslm-sgm:P">(2) Signed by an officer or employee of the bank on behalf of the bank as drawer; </p>
<p style="-uslm-sgm:P">(3) A direct obligation of the bank; and </p>
<p style="-uslm-sgm:P">(4) Provided to a customer of the bank or acquired from the bank for remittance purposes. </p>
<p style="-uslm-sgm:P">(j) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Certified check</inline> means a check with respect to which the drawee bank certifies by signature on the check of an officer or other authorized employee of the bank that— </p>
<p style="-uslm-sgm:P">(1) (i) The signature of the drawer on the check is genuine; and </p>
<p style="-uslm-sgm:P">(ii) The bank has set aside funds that— </p>
<p style="-uslm-sgm:P">(A) Are equal to the amount of the check, and </p>
<p style="-uslm-sgm:P">(B) Will be used to pay the check; or </p>
<p style="-uslm-sgm:P">(2) The bank will pay the check upon presentment. </p>
<p style="-uslm-sgm:P">(k) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Check</inline> means— </p>
<p style="-uslm-sgm:P">(1) A negotiable demand draft drawn on or payable through or at an office of a bank; </p>
<p style="-uslm-sgm:P">(2) A negotiable demand draft drawn on a Federal Reserve Bank or a Federal Home Loan Bank; </p>
<p style="-uslm-sgm:P">(3) A negotiable demand draft drawn on the Treasury of the United States; </p>
<p style="-uslm-sgm:P">(4) A demand draft drawn on a state government or unit of general local government that is not payable through or at a bank; </p>
<p style="-uslm-sgm:P">(5) A United States Postal Service money order; or </p>
<p style="-uslm-sgm:P">(6) A traveler's check drawn on or payable through or at a bank. </p>
<p style="-uslm-sgm:P">(7) The term check includes an original check and a substitute check. </p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:NOTE">
<heading style="-uslm-sgm:HED">Note:</heading>
<p style="-uslm-sgm:P">The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">check</inline> does not include a noncash item or an item payable in a medium other than United States money. A draft may be a <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">check</inline> even though it is described on its face by another term, such as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">money order.</inline> For purposes of subparts C and D, and in connection therewith, subpart A, of this part, the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">check</inline> also includes a demand draft of the type described above that is nonnegotiable.</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:P" role="reserved">(l) [Reserved]</p>
<p style="-uslm-sgm:P">(m) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Check processing region</inline> means the geographical area served by an office of a Federal Reserve Bank for purposes of its check processing activities. </p>
<p style="-uslm-sgm:P">(n) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer account</inline> means any account used primarily for personal, family, or household purposes.</p>
<p style="-uslm-sgm:P">(o) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Depositary bank</inline> means the first bank to which a check is transferred even though it is also the paying bank or the payee. A check deposited in an account is deemed to be transferred to <?page num="841"?>the bank holding the account into which the check is deposited, even though the check is physically received and indorsed first by another bank. </p>
<p style="-uslm-sgm:P">(p) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic payment</inline> means a wire transfer or an ACH credit transfer. </p>
<p style="-uslm-sgm:P">(q) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Forward collection</inline> means the process by which a bank sends a check on a cash basis to a collecting bank for settlement or to the paying bank for payment. </p>
<p style="-uslm-sgm:P">(r) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Local check</inline> means a check payable by or at a local paying bank, or a check payable by a nonbank payor and payable through a local paying bank. </p>
<p style="-uslm-sgm:P">(s) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Local paying bank</inline> means a paying bank that is located in the same check-processing region as the physical location of the branch, contractual branch, or proprietary ATM of the depositary bank in which that check was deposited. </p>
<p style="-uslm-sgm:P">(t) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Merger transaction</inline> means— </p>
<p style="-uslm-sgm:P">(1) A merger or consolidation of two or more banks; or </p>
<p style="-uslm-sgm:P">(2) The transfer of substantially all of the assets of one or more banks or branches to another bank in consideration of the assumption by the acquiring bank of substantially all of the liabilities of the transferring banks, including the deposit liabilities. </p>
<p style="-uslm-sgm:P">(u) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Noncash item</inline> means an item that would otherwise be a check, except that— </p>
<p style="-uslm-sgm:P">(1) A passbook, certificate, or other document is attached; </p>
<p style="-uslm-sgm:P">(2) It is accompanied by special instructions, such as a request for special advice of payment or dishonor; </p>
<p style="-uslm-sgm:P">(3) It consists of more than a single thickness of paper, except a check that qualifies for handling by automated check processing equipment; or </p>
<p style="-uslm-sgm:P">(4) It has not been preprinted or post-encoded in magnetic ink with the routing number of the paying bank. </p>
<p style="-uslm-sgm:P">(v) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonlocal check</inline> means a check payable by, through, or at a nonlocal paying bank. </p>
<p style="-uslm-sgm:P">(w) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonlocal paying bank</inline> means a paying bank that is not a local paying bank with respect to the depositary bank. </p>
<p style="-uslm-sgm:P">(x) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Nonproprietary ATM</inline> means an ATM that is not a proprietary ATM. </p>
<p style="-uslm-sgm:P" role="reserved">(y) [Reserved]</p>
<p style="-uslm-sgm:P">(z) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paying bank</inline> means— </p>
<p style="-uslm-sgm:P">(1) The bank by which a check is payable, unless the check is payable at another bank and is sent to the other bank for payment or collection; </p>
<p style="-uslm-sgm:P">(2) The bank at which a check is payable and to which it is sent for payment or collection; </p>
<p style="-uslm-sgm:P">(3) The Federal Reserve Bank or Federal Home Loan Bank by which a check is payable; </p>
<p style="-uslm-sgm:P">(4) The bank through which a check is payable and to which it is sent for payment or collection, if the check is not payable by a bank; or </p>
<p style="-uslm-sgm:P">(5) The state or unit of general local government on which a check is drawn and to which it is sent for payment or collection. </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">For purposes of subparts C and D, and in connection therewith, subpart A, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">paying bank</inline> includes the bank through which a check is payable and to which the check is sent for payment or collection, regardless of whether the check is payable by another bank, and the bank whose routing number appears on a check in fractional or magnetic form and to which the check is sent for payment or collection.</p>
<?GPOvSpace 04?>
<note style="-uslm-sgm:NOTE">
<heading style="-uslm-sgm:HED">Note:</heading>
<p style="-uslm-sgm:P">For purposes of subpart D of this part and, in connection therewith, this subpart A, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">paying bank</inline> also includes the Treasury of the United States or the United States Postal Service for a check that is payable by that entity and that is sent to that entity for payment or collection.</p>
</note>
<?GPOvSpace 04?>
<p style="-uslm-sgm:P">(aa) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Proprietary ATM</inline> means an ATM that is— </p>
<p style="-uslm-sgm:P">(1) Owned or operated by, or operated exclusively for, the depositary bank; </p>
<p style="-uslm-sgm:P">(2) Located on the premises (including the outside wall) of the depositary bank; or </p>
<p style="-uslm-sgm:P">(3) Located within 50 feet of the premises of the depositary bank, and not identified as being owned or operated by another entity. </p>
<p style="-uslm-sgm:P">If more than one bank meets the owned or operated criterion of paragraph (aa)(1) of this section, the ATM is considered proprietary to the bank that operates it. </p>
<p style="-uslm-sgm:P">(bb) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualified returned check</inline> means a returned check that is prepared for automated return to the depositary bank by placing the check in a carrier envelope or placing a strip on the <?page num="842"?>check and encoding the strip or envelope in magnetic ink. A qualified returned check need not contain other elements of a check drawn on the depositary bank, such as the name of the depositary bank. </p>
<p style="-uslm-sgm:P">(cc) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Returning bank</inline> means a bank (other than the paying or depositary bank) handling a returned check or notice in lieu of return. A returning bank is also a collecting bank for purposes of UCC 4–202(b).
</p>
<p style="-uslm-sgm:P">(dd) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Routing number</inline> means—</p>
<p style="-uslm-sgm:P">(1) The number printed on the face of a check in fractional form on in nine-digit form;</p>
<p style="-uslm-sgm:P">(2) The number in a bank's indorsement in fractional or nine-digit form; or</p>
<p style="-uslm-sgm:P">(3) For purposes of subpart C and subpart D, the bank-identification number contained in an electronic check or electronic returned check.
</p>
<p style="-uslm-sgm:P">(ee) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Similarly situated bank</inline> means a bank of similar size, located in the same community, and with similar check handling activities as the paying bank or returning bank. </p>
<p style="-uslm-sgm:P">(ff) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">State</inline> means a state, the District of Columbia, Puerto Rico, or the U.S. Virgin Islands. For purposes of subpart D of this part and, in connection therewith, this subpart A, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">state</inline> also means Guam, American Samoa, the Trust Territory of the Pacific Islands, the Northern Mariana Islands, and any other territory of the United States.</p>
<p style="-uslm-sgm:P">(gg) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Teller's check</inline> means a check provided to a customer of a bank or acquired from a bank for remittance purposes, that is drawn by the bank, and drawn on another bank or payable through or at a bank. </p>
<p style="-uslm-sgm:P">(hh) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Traveler's check</inline> means an instrument for the payment of money that— </p>
<p style="-uslm-sgm:P">(1) Is drawn on or payable through or at a bank; </p>
<p style="-uslm-sgm:P">(2) Is designated on its face by the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">traveler's check</inline> or by any substantially similar term or is commonly known and marketed as a traveler's check by a corporation or bank that is an issuer of traveler's checks; </p>
<p style="-uslm-sgm:P">(3) Provides for a specimen signature of the purchaser to be completed at the time of purchase; and </p>
<p style="-uslm-sgm:P">(4) Provides for a countersignature of the purchaser to be completed at the time of negotiation. </p>
<p style="-uslm-sgm:P">(ii) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Uniform Commercial Code, Code,</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">U.C.C.</inline> means the Uniform Commercial Code as adopted in a state. </p>
<p style="-uslm-sgm:P">(jj) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">United States</inline> means the states, including the District of Columbia, the U.S. Virgin Islands, and Puerto Rico. </p>
<p style="-uslm-sgm:P">(kk) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Unit of general local government</inline> means any city, county, parish, town, township, village, or other general purpose political subdivision of a state. The term does not include special purpose units of government, such as school districts or water districts. </p>
<p style="-uslm-sgm:P">(ll) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wire transfer</inline> means an unconditional order to a bank to pay a fixed or determinable amount of money to a beneficiary upon receipt or on a day stated in the order, that is transmitted by electronic or other means through Fedwire, the Clearing House Interbank Payments System, other similar network, between banks, or on the books of a bank. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Wire transfer</inline> does not include an electronic fund transfer as defined in section 903(6) of the Electronic Fund Transfer Act (<ref href="/us/usc/t15/s1693a/6">15 U.S.C. 1693a(6)</ref>).</p>
<p style="-uslm-sgm:P">(mm) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Fedwire</inline> has the same meaning as that set forth in <ref href="/us/cfr/t12/s210.26/e">§ 210.26(e)</ref> of this chapter.</p>
<p style="-uslm-sgm:P">(nn) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Good faith</inline> means honesty in fact and observance of reasonable commercial standards of fair dealing.</p>
<p style="-uslm-sgm:P">(oo) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Interest compensation</inline> means an amount of money calculated at the average of the Federal Funds rates published by the Federal Reserve Bank of New York for each of the days for which interest compensation is payable, divided by 360. The Federal Funds rate for any day on which a published rate is not available is the same as the published rate for the last preceding day for which there is a published rate.</p>
<p style="-uslm-sgm:P">(pp) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Contractual branch,</inline> with respect to a bank, means a branch of another bank that accepts a deposit on behalf of the first bank. </p>
<p style="-uslm-sgm:P">(qq) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Claimant bank</inline> means a bank that submits a claim for a recredit for a substitute check to an indemnifying bank under <ref href="/us/cfr/t12/s229.55">§ 229.55</ref>.</p>
<p style="-uslm-sgm:P">(rr) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Collecting bank</inline> means any bank handling a check for forward collection, except the paying bank.</p>
<p style="-uslm-sgm:P">(ss) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Consumer</inline> means a natural person who—</p>
<p style="-uslm-sgm:P">(1) With respect to a check handled for forward collection, draws the check on a consumer account; or
<?page num="843"?></p>
<p style="-uslm-sgm:P">(2) With respect to a check handled for return, deposits the check into or cashes the check against a consumer account.</p>
<p style="-uslm-sgm:P">(tt) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Customer</inline> means a person having an account with a bank.
</p>
<p style="-uslm-sgm:P">(uu) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Indemnifying bank.</inline> Indemnifying bank means—</p>
<p style="-uslm-sgm:P">(1) For the purposes of <ref href="/us/cfr/t12/s229.34">§ 229.34</ref>, a bank that provides an indemnity under <ref href="/us/cfr/t12/s229.34">§ 229.34</ref> with respect to remote deposit capture or an electronically-created item, or</p>
<p style="-uslm-sgm:P">(2) For the purposes of <ref href="/us/cfr/t12/s229.53">§ 229.53</ref>, a bank that provides an indemnity under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> with respect to a substitute check.</p>
<p style="-uslm-sgm:P">(vv) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Magnetic ink character recognition line</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">MICR line</inline> mean the numbers, which may include the routing number, account number, check number, check amount, and other information, that are (unless the Board by rule or order determines that different standards apply)—</p>
<p style="-uslm-sgm:P">(1) Printed near the bottom of a check in magnetic ink in accordance with American National Standard Specifications for Placement and Location of MICR Printing, X9.13 (hereinafter ANS X9.13) for an original check and American National Standard Specifications for an Image Replacement Document— IRD, X9.100–140 (hereinafter ANS X9.100–140) for a substitute check, or</p>
<p style="-uslm-sgm:P">(2) For purposes of subpart C and subpart D, contained in a record specified for MICR line data in an electronic check or electronic returned check in accordance with American National Standard Specifications for Electronic Exchange of Check Image Data—Domestic, X9.100–187 (hereinafter ANS X9.100—187).
</p>
<p style="-uslm-sgm:P">(ww) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Original check</inline> means the first paper check issued with respect to a particular payment transaction.</p>
<p style="-uslm-sgm:P">(xx) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Paper or electronic representation of a substitute check</inline> means any copy of or information related to a substitute check that a bank handles for forward collection or return, charges to a customer's account, or provides to a person as a record of a check payment made by the person.</p>
<p style="-uslm-sgm:P">(yy) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Person</inline> means a natural person, corporation, unincorporated company, partnership, government unit or instrumentality, trust, or any other entity or organization.</p>
<p style="-uslm-sgm:P">(zz) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Reconverting bank</inline> means—</p>
<p style="-uslm-sgm:P">(1) The bank that creates a substitute check; or</p>
<p style="-uslm-sgm:P">(2) With respect to a substitute check that was created by a person that is not a bank, the first bank that transfers, presents, or returns that substitute check or, in lieu thereof, the first paper or electronic representation of that substitute check.</p>
<p style="-uslm-sgm:P">(aaa) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Substitute check</inline> means a paper reproduction of an original check that—</p>
<p style="-uslm-sgm:P">(1) Contains an image of the front and back of the original check;</p>
<p style="-uslm-sgm:P">(2) Bears a MICR line that, except as provided under ANS X9.100–140 (unless the Board by rule or order determines that a different standard applies), contains all the information appearing on the MICR line of the original check at the time that the original check was issued and any additional information that was encoded on the original check's MICR line before an image of the original check was captured;</p>
<p style="-uslm-sgm:P">(3) Conforms in paper stock, dimension, and otherwise with ANS X9.100–140 (unless the Board by rule or order determines that a different standard applies); and</p>
<p style="-uslm-sgm:P">(4) Is suitable for automated processing in the same manner as the original check.
</p>
<p style="-uslm-sgm:P">(bbb) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Copy and sufficient copy.</inline> (1) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">copy of an original check</inline> means—</p>
<p style="-uslm-sgm:P">(i) Any paper reproduction of an original check, including a paper printout of an electronic image of the check, a photocopy of the original check, or a substitute check; or</p>
<p style="-uslm-sgm:P">(ii) Any electronic reproduction of a check that a recipient has agreed to receive from the sender instead of a paper reproduction.</p>
<p style="-uslm-sgm:P">(2) A <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">sufficient copy</inline> is a copy of an original check that accurately represents all of the information on the front and back of the original check as of the time the original check was truncated or is otherwise sufficient to determine whether or not a claim is valid.
</p>
<p style="-uslm-sgm:P">(ccc) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Transfer and consideration.</inline> The terms <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">transfer</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">consideration</inline> have the meanings set forth in the Uniform <?page num="844"?>Commercial Code and in addition, for purposes of subpart D—</p>
<p style="-uslm-sgm:P">(1) The term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">transfer</inline> with respect to a substitute check or a paper or electronic representation of a substitute check means delivery of the substitute check or other representation of the substitute check by a bank to a person other than a bank; and</p>
<p style="-uslm-sgm:P">(2) A bank that transfers a substitute check or a paper or electronic representation of a substitute check directly to a person other than a bank has received <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">consideration</inline> for the substitute check or other paper or electronic representation of the substitute check if it has charged, or has the right to charge, the person's account or otherwise has received value for the original check, a substitute check, or a representation of the original check or substitute check.</p>
<p style="-uslm-sgm:P">(ddd) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Truncate</inline> means to remove an original check from the forward collection or return process and send to a recipient, in lieu of such original check, a substitute check or, by agreement, information relating to the original check (including data taken from the MICR line of the original check or an electronic image of the original check), whether with or without the subsequent delivery of the original check.</p>
<p style="-uslm-sgm:P">(eee) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Truncating bank</inline> means—</p>
<p style="-uslm-sgm:P">(1) The bank that truncates the original check; or</p>
<p style="-uslm-sgm:P">(2) If a person other than a bank truncates the original check, the first bank that transfers, presents, or returns, in lieu of such original check, a substitute check or, by agreement with the recipient, information relating to the original check (including data taken from the MICR line of the original check or an electronic image of the original check), whether with or without the subsequent delivery of the original check.</p>
<p style="-uslm-sgm:P">(fff) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Remotely created check</inline> means a check that is not created by the paying bank and that does not bear a signature applied, or purported to be applied, by the person on whose account the check is drawn. For purposes of this definition, “account” means an account as defined in paragraph (a) of this section as well as a credit or other arrangement that allows a person to draw checks that are payable by, through, or at a bank.
</p>
<p style="-uslm-sgm:P">(ggg) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronic check</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">electronic returned check</inline> mean an electronic image of, and electronic information derived from, a paper check or paper returned check, respectively,
that—</p>
<p style="-uslm-sgm:P">(1) Is sent to a receiving bank pursuant to an agreement between the sender and the receiving bank; and</p>
<p style="-uslm-sgm:P">(2) Conforms with ANS X9.100–187, unless the Board by rule or order determines that a different standard applies or the parties otherwise agree.</p>
<p style="-uslm-sgm:P">(hhh) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Electronically-created item</inline> means an electronic image that has all the attributes of an electronic check or electronic returned check but was created electronically and not derived from a paper check.
</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/53/31292">53 FR 31292</ref>, <date date="1988-08-18" role="amended">Aug. 18, 1988</date>; <ref href="/us/fr/53/44324">53 FR 44324</ref>, <date date="1988-11-02" role="amended">Nov. 2, 1988</date>; Reg. CC, <ref href="/us/fr/54/13850">54 FR 13850</ref>, <date date="1989-04-06" role="amended">Apr. 6, 1989</date>; <ref href="/us/fr/57/46972">57 FR 46972</ref>, <date date="1992-10-14" role="amended">Oct. 14, 1992</date>; <ref href="/us/fr/58/2">58 FR 2</ref>, <date date="1993-01-04" role="amended">Jan. 4, 1993</date>; <ref href="/us/fr/60/51670">60 FR 51670</ref>, <date date="1995-10-03" role="amended">Oct. 3, 1995</date>; <ref href="/us/fr/62/13809">62 FR 13809</ref>, <date date="1997-03-24" role="amended">Mar. 24, 1997</date>; <ref href="/us/fr/69/47309">69 FR 47309</ref>, 47310, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>; <ref href="/us/fr/70/71225">70 FR 71225</ref>, <date date="2005-11-28" role="amended">Nov. 28, 2005</date>; <ref href="/us/fr/82/27578">82 FR 27578</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.3">
<num value="229.3" style="-uslm-sgm:SECTNO">§ 229.3</num>
<heading style="-uslm-sgm:SUBJECT">Administrative enforcement. </heading>
<paragraph identifier="/us/cfr/t12/s229.3/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Enforcement agencies.</heading>
<chapeau> Compliance with this part is enforced under—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.3/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> Section 8 of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1818">12 U.S.C. 1818</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) in the case of—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.3/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> National banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Member banks of the Federal Reserve System (other than national banks), and offices, branches, and agencies of foreign banks located in the United States (other than Federal branches, Federal agencies, and insured State branches of foreign banks), by the Board; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Section 8 of the Federal Deposit Insurance Act, by the Director of the Office of Thrift Supervision in the case of savings associations the deposits of which are insured by the Federal Deposit Insurance Corporation; and
<?page num="845"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content>
<p> The Federal Credit Union Act (<ref href="/us/usc/t12/s1751">12 U.S.C. 1751</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) by the National Credit Union Administration Board with respect to any federal credit union or credit union insured by the National Credit Union Share Insurance Fund.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">The terms used in paragraph (a)(1) of this section that are not defined in this part or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (<ref href="/us/usc/t12/s1813/s">12 U.S.C. 1813(s)</ref>) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (<ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref>).</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Additional powers.</heading>
<paragraph identifier="/us/cfr/t12/s229.3/b/1" class="inline">
<num value="1"> (1)</num>
<content> For the purposes of the exercise by any agency referred to in paragraph (a) of this section of its powers under any statute referred to in that paragraph, a violation of any requirement imposed under the EFA Act is deemed to be a violation of a requirement imposed under that statute. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> In addition to its powers under any provision of law specifically referred to in paragraph (a) of this section, each of the agencies referred to in that paragraph may exercise, for purposes of enforcing compliance with any requirement imposed under this part, any other authority conferred on it by law. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Enforcement by the Board.</heading>
<paragraph identifier="/us/cfr/t12/s229.3/c/1" class="inline">
<num value="1"> (1)</num>
<content> Except to the extent that enforcement of the requirements imposed under this part is specifically committed to some other government agency, the Board shall enforce such requirements. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> If the Board determines that— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.3/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Any bank that is not a bank described in paragraph (a) of this section; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.3/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> Any other person subject to the authority of the Board under the EFA Act and this part,</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">has failed to comply with any requirement imposed by this part, the Board may issue an order prohibiting any bank, any Federal Reserve Bank, or any other person subject to the authority of the Board from engaging in any activity or transaction that directly or indirectly involves such noncomplying bank or person (including any activity or transaction involving the receipt, payment, collection, and clearing of checks, and any related function of the payment system with respect to checks).</p>
</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended by Reg. CC, <ref href="/us/fr/55/21855">55 FR 21855</ref>, <date date="1990-05-30" role="amended">May 30, 1990</date>; <ref href="/us/fr/57/36600">57 FR 36600</ref>, <date date="1992-08-14" role="amended">Aug. 14, 1992</date>; <ref href="/us/fr/69/47310">69 FR 47310</ref>, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p229/spB">
<num value="B" style="-uslm-sgm:HED">Subpart B—</num>
<heading style="-uslm-sgm:HED">Availability of Funds and Disclosure of Funds Availability Policies
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.10">
<num value="229.10" style="-uslm-sgm:SECTNO">§ 229.10</num>
<heading style="-uslm-sgm:SUBJECT">Next-day availability. </heading>
<paragraph identifier="/us/cfr/t12/s229.10/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Cash deposits.</heading>
<paragraph identifier="/us/cfr/t12/s229.10/a/1" class="inline">
<num value="1"> (1)</num>
<content> A bank shall make funds deposited in an account by cash available for withdrawal not later than the business day after the banking day on which the cash is deposited, if the deposit is made in person to an employee of the depositary bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A bank shall make funds deposited in an account by cash available for withdrawal not later than the second business day after the banking day on which the cash is deposited, if the deposit is not made in person to an employee of the depositary bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Electronic payments—</heading>
<paragraph identifier="/us/cfr/t12/s229.10/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> A bank shall make funds received for deposit in an account by an electronic payment available for withdrawal not later than the business day after the banking day on which the bank received the electronic payment. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>When an electronic payment is received.</heading>
<chapeau> An electronic payment is received when the bank receiving the payment has received both— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.10/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Payment in actually and finally collected funds; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> Information on the account and amount to be credited. </p>
<p style="-uslm-sgm:P">A bank receives an electronic payment only to the extent that the bank has received payment in actually and finally collected funds. </p>
</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Certain check deposits—</heading>
<paragraph identifier="/us/cfr/t12/s229.10/c/1" class="inline">
<num value="1">(1) </num>
<heading>General rule.</heading>
<chapeau> A depositary bank shall make funds deposited in an account by check available for withdrawal not later than the business day after the banking day on which the funds are deposited, in the case of— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A check drawn on the Treasury of the United States and deposited in an account held by a payee of the check; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> A U.S. Postal Service money order deposited— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> In an account held by a payee of the money order; and
<?page num="846"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In person to an employee of the depositary bank. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<chapeau> A check drawn on a Federal Reserve Bank or Federal Home Loan Bank and deposited— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> In an account held by a payee of the check; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In person to an employee of the depositary bank; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<chapeau> A check drawn by a state or a unit of general local government and deposited— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iv/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> In an account held by a payee of the check; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iv/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In a depositary bank located in the state that issued the check, or the same state as the unit of general local government that issued the check; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iv/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> In person to an employee of the depositary bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/iv/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> With a special deposit slip or deposit envelope, if such slip or envelope is required by the depositary bank under paragraph (c)(3) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/v" style="-uslm-sgm:P">
<num value="v">(v)</num>
<chapeau> A cashier's, certified, or teller's check deposited— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/v/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> In an account held by a payee of the check; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/v/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> In person to an employee of the depositary bank; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/v/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> With a special deposit slip or deposit envelope, if such slip or envelope is required by the depositary bank under paragraph (c)(3) of this section. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/vi" style="-uslm-sgm:P">
<num value="vi">(vi)</num>
<content> A check deposited in a branch of the depositary bank and drawn on the same or another branch of the same bank if both branches are located in the same state or the same check processing region; and, </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/vii" style="-uslm-sgm:P">
<num value="vii">(vii)</num>
<chapeau> The lesser of— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/vii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> $100, or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/1/vii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The aggregate amount deposited on any one banking day to all accounts of the customer by check or checks not subject to next-day availability under paragraphs (c)(1) (i) through (vi) of this section. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Checks not deposited in person.</heading>
<content> A depositary bank shall make funds deposited in an account by check or checks available for withdrawal not later than the second business day after the banking day on which funds are deposited, in the case of a check deposit described in and that meets the requirements of paragraphs (c)(1) (ii), (iii), (iv), and (v), of this section, except that it is not deposited in person to an employee of the depositary bank. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Special deposit slip.</heading>
<paragraph identifier="/us/cfr/t12/s229.10/c/3/i" class="inline">
<num value="i"> (i)</num>
<content> As a condition to making the funds available for withdrawal in accordance with this section, a depositary bank may require that a state or local government check or a cashier's, certified, or teller's check be deposited with a special deposit slip or deposit envelope that identifies the type of check. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.10/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If a depositary bank requires the use of a special deposit slip or deposit envelope, the bank must either provide the special deposit slip or deposit envelope to its customers or inform its customers how the slip or envelope may be prepared or obtained and make the slip or envelope reasonably available.
</content>
</paragraph>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" role="reserved" identifier="/us/cfr/t12/s229.11">
<num value="229.11" style="-uslm-sgm:SECTNO">§ 229.11</num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.12">
<num value="229.12" style="-uslm-sgm:SECTNO">§ 229.12 </num>
<heading style="-uslm-sgm:SUBJECT">Availability schedule.</heading>
<paragraph identifier="/us/cfr/t12/s229.12/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Effective date.</heading>
<content> The availability schedule contained in this section is effective <date date="1990-09-01">September 1, 1990</date>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Local checks and certain other checks.</heading>
<chapeau> Except as provided in paragraphs (d), (e), and (f) of this section, a depository bank shall make funds deposited in an account by a check available for withdrawal not later than the second business day following the banking day on which funds are deposited, in the case of— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.12/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A local check; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A check drawn on the Treasury of the United States that is not governed by the availability requirements of <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A U.S. Postal Service money order that is not governed by the availability requirements of <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A check drawn on a Federal Reserve Bank or Federal Home Loan Bank; a check drawn by a state or unit of general local government; or a cashier's, certified, or teller's check; if any check referred to in this paragraph (b)(4) is a local check that is not governed by the availability requirements of <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Nonlocal checks—</heading>
<paragraph identifier="/us/cfr/t12/s229.12/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraphs (d), (e), and (f) of this section, a depositary bank shall make funds deposited in an account by a check available for withdrawal not later than the fifth business day following the banking day on <?page num="847"?>which funds are deposited, in the case of— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.12/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A nonlocal check; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A check drawn on a Federal Reserve Bank or Federal Home Loan Bank; a check drawn by a state or unit of general local government; a cashier's, certified, or teller's check; or a check deposited in a branch of the depositary bank and drawn on the same or another branch of the same bank, if any check referred to in this paragraph (c)(1)(ii) is a nonlocal check that is not governed by the availability requirements of <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Nonlocal checks specified in appendix B–2 to this part must be made available for withdrawal not later than the times prescribed in that appendix. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Time period adjustment for withdrawal by cash or similar means.</heading>
<content> A depositary bank may extend by one business day the time that funds deposited in an account by one or more checks subject to paragraphs (b), (c), or (f) of this section are available for withdrawal by cash or similar means. Similar means include electronic payment, issuance of a cashier's or teller's check, or certification of a check, or other irrevocable commitment to pay, but do not include the granting of credit to a bank, a Federal Reserve Bank, or a Federal Home Loan Bank that presents a check to the depositary bank for payment. A depositary bank shall, however, make $400 of these funds available for withdrawal by cash or similar means not later than 5:00 p.m. on the business day on which the funds are available under paragraphs (b), (c), or (f) of this section. This $400 is in addition to the $100 available under <ref href="/us/cfr/t12/s229.10/c/1/vii">§ 229.10(c)(1)(vii)</ref>. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Extension of schedule for certain deposits in Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands.</heading>
<chapeau> The depositary bank may extend the time periods set forth in this section by one business day in the case of any deposit, other than a deposit described in <ref href="/us/cfr/t12/s229.10">§ 229.10</ref>, that is— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.12/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Deposited in an account at a branch of a depositary bank if the branch is located in Alaska, Hawaii, Puerto Rico, or the U.S. Virgin Islands; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Deposited by a check drawn on or payable at or through a paying bank not located in the same state as the depositary bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.12/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Deposits at nonproprietary ATMs.</heading>
<content> A depositary bank shall make funds deposited in an account at a nonproprietary ATM by cash or check available for withdrawal not later than the fifth business day following the banking day on which the funds are deposited.</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended by Reg. CC, <ref href="/us/fr/55/50818">55 FR 50818</ref>, <date date="1990-12-11" role="amended">Dec. 11, 1990</date>; <ref href="/us/fr/56/7801">56 FR 7801</ref>, <date date="1991-02-26" role="amended">Feb. 26, 1991</date>; <ref href="/us/fr/56/66343">56 FR 66343</ref>, <date date="1991-12-23" role="amended">Dec. 23, 1991</date>; <ref href="/us/fr/57/36601">57 FR 36601</ref>, <date date="1992-08-14" role="amended">Aug. 14, 1992</date>; <ref href="/us/fr/60/51670">60 FR 51670</ref>, <date date="1995-10-03" role="amended">Oct. 3, 1995</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.13">
<num value="229.13" style="-uslm-sgm:SECTNO">§ 229.13</num>
<heading style="-uslm-sgm:SUBJECT">Exceptions.</heading>
<paragraph identifier="/us/cfr/t12/s229.13/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>New accounts.</heading>
<chapeau> For purposes of this paragraph, checks subject to <ref href="/us/cfr/t12/s229.10/c/1/v">§ 229.10(c)(1)(v)</ref> include traveler's checks. </chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> A deposit in a new account— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Is subject to the requirements of <ref href="/us/cfr/t12/s229.10">§ 229.10</ref> (a) and (b) to make funds from deposits by cash and electronic payments available for withdrawal on the business day following the banking day of deposit or receipt; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Is subject to the requirements of <ref href="/us/cfr/t12/s229.10/c/1">§ 229.10(c)(1)</ref> (i) through (v) and <ref href="/us/cfr/t12/s229.10/c/2">§ 229.10(c)(2)</ref> only with respect to the first $5,000 of funds deposited on any one banking day; but the amount of the deposit in excess of $5,000 shall be available for withdrawal not later than the ninth business day following the banking day on which funds are deposited; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/a/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Is not subject to the availability requirements of <ref href="/us/cfr/t12/s229.10/c/1/vi">§§ 229.10(c)(1)(vi)</ref> and (vii) and 229.12.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> An account is considered a new account during the first 30 calendar days after the account is established. An account is not considered a new account if each customer on the account has had, within 30 calendar days before the account is established, another account at the depositary bank for at least 30 calendar days. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Large deposits.</heading>
<content> Sections 229.10(c) and 229.12 do not apply to the aggregate amount of deposits by one or more checks to the extent that the aggregate amount is in excess of $5,000 on any one banking. day. For customers that have multiple accounts at a depositary bank, the bank may apply this exception to the aggregate deposits to all accounts held by the customer, even if the customer is not the sole holder of <?page num="848"?>the accounts and not all of the holders of the accounts are the same. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Redeposited checks.</heading>
<chapeau> Sections 229.10(c) and 229.12 do not apply to a check that has been returned unpaid and redeposited by the customer or the depositary bank. This exception does not apply— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> To a check that has been returned due to a missing indorsement and redeposited after the missing indorsement has been obtained, if the reason for return indication on the check states that it was returned due to a missing indorsement; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> To a check that has been returned because it was post dated, if the reason for return indicated on the check states that it was returned because it was post dated, and if the check is no longer postdated when redeposited. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Repeated overdrafts.</heading>
<chapeau> If any account or combination of accounts of a depositary bank's customer has been repeatedly overdrawn, then for a period of six months after the last such overdraft, <ref href="/us/cfr/t12/s229.10/c">§§ 229.10(c)</ref> and 229.12 do not apply to any of the accounts. A depositary bank may consider a customer's account to be repeatedly overdrawn if— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> On six or more banking days within the preceding six months, the account balance is negative, or the account balance would have become negative if checks or other charges to the account had been paid; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> On two or more banking days within the preceding six months, the account balance is negative, or the account balance would have become negative, in the amount of $5,000 or more, if checks or other charges to the account had been paid. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Reasonable cause to doubt collectibility—</heading>
<paragraph identifier="/us/cfr/t12/s229.13/e/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> Sections 229.10(c) and 229.12 do not apply to a check deposited in an account at a depositary bank if the depositary bank has reasonable cause to believe that the check is uncollectible from the paying bank. Reasonable cause to believe a check is uncollectible requires the existence of facts that would cause a well-grounded belief in the mind of a reasonable person. Such belief shall not be based on the fact that the check is of a particular class or is deposited by a particular class of persons. The reason for the bank's belief that the check is uncollectible shall be included in the notice required under paragraph (g) of this section. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Overdraft and returned check fees.</heading>
<chapeau> A depositary bank that extends the time when funds will be available for withdrawal as described in paragraph (e)(1) of this section, and does not furnish the depositor with written notice at the time of deposit shall not assess any fees for any subsequent overdrafts (including use of a line of credit) or return of checks of other debits to the account, if— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The overdraft or return of the check would not have occurred except for the fact that the deposited funds were delayed under paragraph (e)(1) of this section; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> The deposited check was paid by the paying bank.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">Notwithstanding the foregoing, the depositary bank may assess an overdraft or returned check fee if it includes a notice concerning overdraft and returned check fees with the notice of exception required in paragraph (g) of this section and, when required, refunds any such fees upon the request of the customer. The notice must state that the customer may be entitled to a refund of overdraft or returned check fees that are assessed if the check subject to the exception is paid and how to obtain a refund. </p>
</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Emergency conditions.</heading>
<chapeau> Sections 229.10(c) and 229.12 do not apply to funds deposited by check in a depositary bank in the case of— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/f/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> An interruption of communications or computer or other equipment facilities; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A suspension of payments by another bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A war; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/f/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content>
<p> An emergency condition beyond the control of the depositary bank,</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">if the depositary bank exercises such diligence as the circumstances require. </p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Notice of exception—</heading>
<paragraph identifier="/us/cfr/t12/s229.13/g/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Subject to paragraphs (g)(2) and (g)(3) of this section, when a depositary bank extends the time when funds will be available for withdrawal based on the application of an exception contained in paragraphs (b) through (e) of this section, it must provide the depositor with a written notice.
<?page num="849"?></chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/g/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> The notice shall include the following information—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/g/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A number or code, which need not exceed four digits, that identifies the customer's account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The date of the deposit;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/1/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The amount of the deposit that is being delayed;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/1/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The reason the exception was invoked; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/1/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> The time period within which the funds will be available for withdrawal.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Timing of notice.</heading>
<content> The notice shall be provided to the depositor at the time of the deposit, unless the deposit is not made in person to an employee of the depositary bank, or, if the facts upon which a determination to invoke one of the exceptions in paragraphs (b) through (e) of this section to delay a deposit only become known to the depositary bank after the time of the deposit. If the notice is not given at the time of the deposit, the depositary bank shall mail or deliver the notice to the customer as soon as practicable, but no later than the first business day following the day the facts become known to the depositary bank, or the deposit is made, whichever is later. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>One-time exception notice.</heading>
<chapeau> In lieu of providing notice pursuant to paragraph (g)(1) of this section, a depositary bank that extends the time when the funds deposited in a nonconsumer account will be available for withdrawal based on an exception contained in paragraph (b) or (c) of this section may provide a single notice to the customer that includes the following information—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/g/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The reason(s) the exception may be invoked; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> The time period within which deposits subject to the exception generally will be available for withdrawal.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">This one-time notice shall be provided only if each type of exception cited in the notice will be invoked for most check deposits in the account to which the exception could apply. This notice shall be provided at or prior to the time notice must be provided under paragraph (g)(1)(ii) of this section.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Notice of repeated overdrafts exception.</heading>
<chapeau> In lieu of providing notice pursuant to paragraph (g)(1) of this section, a depositary bank that extends the time when funds deposited in an account will be available for withdrawal based on the exception contained in paragraph (d) of this section may provide a notice to the customer for each time period during which the exception will be in effect. The notice shall include the following information—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.13/g/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The account number of the customer;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The fact that the availability of funds deposited in the customer's account will be delayed because the repeated overdrafts exception will be invoked;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The time period within which deposits subject to the exception generally will be available for withdrawal; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/3/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content>
<p> The time period during which the exception will apply.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">This notice shall be provided at or prior to the time notice must be provided under paragraph (g)(1)(ii) of this section and only if the exception cited in the notice will be invoked for most check deposits in the account.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Emergency conditions exception notice.</heading>
<content> When a depositary bank extends the time when funds will be available for withdrawal based on the application of the emergency conditions exception contained in paragraph (f) of this section, it must provide the depositor with notice in a reasonable form and within a reasonable time given the circumstances. The notice shall include the reason the exception was invoked and the time period within which funds shall be made available for withdrawal, unless the depositary bank, in good faith, does not know at the time the notice is given the duration of the emergency and, consequently, when the funds must be made available. The depositary bank is not required to provide a notice if the funds subject to the exception become available before the notice must be sent. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/g/5" style="-uslm-sgm:P">
<num value="5">(5) </num>
<heading>Record retention.</heading>
<content> A depositary bank shall retain a record, in accordance with <ref href="/us/cfr/t12/s229.21/g">§ 229.21(g)</ref>, of each notice provided pursuant to its application of the reasonable cause exception under paragraph (e) of this section, together with a brief statement of the facts giving rise to the bank's reason to doubt the collectibility of the check. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Availability of deposits subject to exceptions.</heading>
<paragraph identifier="/us/cfr/t12/s229.13/h/1" class="inline">
<num value="1"> (1)</num>
<content> If an exception contained <?page num="850"?>in paragraphs (b) through (f) of this section applies, the depositary bank may extend the time periods established under <ref href="/us/cfr/t12/s229.10/c">§§ 229.10(c)</ref> and 229.12 by a reasonable period of time. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/h/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If a depositary bank invokes an exception contained in paragraphs (b) through (e) of this section with respect to a check described in <ref href="/us/cfr/t12/s229.10/c/1">§ 229.10(c)(1)</ref> (i) through (v) or <ref href="/us/cfr/t12/s229.10/c/2">§ 229.10(c)(2)</ref>, it shall make the funds available for withdrawal not later than a reasonable period after the day the funds would have been required to be made available had the check been subject to 229.12.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/h/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> If a depositary bank invokes an exception under paragraph (f) of this section based on an emergency condition, the depositary bank shall make the funds available for withdrawal not later than a reasonable period after the emergency has ceased or the period established in <ref href="/us/cfr/t12/s229.10/c">§§ 229.10(c)</ref> and 229.12, whichever is later. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.13/h/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> For the purposes of this section, a “reasonable period” is an extension of up to one business day for checks described in <ref href="/us/cfr/t12/s229.10/c/1/vi">§ 229.10(c)(1)(vi)</ref>, five business days for checks described in <ref href="/us/cfr/t12/s229.12/b">§ 229.12(b)</ref> (1) through (4), and six business days for checks described in <ref href="/us/cfr/t12/s229.12/c">§ 229.12(c)</ref> (1) and (2) or <ref href="/us/cfr/t12/s229.12/f">§ 229.12(f)</ref>. A longer extension may be reasonable, but the bank has the burden of so establishing. </content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended by Reg. CC, <ref href="/us/fr/54/13850">54 FR 13850</ref>, <date date="1989-04-06" role="amended">Apr. 6, 1989</date>; Reg. CC, <ref href="/us/fr/55/21855">55 FR 21855</ref>, <date date="1990-05-30" role="amended">May 30, 1990</date>; <ref href="/us/fr/57/3279">57 FR 3279</ref>, <date date="1992-01-29" role="amended">Jan. 29, 1992</date>; <ref href="/us/fr/57/36598">57 FR 36598</ref>, <date date="1992-08-14" role="amended">Aug. 14, 1992</date>; <ref href="/us/fr/60/51671">60 FR 51671</ref>, <date date="1995-10-03" role="amended">Oct. 3, 1995</date>; Reg. CC, <ref href="/us/fr/62/13809">62 FR 13809</ref>, <date date="1997-03-24" role="amended">Mar. 24, 1997</date>; <ref href="/us/fr/69/47310">69 FR 47310</ref>, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.14">
<num value="229.14" style="-uslm-sgm:SECTNO">§ 229.14</num>
<heading style="-uslm-sgm:SUBJECT">Payment of interest.</heading>
<paragraph identifier="/us/cfr/t12/s229.14/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<chapeau> A depositary bank shall begin to accrue interest or dividends on funds deposited in an interest-bearing account not later than the business day on which the depositary bank receives credit for the funds. For the purposes of this section, the depositary bank may— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.14/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Rely on the availability schedule of its Federal Reserve Bank, Federal Home Loan Bank, or correspondent bank to determine the time credit is actually received; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.14/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Accrue interest or dividends on funds deposited in interest-bearing accounts by checks that the depositary bank sends to paying banks or subsequent collecting banks for payment or collection based on the availability of funds the depositary bank receives from the paying or collecting banks. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.14/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Special rule for credit unions.</heading>
<chapeau> Paragraph (a) of this section does not apply to any account at a bank described in <ref href="/us/cfr/t12/s229.2/e/4">§ 229.2(e)(4)</ref>, if the bank— </chapeau>
<paragraph identifier="/us/cfr/t12/s229.14/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Begins the accrual of interest or dividends at a later date than the date described in paragraph (a) of this section with respect to all funds, including cash, deposited in the account; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.14/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provides notice of its interest or dividend payment policy in the manner required under <ref href="/us/cfr/t12/s229.16/d">§ 229.16(d)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.14/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exception for checks returned unpaid.</heading>
<content> This subpart does not require a bank to pay interest or dividends on funds deposited by a check that is returned unpaid.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.15">
<num value="229.15" style="-uslm-sgm:SECTNO">§ 229.15</num>
<heading style="-uslm-sgm:SUBJECT">General disclosure requirements.</heading>
<paragraph identifier="/us/cfr/t12/s229.15/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Form of disclosures.</heading>
<content> A bank shall make the disclosures required by this subpart clearly and conspicuously in writing. Disclosures, other than those posted at locations where employees accept consumer deposits and ATMs and the notice on preprinted deposit slips, must be in a form that the customer may keep. The disclosures shall be grouped together and shall not contain any information not related to the disclosures required by this subpart. If contained in a document that sets forth other account terms, the disclosures shall be highlighted within the document by, for example, use of a separate heading. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.15/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Uniform reference to day of availability.</heading>
<content> In its disclosure, a bank shall describe funds as being available for withdrawal on “the _____ business day after” the day of deposit. In this calculation, the first business day is the business day following the banking day the deposit was received, and the last business day is the day on which the funds are made available. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.15/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Multiple accounts and multiple account holders.</heading>
<content> A bank need not give multiple disclosures to a customer that holds multiple accounts if the accounts are subject to the same availability policies. Similarly, a bank need not give separate disclosures to each customer on a jointly held account.
<?page num="851"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.15/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Dormant or inactive accounts.</heading>
<content> A bank need not give availability disclosures to a customer that holds a dormant or inactive account.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.16">
<num value="229.16" style="-uslm-sgm:SECTNO">§ 229.16</num>
<heading style="-uslm-sgm:SUBJECT">Specific availability policy disclosure.</heading>
<paragraph identifier="/us/cfr/t12/s229.16/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General.</heading>
<content> To meet the requirements of a specific availability policy disclosure under <ref href="/us/cfr/t12/s229.17">§§ 229.17</ref> and 229.18(d), a bank shall provide a disclosure describing the bank's policy as to when funds deposited in an account are available for withdrawal. The disclosure must reflect the policy followed by the bank in most cases. A bank may impose longer delays on a case-by-case basis or by invoking one of the exceptions in § 229.l3, provided this is reflected in the disclosure. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Content of specific availability policy disclosure.</heading>
<chapeau> The specific availability policy disclosure shall contain the following, as applicable—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.16/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A summary of the bank's availability policy; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> A description of any categories of deposits or checks used by the bank when it delays availability (such as local or nonlocal checks); how to determine the category to which a particular deposit or check belongs; and when each category will be available for withdrawal (including a description of the bank's business days and when a deposit is considered received);<ref id="fnd3e53882" idref="fnd3e53887" style="-uslm-sgm:SU">1</ref>
</p>
<footnote id="fnd3e53887" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e53882" style="-uslm-sgm:SU">1</ref> A bank that distinguishes in its disclosure between local and nonlocal checks based on the routing number on the check must disclose that certain checks, such as some credit union share drafts that are payable by one bank but payable through another bank, will be treated as local or nonlocal checks based upon the location of the bank by which they are payable and not on the basis of the location of the bank whose routing number appears on the check. A bank that makes funds from nonlocal checks available for withdrawal within the time periods required for local checks under <ref href="/us/cfr/t12/s229.12">§§ 229.12</ref> and 229.13 is not required to provide this disclosure on payable-through checks to its customers. The statement concerning payable-through checks must describe how the customer can determine whether these checks will be treated as local or nonlocal, or state that special rules apply to such checks and that the customer may ask about the availability of these checks.</p>
</content>
</footnote>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A description of any of the exceptions in <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> that may be invoked by the bank, including the time following a deposit that funds generally will be available for withdrawal and a statement that the bank will notify the customer if the bank invokes one of the exceptions;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> A description, as specified in paragraph (c)(1) of this section, of any case-by-case policy of delaying availability that may result in deposited funds being available for withdrawal later than the time periods stated in the bank's availability policy; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> A description of how the customer can differentiate between a proprietary and a nonproprietary ATM, if the bank makes funds from deposits at nonproprietary ATMs available for withdrawal later than funds from deposits at proprietary ATMs. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Longer delays on a case-by-case basis—</heading>
<paragraph identifier="/us/cfr/t12/s229.16/c/1" class="inline">
<num value="1">(1) </num>
<heading>Notice in specific policy disclosure.</heading>
<chapeau> A bank that has a policy of making deposited funds available for withdrawal sooner than required by this subpart may extend the time when funds are available up to the time periods allowed under this subpart on a case-by-case basis, provided the bank includes the following in its specific policy disclosure—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.16/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A statement that the time when deposited funds are available for withdrawal may be extended in some cases, and the latest time following a deposit that funds will be available for withdrawal; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that the bank will notify the customer if funds deposited in the customer's account will not be available for withdrawal until later than the time periods stated in the bank's availability policy; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> A statement that customers should ask if they need to be sure about when a particular deposit will be available for withdrawal. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notice at time of case-by-case delay—</heading>
<paragraph identifier="/us/cfr/t12/s229.16/c/2/i" class="inline">
<num value="i">(i) </num>
<heading>In general.</heading>
<chapeau> When a depositary bank extends the time when funds will be available for withdrawal on a case-by-case basis, it must provide the depositor with a written notice. The notice shall include the following information—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.16/c/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A number or code, which need not exceed four digits, that identifies the customer's account.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The date of the deposit;
<?page num="852"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The amount of the deposit that is being delayed; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/2/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The day the funds will be available for withdrawal. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii) </num>
<heading>Timing of notice.</heading>
<content> The notice shall be provided to the depositor at the time of the deposit, unless the deposit is not made in person to an employee of the depositary bank or the decision to extend the time when the deposited funds will be available is made after the time of the deposit. If notice is not given at the time of the deposit, the depositary bank shall mail or deliver the notice to the customer not later than the first business day following the banking day the deposit is made. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> Overdraft and returned check fees. A depositary bank that extends the time when funds will be available for withdrawal on a case-by-case basis and does not furnish the depositor with written notice at the time of deposit shall not assess any fees for any subsequent overdrafts (including use of a line of credit) or return of checks or other debits to the account, if—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.16/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The overdraft or return of the check or other debit would not have occurred except for the fact that the deposited funds were delayed under paragraph (c)(1) of this section; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content>
<p> The deposited check was paid by the paying bank. </p>
<p style="-uslm-sgm:P">Notwithstanding the foregoing, the depositary bank may assess an overdraft or returned check fee if it includes a notice concerning overdraft and returned check fees with the notice required in paragraph (c)(2) of this section and, when required, refunds any such fees upon the request of the customer. The notice must state that the customer may be entitled to a refund of overdraft or returned check fees that are assessed if the check subject to the delay is paid and how to obtain a refund. </p>
</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.16/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Credit union notice of interest payment policy.</heading>
<content> If a bank described in <ref href="/us/cfr/t12/s229.2/e/4">§ 229.2(e)(4)</ref> begins to accrue interest or dividends on all deposits made in an interest-bearing account, including cash deposits, at a later time than the day specified in <ref href="/us/cfr/t12/s229.14/a">§ 229.14(a)</ref>, the bank's specific policy disclosures shall contain an explanation of when interest or dividends on deposited funds begin to accrue. </content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/53/31292">53 FR 31292</ref>, <date date="1988-08-18" role="amended">Aug. 18, 1988</date>; <ref href="/us/fr/53/44324">53 FR 44324</ref>, <date date="1988-11-02" role="amended">Nov. 2, 1988</date>; Reg. CC, <ref href="/us/fr/54/13850">54 FR 13850</ref>, <date date="1989-04-06" role="amended">Apr. 6, 1989</date>; <ref href="/us/fr/60/51671">60 FR 51671</ref>, <date date="1995-10-03" role="amended">Oct. 3, 1995</date>; Reg. CC, <ref href="/us/fr/62/13810">62 FR 13810</ref>, <date date="1997-03-24" role="amended">Mar. 24, 1997</date>; <ref href="/us/fr/69/47311">69 FR 47311</ref>, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.17">
<num value="229.17" style="-uslm-sgm:SECTNO">§ 229.17 </num>
<heading style="-uslm-sgm:SUBJECT">Initial disclosures.</heading>
<content>
<p style="-uslm-sgm:P">Before opening a new account, a bank shall provide a potential customer with the applicable specific availability policy disclosure described in <ref href="/us/cfr/t12/s229.16">§ 229.16</ref>.</p>
<source style="-uslm-sgm:CITA">[Reg. CC, <ref href="/us/fr/60/51671">60 FR 51671</ref>, <date date="1995-10-03">Oct. 3, 1995</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.18">
<num value="229.18" style="-uslm-sgm:SECTNO">§ 229.18</num>
<heading style="-uslm-sgm:SUBJECT">Additional disclosure requirements.</heading>
<paragraph identifier="/us/cfr/t12/s229.18/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Deposit slips.</heading>
<content> A bank shall include on all preprinted deposit slips furnished to its customers a notice that deposits may not be available for immediate withdrawal. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.18/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Locations where employees accept consumer deposits.</heading>
<content> A bank shall post in a conspicuous place in each location where its employees receive deposits to consumer accounts a notice that sets forth the time periods applicable to the availability of funds deposited in a consumer account. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.18/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Automated teller machines.</heading>
<paragraph identifier="/us/cfr/t12/s229.18/c/1" class="inline">
<num value="1"> (1)</num>
<content> A depositary bank shall post or provide a notice at each ATM location that funds deposited in the ATM may not be available for immediate withdrawal. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.18/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A depositary bank that operates an off-premises ATM from which deposits are removed not more than two times each week, as described in <ref href="/us/cfr/t12/s229.19/a/4">§ 229.19(a)(4)</ref>, shall disclose at or on the ATM the days on which deposits made at the ATM will be considered received. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.18/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Upon request.</heading>
<content> A bank shall provide to any person, upon oral or written request, a notice containing the applicable specific availability policy disclosure described in § 229.l6. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.18/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Changes in policy.</heading>
<content> A bank shall send a notice to holders of consumer accounts at least 30 days before implementing a change to the bank's availability policy regarding such accounts, except that a change that expedites the availability of funds may be disclosed not later than 30 days after implementation.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.19"><?page num="853"?>
<num value="229.19" style="-uslm-sgm:SECTNO">§ 229.19</num>
<heading style="-uslm-sgm:SUBJECT">Miscellaneous. </heading>
<paragraph identifier="/us/cfr/t12/s229.19/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>When funds are considered deposited.</heading>
<chapeau> For the purposes of this subpart—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Funds deposited at a staffed facility, ATM, or contractual branch are considered deposited when they are received at the staffed facility, ATM, or contractual branch; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Funds mailed to the depositary bank are considered deposited on the day they are received by the depositary bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Funds deposited to a night depository, lock box, or similar facility are considered deposited on the day on which the deposit is removed from such facility and is available for processing by the depositary bank; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Funds deposited at an ATM that is not on, or within 50 feet of, the premises of the depositary bank are considered deposited on the day the funds are removed from the ATM, if funds normally are removed from the ATM not more than two times each week; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/a/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<chapeau> Funds may be considered deposited on the next banking day, in the case of funds that are deposited—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/a/5/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> On a day that is not a banking day for the depositary bank; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/a/5/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> After a cut-off hour set by the depositary bank for the receipt of deposits of 2:00 p.m. or later, or, for the receipt of deposits at ATMs, contractual branches, or off-premise facilities, of 12:00 noon or later. Different cut-off hours later than these times may be established for the receipt of different types of deposits, or receipt of deposits at different locations. </content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Availability at start of business day.</heading>
<chapeau> Except as otherwise provided in <ref href="/us/cfr/t12/s229.12/d">§ 229.12(d)</ref>, if any provision of this subpart requires that funds be made available for withdrawal on any business day, the funds shall be available for withdrawal by the later of:</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> 9:00 a.m. (local time of the depositary bank); or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The time the depositary bank's teller facilities (including ATMs) are available for customer account withdrawals. </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Effect on policies of depositary bank.</heading>
<chapeau> This part does not—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Prohibit a depositary bank from making funds available to a customer for withdrawal in a shorter period of time than the time required by this subpart; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Affect a depositary bank's right—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/c/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> To accept or reject a check for deposit; </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> To revoke any settlement made by the depositary bank with respect to a check accepted by the bank for deposit, to charge back the customer's account for the amount of a check based on the return of the check or receipt of a notice of nonpayment of the check, or to claim a refund of such credit; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> To charge back funds made available to its customer for an electronic payment for which the bank has not received payment in actually and finally collected funds; </content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Require a depositary bank to open or otherwise to make its facilities available for customer transactions on a given business day; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> Supersede any policy of a depositary bank that limits the amount of cash a customer may withdraw from its account on any one day, if that policy—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/c/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Is not dependent on the time the funds have been deposited in the account, as long as the funds have been on deposit for the time period specified in <ref href="/us/cfr/t12/s229.10">§§ 229.10</ref>, 229.12, or 229.13; and </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> In the case of withdrawals made in person to an employee of the depositary bank—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/c/4/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Is applied without discrimination to all customers of the bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/c/4/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Is related to security, operating, or bonding requirements of the depositary bank.</content>
</paragraph>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Use of calculated availability.</heading>
<content> A depositary bank may provide availability to its nonconsumer accounts based on a sample of checks that represents the average composition of the customer's deposits, if the terms for availability based on the sample are equivalent to or more prompt than the availability requirements of this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Holds on other funds.</heading>
<paragraph identifier="/us/cfr/t12/s229.19/e/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A depositary bank that receives a check for deposit in an account may not place a hold on any funds of the customer at the bank, where—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of funds that are held exceeds the amount of the check; or
<?page num="854"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The funds are not made available for withdrawal within the times specified in <ref href="/us/cfr/t12/s229.10">§§ 229.10</ref>, 229.12, and 229.13.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> A depositary bank that cashes a check for a customer over the counter, other than a check drawn on the depositary bank, may not place a hold on funds in an account of the customer at the bank, if—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.19/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of funds that are held exceeds the amount of the check; or </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The funds are not made available for withdrawal within the times specified in <ref href="/us/cfr/t12/s229.10">§§ 229.10</ref>, 229.12, and 229.13.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Employee training and compliance.</heading>
<content> Each bank shall establish procedures to ensure that the bank complies with the requirements of this subpart, and shall provide each employee who performs duties subject to the requirements of this subpart with a statement of the procedures applicable to that employee.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Effect of merger transaction—</heading>
<paragraph identifier="/us/cfr/t12/s229.19/g/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> For purposes of this subpart, except for the purposes of the new accounts exception of <ref href="/us/cfr/t12/s229.13/a">§ 229.13(a)</ref>, and when funds are considered deposited under <ref href="/us/cfr/t12/s229.19/a">§ 229.19(a)</ref>, two or more banks that have engaged in a merger transaction may be considered to be separate banks for a period of one year following the consummation of the merger transaction.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.19/g/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Merger transactions on or after <date date="1998-07-01">July 1, 1998</date>, and before <date date="2000-03-01">March 1, 2000</date>.</heading>
<content> If banks have consummated a merger transaction on or after <date date="1998-07-01">July 1, 1998</date>, and before <date date="2000-03-01">March 1, 2000</date>, the merged banks may be considered separate banks until <date date="2001-03-01">March 1, 2001</date>.</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. CC, <ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended by <ref href="/us/fr/54/13850">54 FR 13850</ref>, <date date="1989-04-06" role="amended">Apr. 6, 1989</date>; <ref href="/us/fr/60/51671">60 FR 51671</ref>, <date date="1995-10-03" role="amended">Oct. 3, 1995</date>; <ref href="/us/fr/62/13810">62 FR 13810</ref>, <date date="1997-03-24" role="amended">Mar. 24, 1997</date>; <ref href="/us/fr/64/14577">64 FR 14577</ref>, <date date="1999-03-26" role="amended">Mar. 26, 1999</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.20">
<num value="229.20" style="-uslm-sgm:SECTNO">§ 229.20</num>
<heading style="-uslm-sgm:SUBJECT">Relation to state law.</heading>
<paragraph identifier="/us/cfr/t12/s229.20/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>In general.</heading>
<chapeau> Any provision of a law or regulation of any state in effect on or before <date date="1989-09-01">September 1, 1989</date>, that requires funds deposited in an account at a bank chartered by the state to be made available for withdrawal in a shorter time than the time provided in subpart B, and, in connection therewith, subpart A, shall—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.20/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Supersede the provisions of the EFA Act and subpart B, and, in connection therewith, subpart A, to the extent the provisions relate to the time by which funds deposited or received for deposit in an account are available for withdrawal; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.20/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> Apply to all federally insured banks located within the state.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">No amendment to a state law or regulation governing the availability of funds that becomes effective after <date date="1989-09-01">September 1, 1989</date>, shall supersede the EFA Act and subpart B, and, in connection therewith, subpart A, but unamended provisions of state law shall remain in effect.</p>
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.20/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Preemption of inconsistent law.</heading>
<content> Except as provided in paragraph (a), the EFA Act and subpart B, and, in connection therewith, subpart A, supersede any provision of inconsistent state law.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.20/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Standards for preemption.</heading>
<chapeau> A provision of a state law in effect on or before <date date="1989-09-02">September 2, 1989</date>, is not inconsistent with the EFA Act, or subpart B, or in connection therewith, subpart A, if it requires that funds shall be available in a shorter period of time than the time provided in this subpart. Inconsistency with the EFA Act and subpart B, and in connection therewith, subpart A, may exist when state law—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.20/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Permits a depositary bank to make funds deposited in an account by cash, electronic payment, or check available for withdrawal in a longer period of time than the maximum period of time permitted under subpart B, and, in connection therewith, subpart A; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.20/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provides for disclosures or notices concerning funds availability relating to accounts.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.20/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Preemption determinations.</heading>
<content> The Board may determine, upon the request of any state, bank, or other interested party, whether the EFA Act and subpart B, and, in connection therewith, subpart A, preempt provisions of state laws relating to the availability of funds.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.20/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Procedures for preemption determinations.</heading>
<chapeau> A request for a preemption determination shall include the following—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.20/e/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> A copy of the full text of the state law in question, including any implementing regulations or judicial interpretations of that law; and
<?page num="855"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.20/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content>
<p> A comparison of the provisions of state law with the corresponding provisions in the EFA Act and subparts A and B of this part, together with a discussion of the reasons why specific provisions of state law are either consistent or inconsistent with corresponding sections of the EFA Act and subparts A and B of this part.</p>
<p style="-uslm-sgm:P">A request for a preemption determination shall be addressed to the Secretary, Board of Governors of the Federal Reserve System.</p>
</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/69/47311">69 FR 47311</ref>, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.21">
<num value="229.21" style="-uslm-sgm:SECTNO">§ 229.21</num>
<heading style="-uslm-sgm:SUBJECT">Civil liability.</heading>
<paragraph identifier="/us/cfr/t12/s229.21/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Civil liability.</heading>
<chapeau> A bank that fails to comply with any requirement imposed under subpart B, and in connection therewith, subpart A, of this part or any provision of state law that supersedes any provision of subpart B, and in connection therewith, subpart A, with respect to any person is liable to that person in an amount equal to the sum of—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.21/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Any actual damage sustained by that person as a result of the failure;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Such additional amount as the court may allow, except that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.21/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> In the case of an individual action, liability under this paragraph shall not be less than $100 nor greater than $1,000; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> In the case of a class action—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.21/a/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> No minimum recovery shall be applicable to each member of the class; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/a/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The total recovery under this paragraph in any class action or series of class actions arising out of the same failure to comply by the same depositary bank shall not be more than the lesser of $500,000 or 1 percent of the net worth of the bank involved; and</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> In the case of a successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Class action awards.</heading>
<chapeau> In determining the amount of any award in any class action, the court shall consider, among other relevant factors—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.21/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The amount of any damages awarded;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The frequency and persistence of failures of compliance;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The resources of the bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> The number of persons adversely affected; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> The extent to which the failure of compliance was intentional.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Bona fide errors—</heading>
<paragraph identifier="/us/cfr/t12/s229.21/c/1" class="inline">
<num value="1">(1) </num>
<heading>General rule.</heading>
<content> A bank is not liable in any action brought under this section for a violation of this subpart if the bank demonstrates by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Examples.</heading>
<content> Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors, except that an error of legal judgment with respect to the bank's obligation under this subpart is not a bona fide error.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Jurisdiction.</heading>
<content> Any action under this section may be brought in any United States district court or in any other court of competent jurisdiction, and shall be brought within one year after the date of the occurrence of the violation involved.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Reliance on Board rulings.</heading>
<content> No provision of this subpart imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Board, regardless of whether such rule, regulation, or interpretation is amended, rescinded, or determined by judicial or other authority to be invalid for any reason after the act or omission has occurred.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Exclusions.</heading>
<content> This section does not apply to claims that arise under subpart C of this part or to actions for wrongful dishonor. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Record retention.</heading>
<paragraph identifier="/us/cfr/t12/s229.21/g/1" class="inline">
<num value="1"> (1)</num>
<content> A bank shall retain evidence of compliance with the requirements imposed by this subpart for not less than two years. Records may be stored by use of microfiche, microfilm, magnetic tape, or other methods capable of accurately retaining and reproducing information. </content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.21/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If a bank has actual notice that it is being investigated, or is subject to an enforcement proceeding by an agency charged with monitoring that bank's compliance with the EFA Act and this subpart, or has been served with notice of an action filed under <?page num="856"?>this section, it shall retain the records pertaining to the action or proceeding pending final disposition of the matter, unless an earlier time is allowed by order of the agency or court. </content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/69/47311">69 FR 47311</ref>, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p229/spC">
<num value="C" style="-uslm-sgm:HED">Subpart C—</num>
<heading style="-uslm-sgm:HED">Collection of Checks
</heading>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.30">
<num value="229.30" style="-uslm-sgm:SECTNO">§ 229.30</num>
<heading style="-uslm-sgm:SUBJECT">Electronic checks and electronic information.</heading>
<paragraph identifier="/us/cfr/t12/s229.30/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Checks under this subpart.</heading>
<content> Electronic checks and electronic returned checks are subject to this subpart as if they were checks or returned checks, except where “paper check” or “paper returned check” is specified. For the purposes of this subpart, the term “check” or “returned check” as used in Subpart A includes “electronic check” or “electronic returned check,” except where “paper check” or “paper returned check” is specified.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.30/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Writings.</heading>
<content> If a bank is required to provide information in writing under this subpart, the bank may satisfy that requirement by providing the information electronically if the receiving bank agrees to receive that information electronically.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27579">82 FR 27579</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.31">
<num value="229.31" style="-uslm-sgm:SECTNO">§ 229.31</num>
<heading style="-uslm-sgm:SUBJECT">Paying bank's responsibility for return of checks and notices of nonpayment.</heading>
<paragraph identifier="/us/cfr/t12/s229.31/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Return of checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.31/a/1" class="inline">
<num value="1"> (1)</num>
<content> Subject to the requirement of expeditious return under paragraph (b) of this section, a paying bank may send a returned check to the depositary bank, to any other bank agreeing to handle the returned check, or as provided in paragraph (a)(2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A paying bank that is unable to identify the depositary bank with respect to a check may send the returned check to any bank that handled the check for forward collection and must advise the bank to which the check is sent that the paying bank is unable to identify the depositary bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A paying bank may convert a check to a qualified returned check. A qualified returned check shall be encoded in magnetic ink with the routing number of the depositary bank, the amount of the returned check, and a “2” in the case of an original check (or a “5” in the case of a substitute check) in position 44 of the qualified return MICR line as a return identifier. A qualified returned original check shall be encoded in accordance with ANS X9.13, and a qualified returned substitute check shall be encoded in accordance with ANS X9.100–140.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Except as provided in paragraph (g) of this section, this section does not affect a paying bank's responsibility to return a check within the deadlines required by the UCC or Regulation J (<ref href="/us/cfr/t12/p210">12 CFR part 210</ref>).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Expeditious return of checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.31/b/1" class="inline">
<num value="1"> (1)</num>
<content> Except as provided in paragraph (d) of this section, if a paying bank determines not to pay a check, it shall return the check in an expeditious manner such that the check would normally be received by the depositary bank not later than 2 p.m. (local time of the depositary bank) on the second business day following the banking day on which the check was presented to the paying bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the second business day following the banking day on which the check was presented to the paying bank is not a banking day for the depositary bank, the paying bank satisfies the expeditious return requirement if it sends the returned check in a manner such that the depositary bank would normally receive the returned check not later than 2 p.m. (local time of the depositary bank) on the depositary bank's next banking day.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Notice of nonpayment.</heading>
<paragraph identifier="/us/cfr/t12/s229.31/c/1" class="inline">
<num value="1"> (1)</num>
<content> If a paying bank determines not to pay a check in the amount of $5,000 or more, it shall provide notice of nonpayment such that the notice would normally be received by the depositary bank not later than 2 p.m. (local time of the depositary bank) on the second business day following the banking day on which the check was presented to the paying bank. If the day the paying bank is required to provide notice is not a banking day for the depositary bank, receipt of notice not later than 2 p.m. (local time of the depositary bank) on the depositary bank's next banking day constitutes timely notice. Notice may be provided by any reasonable means, including the returned check, a writing <?page num="857"?>(including a copy of the check), or telephone.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/i" class="inline">
<num value="i">(i)</num>
<chapeau> To the extent available to the paying bank, notice must include the information contained in the check's MICR line when the check is received by the paying bank, as well as—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Name of the payee(s);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Amount;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> Date of the indorsement of the depositary bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> The bank name, routing number, and trace or sequence number associated with the indorsement of the depositary bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/i/E" style="-uslm-sgm:P">
<num value="E">(E)</num>
<content> Reason for nonpayment.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the paying bank is not sure of the accuracy of an item of information, it shall include the information required by this paragraph to the extent possible, and identify any item of information for which the bank is not sure of the accuracy.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/c/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The notice may include other information from the check that may be useful in identifying the check being returned and the customer.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Exceptions to the expeditious return of checks and notice of nonpayment requirements.</heading>
<chapeau> The expeditious return and notice of nonpayment requirements of paragraphs (b) and (c) of this section do not apply if—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.31/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The check is deposited in a depositary bank that is not subject to subpart B of this part; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A paying bank is unable to identify the depositary bank with respect to the check.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Identification of returned check.</heading>
<content> A paying bank returning a check shall clearly indicate on the front of the check that it is a returned check and the reason for return. If the paying bank is returning a substitute check or an electronic returned check, the paying bank shall include this information such that the information would be retained on any subsequent substitute check.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Notice in Lieu of Return.</heading>
<content> If a check is unavailable for return, the paying bank may send in its place a copy of the front and back of the returned check, or, if no such copy is available, a written notice of nonpayment containing the information specified in paragraph (c)(2) of this section. The copy or written notice shall clearly state that it constitutes a notice in lieu of return. A notice in lieu of return is considered a returned check subject to the requirements of this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Extension of deadline.</heading>
<chapeau> The deadline for return or notice of dishonor or nonpayment under the UCC or Regulation J (<ref href="/us/cfr/t12/p210">12 CFR part 210</ref>), or <ref href="/us/cfr/t12/s229.36/d/3">§ 229.36(d)(3)</ref> and (4) is extended to the time of dispatch of such return or notice if the depositary bank (or the receiving bank, if the depositary bank is unidentifiable) receives the returned check or notice—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.31/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> On or before the depositary bank's (or receiving bank's) next banking day following the otherwise applicable deadline by the earlier of the close of that banking day or a cutoff hour of 2 p.m. (local time of the depositary bank or receiving bank) or later set by the depositary bank (or receiving bank) under UCC 4–108, for all deadlines other than those described in paragraph (g)(2) of this section; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Prior to the cut-off hour for the next processing cycle (if sent to a returning bank), or on the next banking day (if sent to the depositary bank), for a deadline falling on a Saturday that is a banking day (as defined in the UCC) for the paying bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Payable-through and payable-at checks.</heading>
<content> A check payable at or through a paying bank is considered to be drawn on that bank for purposes of the expeditious return and notice of nonpayment requirements of this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.31/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Reliance on routing number.</heading>
<content> A paying bank may return a returned check based on any routing number designating the depositary bank appearing on the returned check in the depositary bank's indorsement.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27579">82 FR 27579</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.32">
<num value="229.32" style="-uslm-sgm:SECTNO">§ 229.32</num>
<heading style="-uslm-sgm:SUBJECT">Returning bank's responsibility for return of checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.32/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Return of checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.32/a/1" class="inline">
<num value="1"> (1)</num>
<content> Subject to the requirement of expeditious return under paragraph (b) of this section, a returning bank may send a returned check to the depositary bank, to any other bank agreeing to handle the returned check, or as provided in paragraph (a)(2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A returning bank that is unable to identify the depositary bank with respect to a check may send the returned <?page num="858"?>check to any collecting bank that handled the returned check for forward collection if the returning bank was not a collecting bank with respect to the returned check, or to a prior collecting bank, if the returning bank was a collecting bank with respect to the returned check. A returning bank sending a returned check under this paragraph to a bank must advise the bank to which the returned check is sent that the returning bank is unable to identify the depositary bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A returning bank may convert a check to a qualified returned check. A qualified returned check shall be encoded in magnetic ink with the routing number of the depositary bank, the amount of the returned check, and a “2” in the case of an original check (or a “5” in the case of a substitute check) in position 44 of the qualified return MICR line as a return identifier. A qualified returned original check shall be encoded in accordance with ANS X9.13, and a qualified returned substitute check shall be encoded in accordance with ANS X9.100–140.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Expeditious return of checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.32/b/1" class="inline">
<num value="1"> (1)</num>
<content> Except as provided in paragraph (c) of this section, a returning bank shall return a returned check in an expeditious manner such that the check would normally be received by the depositary bank not later than 2 p.m. (local time of the depositary bank) on the second business day following the banking day on which the check was presented to the paying bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the second business day following the banking day on which the check was presented to the paying bank is not a banking day for the depositary bank, the returning bank satisfies the expeditious return requirement if it sends the returned check in a manner such that the depositary bank would normally receive the returned check not later than 2 p.m. (local time of the depositary bank) on the depositary bank's next banking day.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Exceptions to the expeditious return of checks.</heading>
<chapeau> The expeditious return requirement of paragraph (b) of this section does not apply if—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.32/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The check is deposited in a depositary bank that is not subject to subpart B of this part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A paying bank is unable to identify the depositary bank with respect to the check; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The bank handles a misrouted returned check pursuant to <ref href="/us/cfr/t12/s229.33/f">§ 229.33(f)</ref>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Notice in Lieu of Return.</heading>
<content> If a check is unavailable for return, the returning bank may send in its place a copy of the front and back of the returned check, or, if no such copy is available, a written notice of nonpayment containing the information specified in <ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref>. The copy or written notice shall clearly state that it constitutes a notice in lieu of return. A notice in lieu of return is considered a returned check subject to the requirements of this section and the other requirements of this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Settlement.</heading>
<content> A returning bank shall settle with a bank sending a returned check to it for return by the same means that it settles or would settle with the sending bank for a check received for forward collection drawn on the depositary bank. This settlement is final when made.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Charges.</heading>
<content> A returning bank may impose a charge on a bank sending a returned check for handling the returned check.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.32/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Reliance on routing number.</heading>
<content> A returning bank may return a returned check based on any routing number designating the depositary bank appearing on the returned check in the depositary bank's indorsement or in magnetic ink on a qualified returned check.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27580">82 FR 27580</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.33">
<num value="229.33" style="-uslm-sgm:SECTNO">§ 229.33</num>
<heading style="-uslm-sgm:SUBJECT">Depositary bank's responsibility for returned checks and notices of nonpayment.</heading>
<paragraph identifier="/us/cfr/t12/s229.33/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Right to assert claim.</heading>
<paragraph identifier="/us/cfr/t12/s229.33/a/1" class="inline">
<num value="1"> (1)</num>
<content> A paying bank or returning bank may be liable to a depositary bank under <ref href="/us/cfr/t12/s229.38">§ 229.38</ref> for failing to return a check in an expeditious manner only if the depositary bank has arrangements in place such that the paying bank or returning bank could return a returned check to the depositary bank electronically, directly or indirectly, by commercially reasonable means.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> For purposes of paragraph (a)(1) of this section, the depositary bank that has asserted a claim has the burden of <?page num="859"?>proof for demonstrating that the depositary bank's arrangements meet the standard of paragraph (a)(1).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Acceptance of electronic returned checks and electronic notices of nonpayment.</heading>
<content> A depositary bank's agreement with the transferor bank governs the terms under which the depositary bank will accept electronic returned checks and electronic written notices of nonpayment.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Acceptance of paper returned checks and paper notices of nonpayment.</heading>
<paragraph identifier="/us/cfr/t12/s229.33/c/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A depositary bank shall accept paper returned checks and paper notices of nonpayment during its banking day—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.33/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> At a location, if any, at which presentment of paper checks for forward collection is requested by the depositary bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<paragraph identifier="/us/cfr/t12/s229.33/c/1/ii/A" class="inline">
<num value="A">(A)</num>
<content> At a branch, head office, or other location consistent with the name and address of the bank in its indorsement on the check;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/c/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> If no address appears in the indorsement, at a branch or head office associated with the routing number of the bank in its indorsement on the check; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/c/1/ii/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> If no routing number or address appears in its indorsement on the check, at any branch or head office of the bank.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A depositary bank may require that paper returned checks be separated from paper forward collection checks.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Acceptance of oral notices of nonpayment.</heading>
<chapeau> A depositary bank shall accept oral notices of nonpayment during its banking day—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.33/d/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> At the telephone number indicated in the indorsement; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> At any other number held out by the bank for receipt of notice of nonpayment.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Payment.</heading>
<paragraph identifier="/us/cfr/t12/s229.33/e/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A depositary bank shall pay the returning bank or paying bank returning the check to it for the amount of the check prior to the close of business on the depositary bank's banking day on which it received the check (“payment date”) by—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.33/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Debit to an account of the depositary bank on the books of the returning bank or paying bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Cash;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Wire transfer; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/e/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Any other form of payment acceptable to the returning bank or paying bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The proceeds of the payment must be available to the returning bank or paying bank in cash or by credit to an account of the returning bank or paying bank on or as of the payment date. If the payment date is not a banking day for the returning bank or paying bank or the depositary bank is unable to make the payment on the payment date, payment shall be made by the next day that is a banking day for the returning bank or paying bank. These payments are final when made.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Misrouted returned checks and written notices of nonpayment.</heading>
<content> If a bank receives a returned check or written notice of nonpayment on the basis that it is the depositary bank, and the bank determines that it is not the depositary bank with respect to the check or notice, it shall either promptly send the returned check or notice to the depositary bank directly or by means of a returning bank agreeing to handle the returned check or notice, or send the check or notice back to the bank from which it was received.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Charges.</heading>
<content> A depositary bank may not impose a charge for accepting and paying checks being returned to it.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Notification to customer.</heading>
<content> If the depositary bank receives a returned check, notice of nonpayment, or notice of recovery under <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>, it shall send or give notice to its customer of the facts by midnight of the banking day following the banking day on which it received the returned check, notice of nonpayment, or notice of recovery, or within a longer reasonable time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.33/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Depositary bank without accounts.</heading>
<content> The requirements of this section with respect to notices of nonpayment do not apply to checks deposited in a depositary bank that does not maintain accounts.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27580">82 FR 27580</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.34">
<num value="229.34" style="-uslm-sgm:SECTNO">§ 229.34</num>
<heading style="-uslm-sgm:SUBJECT">Warranties and indemnities.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Warranties with respect to electronic checks and electronic returned checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/a/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Each bank that transfers or presents an electronic check or electronic returned check and receives a settlement <?page num="860"?>or other consideration for it warrants that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.34/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The electronic image accurately represents all of the information on the front and back of the original check as of the time that the original check was truncated and the electronic information includes an accurate record of all MICR line information required for a substitute check under <ref href="/us/cfr/t12/s229.2/aaa">§ 229.2(aaa)</ref> and the amount of the check, and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> No person will receive a transfer, presentment, or return of, or otherwise be charged for an electronic check or electronic returned check, the original check, a substitute check, or a paper or electronic representation of a substitute check such that the person will be asked to make payment based on a check it has already paid.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<chapeau> Each bank that makes the warranties under paragraph (a)(1) of this section makes the warranties to—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.34/a/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> In the case of transfers for collection or presentment, the transferee bank, any subsequent collecting bank, the paying bank, and the drawer; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/a/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> In the case of transfers for return, the transferee returning bank, any subsequent returning bank, the depositary bank, and the owner.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Transfer and presentment warranties with respect to a remotely created check.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/b/1" class="inline">
<num value="1"> (1)</num>
<content> A bank that transfers or presents a remotely created check and receives a settlement or other consideration warrants to the transferee bank, any subsequent collecting bank, and the paying bank that the person on whose account the remotely created check is drawn authorized the issuance of the check in the amount stated on the check and to the payee stated on the check. For purposes of this paragraph (b)(1), “account” includes an account as defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref> as well as a credit or other arrangement that allows a person to draw checks that are payable by, through, or at a bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If a paying bank asserts a claim for breach of warranty under paragraph (b)(1) of this section, the warranting bank may defend by proving that the customer of the paying bank is precluded under UCC 4–406, as applicable, from asserting against the paying bank the unauthorized issuance of the check.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Settlement amount, encoding, and offset warranties.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/c/1" class="inline">
<num value="1"> (1)</num>
<content> Each bank that presents one or more checks to a paying bank and in return receives a settlement or other consideration warrants to the paying bank that the total amount of the checks presented is equal to the total amount of the settlement demanded by the presenting bank from the paying bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Each bank that transfers one or more checks or returned checks to a collecting bank, returning bank, or depositary bank and in return receives a settlement or other consideration warrants to the transferee bank that the accompanying information, if any, accurately indicates the total amount of the checks or returned checks transferred.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Each bank that presents or transfers a check or returned check warrants to any bank that subsequently handles it that, at the time of presentment or transfer, the information encoded after issue regarding the check or returned check is accurate. For purposes of this paragraph, the information encoded after issue regarding the check or returned check means any information that could be encoded in the MICR line of a paper check.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/c/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> If a bank settles with another bank for checks presented, or for returned checks for which it is the depositary bank, in an amount exceeding the total amount of the checks, the settling bank may set off the excess settlement amount against subsequent settlements for checks presented, or for returned checks for which it is the depositary bank, that it receives from the other bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Returned check warranties.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/d/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Each paying bank or returning bank that transfers a returned check and receives a settlement or other consideration for it warrants to the transferee returning bank, to any subsequent returning bank, to the depositary bank, and to the owner of the check, that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.34/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The paying bank, or in the case of a check payable by a bank and payable through another bank, the bank by which the check is payable, returned the check within its deadline under the UCC or <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref> of this part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> It is authorized to return the check;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/d/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The check has not been materially altered; and
<?page num="861"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/d/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> In the case of a notice in lieu of return, the check has not and will not be returned.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> These warranties are not made with respect to checks drawn on the Treasury of the United States, U.S. Postal Service money orders, or checks drawn on a state or a unit of general local government that are not payable through or at a bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Notice of nonpayment warranties.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/e/1" class="inline">
<num value="1"> (1)</num>
<chapeau> Each paying bank that gives a notice of nonpayment warrants to the transferee bank, to any subsequent transferee bank, to the depositary bank, and to the owner of the check that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.34/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The paying bank, or in the case of a check payable by a bank and payable through another bank, the bank by which the check is payable, returned or will return the check within its deadline under the UCC or <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref> of this part;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> It is authorized to send the notice; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/e/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The check has not been materially altered.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> These warranties are not made with respect to checks drawn on the Treasury of the United States, U.S. Postal Service money orders, or check drawn on a state or a unit of general local government that are not payable through or at a bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Remote deposit capture indemnity.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/f/1" class="inline">
<num value="1"> (1)</num>
<chapeau> The indemnity described in paragraph (f)(2) of this section is provided by a depositary bank that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.34/f/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Is a truncating bank under <ref href="/us/cfr/t12/s229.2/eee/2">§ 229.2(eee)(2)</ref> because it accepts deposit of an electronic image or other electronic information related to an original check;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/f/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Does not receive the original check;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/f/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Receives settlement or other consideration for an electronic check or substitute check related to the original check; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/f/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Does not receive a return of the check unpaid.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/f/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A bank described in paragraph (f)(1) of this section shall indemnify, as set forth in <ref href="/us/cfr/t12/s229.34/i">§ 229.34(i)</ref>, a depositary bank that accepts the original check for deposit for losses incurred by that depositary bank if the loss is due to the check having already been paid.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/f/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A depositary bank may not make an indemnity claim under paragraph (f)(2) of this section if the original check it accepted for deposit bore a restrictive indorsement inconsistent with the means of deposit.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Indemnities with respect to electronically-created items.</heading>
<chapeau> Each bank that transfers or presents an electronically-created item and receives a settlement or other consideration for it shall indemnify, as set forth in <ref href="/us/cfr/t12/s229.34/i">§ 229.34(i)</ref>, each transferee bank, any subsequent collecting bank, the paying bank, and any subsequent returning bank against losses that result from the fact that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.34/g/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The electronic image or electronic information is not derived from a paper check;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/g/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The person on whose account the electronically-created item is drawn did not authorize the issuance of the item in the amount stated on the item or to the payee stated on the item (for purposes of this paragraph (g)(2), “account” includes an account as defined in section 229.2(a) as well as a credit or other arrangement that allows a person to draw checks that are payable by, through, or at a bank); or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/g/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> A person receives a transfer, presentment, or return of, or otherwise is charged for an electronically-created item such that the person is asked to make payment based on an item or check it has already paid.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Damages.</heading>
<content> Damages for breach of the warranties in this section shall not exceed the consideration received by the bank that presents or transfers a check or returned check, plus interest compensation and expenses related to the check or returned check, if any.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Indemnity amounts.</heading>
<paragraph identifier="/us/cfr/t12/s229.34/i/1" class="inline">
<num value="1"> (1)</num>
<chapeau> The amount of the indemnity in paragraphs (f)(2) and (g) of this section shall not exceed the sum of—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.34/i/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of the loss of the indemnified bank, up to the amount of the settlement or other consideration received by the indemnifying bank; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/i/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Interest and expenses of the indemnified bank (including costs and reasonable attorney's fees and other expenses of representation).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/i/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<paragraph identifier="/us/cfr/t12/s229.34/i/2/i" class="inline">
<num value="i">(i)</num>
<content> If a loss described in paragraph (f)(2) or (g) of this section results in whole or in part from the indemnified bank's negligence or failure to act in <?page num="862"?>good faith, then the indemnity amount described in paragraph (i)(1) of this section shall be reduced in proportion to the amount of negligence or bad faith attributable to the indemnified bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/i/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Nothing in this paragraph (i)(2) affects the rights of a person under the UCC or other applicable provision of state or federal law.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/j" style="-uslm-sgm:P">
<num value="j">(j) </num>
<heading>Tender of defense.</heading>
<content> If a bank is sued for breach of a warranty or for indemnity under this section, it may give a prior bank in the collection or return chain written notice of the litigation, and the bank notified may then give similar notice to any other prior bank. If the notice states that the bank notified may come in and defend and that failure to do so will bind the bank notified in an action later brought by the bank giving the notice as to any determination of fact common to the two litigations, the bank notified is so bound unless after seasonable receipt of the notice the bank notified does come in and defend.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.34/k" style="-uslm-sgm:P">
<num value="k">(k) </num>
<heading>Notice of claim.</heading>
<content> Unless a claimant gives notice of a claim for breach of warranty or for indemnity under this section to the bank that made the warranty or indemnification within 30 days after the claimant has reason to know of the breach or facts and circumstances giving rise to the indemnity and the identity of the warranting or indemnifying bank, the warranting or indemnifying bank is discharged to the extent of any loss caused by the delay in giving notice of the claim.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27581">82 FR 27581</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.35">
<num value="229.35" style="-uslm-sgm:SECTNO">§ 229.35</num>
<heading style="-uslm-sgm:SUBJECT">Indorsements.
</heading>
<paragraph identifier="/us/cfr/t12/s229.35/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Indorsement standards.</heading>
<content> A bank (other than a paying bank) that handles a check during forward collection or a returned check shall indorse the check in a manner that permits a person to interpret the indorsement, in accordance with American National Standard (ANS) Specifications for Physical Check Endorsements, X9.100–111 (ANS X9.100–111), for a paper check other than a substitute check; ANS Specifications for an Image Replacement Document, X9.100–140 (ANS X9.100–140), for a substitute check; and ANS Specifications for Electronic Exchange of Check and Image Data—Domestic, X9.100–187 (ANS X9.100–187), for an electronic check; unless the Board by rule or order determines that different standards apply or the parties otherwise agree.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.35/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Liability of bank handling check.</heading>
<content> A bank that handles a check for forward collection or return is liable to any bank that subsequently handles the check to the extent that the subsequent bank does not receive payment for the check because of suspension of payments by another bank or otherwise. This paragraph applies whether or not a bank has placed its indorsement on the check. This liability is not affected by the failure of any bank to exercise ordinary care, but any bank failing to do so remains liable. A bank seeking recovery against a prior bank shall send notice to that prior bank reasonably promptly after it learns the facts entitling it to recover. A bank may recover from the bank with which it settled for the check by revoking the settlement, charging back any credit given to an account, or obtaining a refund. A bank may have the rights of a holder with respect to each check it handles.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.35/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Indorsement by a bank.</heading>
<chapeau> After a check has been indorsed by a bank, only a bank may acquire the rights of a holder—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.35/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Until the check has been returned to the person initiating collection; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.35/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Until the check has been specially indorsed by a bank to a person who is not a bank.
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.35/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Indorsement for depositary bank.</heading>
<content> A depositary bank may arrange with another bank to apply the other bank's indorsement as the depositary bank indorsement, provided that any indorsement of the depositary bank on the check avoids the area reserved for the depositary bank indorsement as specified in the indorsement standard applicable to the check under paragraph (a) of this section. The other bank indorsing as depositary bank is considered the depositary bank for purposes of subpart C of this part.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/82/27582">82 FR 27582</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.36">
<num value="229.36" style="-uslm-sgm:SECTNO">§ 229.36</num>
<heading style="-uslm-sgm:SUBJECT">Presentment and issuance of checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.36/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Receipt of electronic checks.</heading>
<content> The terms under which a paying bank will <?page num="863"?>accept presentment of an electronic check is governed by the paying bank's agreement with the presenting bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Receipt of paper checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.36/b/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A paper check is considered received by the paying bank when it is received—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.36/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> At a location to which delivery is requested by the paying bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> At an address of the bank associated with the routing number on the check, whether contained in the MICR line or in fractional form;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> At a branch, head office, or other location consistent with the name and address of the bank on the check if the bank is identified on the check by name and address; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/b/1/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> At any branch or head office, if the bank is identified on the check by name without address.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A bank may require that checks presented to it as a paying bank be separated from returned checks.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Liability of bank during forward collection.</heading>
<content> Settlements between banks for the forward collection of a check are final when made; however, a collecting bank handling a check for forward collection may be liable to a prior collecting bank, including the depositary bank, and the depositary bank's customer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Same-day settlement.</heading>
<paragraph identifier="/us/cfr/t12/s229.36/d/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A paper check is considered presented, and a paying bank must settle for or return the check pursuant to paragraph (d)(2) of this section, if a presenting bank delivers the check in accordance with reasonable delivery requirements established by the paying bank and demands payment under this paragraph (d)—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.36/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> At a location designated by the paying bank for receipt of paper checks under this paragraph (d) at which the paying bank would be considered to have received the paper check under paragraph (b) of this section or, if no location is designated, at any location described in paragraph (b) of this section; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> By 8 a.m. on a business day (local time of the location described in paragraph (d)(1)(i) of this section).</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A paying bank may require that paper checks presented for settlement pursuant to paragraph (d)(1) of this section be separated from other forward-collection checks or returned checks.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<chapeau> If presentment of a paper check meets the requirements of paragraph (d)(1) of this section, the paying bank is accountable to the presenting bank for the amount of the check unless, by the close of Fedwire on the business day it receives the check, it either—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.36/d/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Settles with the presenting bank for the amount of the check by credit to an account at a Federal Reserve Bank designated by the presenting bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Returns the check.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<chapeau> Notwithstanding paragraph (d)(3) of this section, if a paying bank closes on a business day and receives presentment of a paper check on that day in accordance with paragraph (d)(1) of this section—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.36/d/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> The paying bank is accountable to the presenting bank for the amount of the check unless, by the close of Fedwire on its next banking day, it either—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.36/d/4/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Settles with the presenting bank for the amount of the check by credit to an account at a Federal Reserve Bank designated by the presenting bank; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d/4/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Returns the check.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.36/d/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the closing is voluntary, unless the paying bank settles for or returns the check in accordance with paragraph (d)(3) of this section, it shall pay interest compensation to the presenting bank for each day after the business day on which the check was presented until the paying bank settles for the check, including the day of settlement.
</content>
</paragraph>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27583">82 FR 27583</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.37">
<num value="229.37" style="-uslm-sgm:SECTNO">§ 229.37</num>
<heading style="-uslm-sgm:SUBJECT">Variation by agreement.</heading>
<content style="-uslm-sgm:P">The effect of the provisions of subpart C may be varied by agreement, except that no agreement can disclaim the responsibility of a bank for its own lack of good faith or failure to exercise ordinary care, or can limit the measure of damages for such lack or failure; but the parties may determine by agreement the standards by which such responsibility is to be measured if such standards are not manifestly unreasonable.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.38"><?page num="864"?>
<num value="229.38" style="-uslm-sgm:SECTNO">§ 229.38</num>
<heading style="-uslm-sgm:SUBJECT">Liability.
</heading>
<paragraph identifier="/us/cfr/t12/s229.38/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Standard of care; liability; measure of damages.</heading>
<content> A bank shall exercise ordinary care and act in good faith in complying with the requirements of this subpart. A bank that fails to exercise ordinary care or act in good faith under this subpart may be liable to the depositary bank, the depositary bank's customer, the owner of a check, or another party to the check. The measure of damages for failure to exercise ordinary care is the amount of the loss incurred, up to the amount of the check, reduced by the amount of the loss that party would have incurred even if the bank had exercised ordinary care. A bank that fails to act in good faith under this subpart may be liable for other damages, if any, suffered by the party as a proximate consequence. Subject to a bank's duty to exercise ordinary care or act in good faith in choosing the means of return or notice of nonpayment, the bank is not liable for the insolvency, neglect, misconduct, mistake, or default of another bank or person, or for loss or destruction of a check or notice of nonpayment in transit or in the possession of others. This section does not affect a paying bank's liability to its customer under the U.C.C. or other law.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Paying bank's failure to make timely return.</heading>
<content> If a paying bank fails both to comply with its expeditious return requirements under <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref> and with the deadline for return under the UCC, Regulation J (<ref href="/us/cfr/t12/p210">12 CFR part 210</ref>), or the extension of deadline under <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref> in connection with a single nonpayment of a check, the paying bank shall be liable under either <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref> or such other provision, but not both.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Comparative negligence.</heading>
<content> If a person, including a bank, fails to exercise ordinary care or act in good faith under this subpart in indorsing a check (<ref href="/us/cfr/t12/s229.35">§ 229.35</ref>), accepting a returned check or notice of nonpayment (<ref href="/us/cfr/t12/s229.33/b">§ 229.33(b)</ref>, (c), and (d)), or otherwise, the damages incurred by that person under <ref href="/us/cfr/t12/s229.38/a">§ 229.38(a)</ref> shall be diminished in proportion to the amount of negligence or bad faith attributable to that person.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Responsibility for certain aspects of checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.38/d/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A paying bank, or in the case of a check payable through the paying bank and payable by another bank, the bank by which the check is payable, is responsible for damages under paragraph (a) of this section to the extent that the condition of the check when issued by it or its customer adversely affects the ability of a bank to indorse the check legibly in accordance with <ref href="/us/cfr/t12/s229.35">§ 229.35</ref>. A depositary bank is responsible for damages under paragraph (a) of this section to the extent that the condition of the back of a check arising after the issuance of the check and prior to acceptance of the check by it adversely affects the ability of a bank to indorse the check legibly in accordance with <ref href="/us/cfr/t12/s229.35">§ 229.35</ref>. A reconverting bank is responsible for damages under paragraph (a) of this section to the extent that the condition of the back of a substitute check transferred, presented, or returned by it—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.38/d/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Adversely affects the ability of a subsequent bank to indorse the check legibly in accordance with <ref href="/us/cfr/t12/s229.35">§ 229.35</ref>; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/d/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Causes an indorsement that previously was applied in accordance with <ref href="/us/cfr/t12/s229.35">§ 229.35</ref> to become illegible.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/d/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Responsibility under this paragraph (d) shall be treated as negligence of the paying bank, depositary bank, or reconverting bank for purposes of paragraph (c) of this section.
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Timeliness of action.</heading>
<content> If a bank is delayed in acting beyond the time limits set forth in this subpart because of interruption of communication or computer facilities, suspension of payments by a bank, war, emergency conditions, failure of equipment, or other circumstances beyond its control, its time for acting is extended for the time necessary to complete the action, if it exercises such diligence as the circumstances require.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Exclusion.</heading>
<content> Section 229.21 of this part and section 611 (a), (b), and (c) of the EFA Act (<ref href="/us/usc/t12/s4010">12 U.S.C. 4010</ref> (a), (b), and (c)) do not apply to this subpart.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/g" style="-uslm-sgm:P">
<num value="g">(g) </num>
<heading>Jurisdiction.</heading>
<content> Any action under this subpart may be brought in any United States district court, or in any other court of competent jurisdiction, and shall be brought within one year after the date of the occurrence of the violation involved.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/h" style="-uslm-sgm:P">
<num value="h">(h) </num>
<heading>Reliance on Board rulings.</heading>
<content> No provision of this subpart imposing any liability shall apply to any act done or omitted in good faith in conformity <?page num="865"?>with any rule, regulation, or interpretation thereof by the Board, regardless of whether the rule, regulation, or interpretation is amended, rescinded, or determined by judicial or other authority to be invalid for any reason after the act or omission has occurred.
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/i" style="-uslm-sgm:P">
<num value="i">(i) </num>
<heading>Presumption of Alteration—</heading>
<paragraph identifier="/us/cfr/t12/s229.38/i/1" class="inline">
<num value="1">(1) </num>
<heading>Presumption.</heading>
<content> Subject to paragraphs (i)(2) and (3) of this section and in the absence of a Federal statute or regulation to the contrary, the presumption in this paragraph applies with respect to any dispute between banks arising under Federal or State law as to whether a substitute check or electronic check transferred between those banks contains an alteration or is derived from an original check that was issued with an unauthorized signature of the drawer. When such a dispute arises, there is a rebuttable presumption that the substitute check or electronic check contains an alteration.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/i/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Rebuttal of presumption.</heading>
<content> The presumption of alteration may be overcome by proving by a preponderance of evidence that either the substitute check or electronic check does not contain an alteration, or that the substitute check or electronic check is derived from an original check that was issued with an unauthorized signature of the drawer.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.38/i/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Effect of producing original check.</heading>
<content> If the original check is made available for examination by all banks involved in the dispute, the presumption in paragraph (i)(1) of this section shall no longer apply.
</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/82/27583">82 FR 27583</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>; <ref href="/us/fr/83/46853">83 FR 46853</ref>, <date date="2018-09-17" role="amended">Sept. 17, 2018</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.39">
<num value="229.39" style="-uslm-sgm:SECTNO">§ 229.39</num>
<heading style="-uslm-sgm:SUBJECT">Insolvency of bank.</heading>
<paragraph identifier="/us/cfr/t12/s229.39/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Duty of receiver to return unpaid checks.</heading>
<content> A check or returned check in, or coming into, the possession of a paying bank, collecting bank, depositary bank, or returning bank that suspends payment, and which is not paid, shall be returned by the receiver, trustee, or agent in charge of the closed bank to the bank or customer that transferred the check to the closed bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.39/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Claims against banks for checks not returned by receiver.</heading>
<chapeau> If a check or returned check is not returned by the receiver, trustee, or agent in charge of the closed bank under paragraph (a) of this section, a bank shall have claims with respect to the check or returned check as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s229.39/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> If the paying bank has finally paid the check, or if a depositary bank is obligated to pay the returned check, and suspends payment without making a settlement for the check or returned check with the prior bank that is or becomes final, the prior bank has a claim against the paying bank or the depositary bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.39/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If a collecting bank, paying bank, or returning bank receives settlement from a subsequent bank for a check or returned check, which settlement is or becomes final, and suspends payments without making a settlement for the check with the prior bank, which is or becomes final, the prior bank has a claim against the collecting bank or returning bank.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.39/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Preferred claim against presenting bank for breach of warranty.</heading>
<content> If a paying bank settles with a presenting bank for one or more checks, and if the presenting bank breaches a warranty specified in <ref href="/us/cfr/t12/s229.34/c/1">§ 229.34(c)(1)</ref> or (3) with respect to those checks and suspends payments before satisfying the paying bank's warranty claim, the paying bank has a preferred claim against the presenting bank for the amount of the warranty claim.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.39/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Finality of settlement.</heading>
<content> If a paying bank or depositary bank gives, or a collecting bank, paying bank, or returning bank gives or receives, a settlement for a check or returned check and thereafter suspends payment, the suspension does not prevent or interfere with the settlement becoming final if such finality occurs automatically upon the lapse of a certain time or the happening of certain events.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27583">82 FR 27583</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.40">
<num value="229.40" style="-uslm-sgm:SECTNO">§ 229.40</num>
<heading style="-uslm-sgm:SUBJECT">Effect of merger transaction.</heading>
<content>
<p style="-uslm-sgm:P">For purposes of this subpart, two or more banks that have engaged in a merger transaction may be considered to be separate banks for a period of one year following the consummation of the merger transaction.
</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27584">82 FR 27584</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.41"><?page num="866"?>
<num value="229.41" style="-uslm-sgm:SECTNO">§ 229.41 </num>
<heading style="-uslm-sgm:SUBJECT">Relation to State law.</heading>
<content style="-uslm-sgm:P">The provisions of this subpart supersede any inconsistent provisions of the U.C.C. as adopted in any state, or of any other state law, but only to the extent of the inconsistency.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.42">
<num value="229.42" style="-uslm-sgm:SECTNO">§ 229.42</num>
<heading style="-uslm-sgm:SUBJECT">Exclusions.</heading>
<content>
<p style="-uslm-sgm:P">The expeditious return (<ref href="/us/cfr/t12/s229.31/b">§§ 229.31(b)</ref> and 229.32(b)), notice of nonpayment (<ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref>), and same-day settlement (<ref href="/us/cfr/t12/s229.36/d">§ 229.36(d)</ref>) requirements of this subpart do not apply to a check drawn upon the United States Treasury, to a U.S. Postal Service money order, or to a check drawn on a state or a unit of general local government that is not payable through or at a bank.
</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/82/27584">82 FR 27584</ref>, <date date="2017-06-15">June 15, 2017</date>]
</source>
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.43">
<num value="229.43" style="-uslm-sgm:SECTNO">§ 229.43 </num>
<heading style="-uslm-sgm:SUBJECT">Checks payable in Guam, American Samoa, and the Northern Mariana Islands.
</heading>
<paragraph role="definitions" identifier="/us/cfr/t12/s229.43/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Definitions.</heading>
<content>
<p> The definitions in <ref href="/us/cfr/t12/s229.2">§ 229.2</ref> apply to this section, unless otherwise noted. In addition, for the purposes of this section— </p>
<p style="-uslm-sgm:P">(1) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pacific island bank</inline> means an office of an institution that would be a bank as defined in <ref href="/us/cfr/t12/s229.2/e">§ 229.2(e)</ref> but for the fact that the office is located in Guam, American Samoa, or the Northern Mariana Islands;
</p>
<p style="-uslm-sgm:P">(2) <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Pacific island check</inline> means—</p>
<p style="-uslm-sgm:P">(i) A demand draft drawn on or payable through or at a Pacific island bank, which is not a check as defined in <ref href="/us/cfr/t12/s229.2/k">§ 229.2(k)</ref>; and</p>
<p style="-uslm-sgm:P">(ii) An electronic image of, and electronic information derived from, a demand draft or returned demand draft drawn on or payable through or at a Pacific island bank that—</p>
<p style="-uslm-sgm:P">(A) Is sent to a receiving bank pursuant to an agreement between the sender and the receiving bank; and</p>
<p style="-uslm-sgm:P">(B) Conforms with ANS X9.100–187, unless the Board by rule or order determines that a different standard applies or the parties otherwise agree.</p>
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Rules applicable to Pacific island checks.</heading>
<chapeau> To the extent a bank handles a Pacific island check as if it were a check defined in <ref href="/us/cfr/t12/s229.2/k">§ 229.2(k)</ref> or an electronic check defined in <ref href="/us/cfr/t12/s229.2/ggg">§ 229.2(ggg)</ref>, the bank is subject to the following sections of this part (and the word “check” in each such section is construed to include a Pacific island check)—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.43/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Section 229.30(a) (Checks under this subpart), and (b) (Writings);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Section 229.32 (Returning bank's responsibilities for return of checks) except that the returning bank is not subject to the requirement to return a Pacific Island check in an expeditious manner;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Section 229.33(b) (Acceptance of electronic returned checks and electronic notices of nonpayment), (c) (Acceptance of paper returned checks and paper notices of nonpayment), <ref href="/us/cfr/t12/s229.33/d">§ 229.33(d)</ref> (Acceptances of oral notices of nonpayment), <ref href="/us/cfr/t12/s229.33/e">§ 229.33(e)</ref> (Payment), <ref href="/us/cfr/t12/s229.33/f">§ 229.33(f)</ref> (Misrouted returned checks and written notices of nonpayment), <ref href="/us/cfr/t12/s229.33/g">§ 229.33(g)</ref> (Charges);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Section 229.34(a) (Warranties with respect to electronic checks and electronic returned checks), <ref href="/us/cfr/t12/s229.34/b">§ 229.34(b)</ref> (Transfer and presentment warranties with respect to a remotely-created check), <ref href="/us/cfr/t12/s229.34/c/2">§ 229.34(c)(2)</ref> (Cash letter total warranty), <ref href="/us/cfr/t12/s229.34/c/3">§ 229.34(c)(3)</ref> (Encoding warranty), <ref href="/us/cfr/t12/s229.34/f">§ 229.34(f)</ref> (Remote deposit capture warranty), <ref href="/us/cfr/t12/s229.34/g">§ 229.34(g)</ref> (Indemnities with respect to electronically-created items), <ref href="/us/cfr/t12/s229.34/h">§ 229.34(h)</ref> (Damages), <ref href="/us/cfr/t12/s229.34/i">§ 229.34(i)</ref> (Indemnity amounts), and <ref href="/us/cfr/t12/s229.34/j">§ 229.34(j)</ref> (Tender of defense);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/5" style="-uslm-sgm:P">
<num value="5">(5)</num>
<content> Section 229.35 (Indorsements); for purposes of <ref href="/us/cfr/t12/s229.35/c">§ 229.35(c)</ref> (Indorsement by a bank), the Pacific island bank is deemed to be a bank;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/6" style="-uslm-sgm:P">
<num value="6">(6)</num>
<content> Section 229.36(c) (Liability of bank during forward collection);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/7" style="-uslm-sgm:P">
<num value="7">(7)</num>
<content> Section 229.37 (Variation by agreement);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/8" style="-uslm-sgm:P">
<num value="8">(8)</num>
<content> Section 229.38 (Liability), except for <ref href="/us/cfr/t12/s229.38/b">§ 229.38(b)</ref> (Paying bank's failure to make timely return);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/9" style="-uslm-sgm:P">
<num value="9">(9)</num>
<content> Section 229.39 (Insolvency of bank), except for <ref href="/us/cfr/t12/s229.39/c">§ 229.39(c)</ref> (Preferred claim against presenting bank for breach of warranty); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.43/b/10" style="-uslm-sgm:P">
<num value="10">(10)</num>
<content> Section 229.40 (Effect of merger transaction), <ref href="/us/cfr/t12/s229.41">§ 229.41</ref> (Relation to state law) and <ref href="/us/cfr/t12/s229.42">§ 229.42</ref> (Exclusions).
</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[Reg. CC, <ref href="/us/fr/62/13810">62 FR 13810</ref>, <date date="1997-03-24">Mar. 24, 1997</date>, as amended at <ref href="/us/fr/82/27584">82 FR 27584</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>]
</source>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p229/spD">
<num value="D" style="-uslm-sgm:HED">Subpart D—</num>
<heading style="-uslm-sgm:HED">Substitute Checks </heading>
<authority style="-uslm-sgm:AUTH">
<heading style="-uslm-sgm:HED">Authority:</heading> <ref href="/us/usc/t12/s5001–5018">12 U.S.C. 5001–5018</ref>. </authority>
<source style="-uslm-sgm:SOURCE"><?page num="867"?>
<heading style="-uslm-sgm:HED">Source:</heading> <ref href="/us/fr/69/47311">69 FR 47311</ref>, <date date="2004-08-04">Aug. 4, 2004</date>, unless otherwise noted.
</source>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.51">
<num value="229.51" style="-uslm-sgm:SECTNO">§ 229.51</num>
<heading style="-uslm-sgm:SUBJECT">General provisions governing substitute checks.</heading>
<paragraph identifier="/us/cfr/t12/s229.51/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Legal equivalence.</heading>
<chapeau> A substitute check for which a bank has provided the warranties described in <ref href="/us/cfr/t12/s229.52">§ 229.52</ref> is the legal equivalent of an original check for all persons and all purposes, including any provision of federal or state law, if the substitute check—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.51/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Accurately represents all of the information on the front and back of the original check as of the time the original check was truncated; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.51/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Bears the legend, “This is a legal copy of your check. You can use it the same way you would use the original check.”</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.51/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Reconverting bank duties.</heading>
<chapeau> A bank shall ensure that a substitute check for which it is the reconverting bank—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.51/b/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Bears all indorsements applied by parties that previously handled the check in any form (including the original check, a substitute check, or another paper or electronic representation of such original check or substitute check) for forward collection or return;
</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.51/b/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Identifies the reconverting bank in a manner that preserves any previous reconverting-bank identifications, in accordance with ANS X9.100–140; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.51/b/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Identifies the bank that truncated the original check, in accordance with ANS X9.100–140.
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.51/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Applicable law.</heading>
<content> A substitute check that is the legal equivalent of an original check under paragraph (a) of this section shall be subject to any provision, including any provision relating to the protection of customers, of this part, the U.C.C., and any other applicable federal or state law as if such substitute check were the original check, to the extent such provision of law is not inconsistent with the Check 21 Act or this subpart.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/69/47311">69 FR 47311</ref>, <date date="2004-08-04">Aug. 4, 2004</date>, as amended at <ref href="/us/fr/82/27584">82 FR 27584</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.52">
<num value="229.52" style="-uslm-sgm:SECTNO">§ 229.52</num>
<heading style="-uslm-sgm:SUBJECT">Substitute check warranties.
</heading>
<paragraph identifier="/us/cfr/t12/s229.52/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Content and provision of substitute-check warranties.</heading>
<paragraph identifier="/us/cfr/t12/s229.52/a/1" class="inline">
<num value="1"> (1)</num>
<chapeau> A bank that transfers, presents, or returns a substitute check (or a paper or electronic representation of a substitute check) for which it receives consideration warrants to the parties listed in paragraph (b) of this section that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.52/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The substitute check meets the requirements for legal equivalence described in <ref href="/us/cfr/t12/s229.51/a/1">§ 229.51(a)(1)</ref> and (2); and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.52/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> No depositary bank, drawee, drawer, or indorser will receive presentment or return of, or otherwise be charged for, the substitute check, the original check, or a paper or electronic representation of the substitute check or original check such that that person will be asked to make a payment based on a check that it already has paid.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.52/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A bank that rejects a check submitted for deposit and returns to its customer a substitute check (or a paper or electronic representation of a substitute check) makes the warranties in paragraph (a)(1) of this section regardless of whether the bank received consideration.
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.52/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Warranty recipients.</heading>
<content> A bank makes the warranties described in paragraph (a) of this section to the person to which the bank transfers, presents, or returns the substitute check or a paper or electronic representation of such substitute check and to any subsequent recipient, which could include a collecting or returning bank, the depositary bank, the drawer, the drawee, the payee, the depositor, and any indorser. These parties receive the warranties regardless of whether they received the substitute check or a paper or electronic representation of a substitute check.
</content>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/69/47311">69 FR 47311</ref>, <date date="2004-08-04">Aug. 4, 2004</date>, as amended at <ref href="/us/fr/82/27584">82 FR 27584</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.53">
<num value="229.53" style="-uslm-sgm:SECTNO">§ 229.53</num>
<heading style="-uslm-sgm:SUBJECT">Substitute check indemnity.
</heading>
<paragraph identifier="/us/cfr/t12/s229.53/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Scope of indemnity.</heading>
<paragraph identifier="/us/cfr/t12/s229.53/a/1" class="inline">
<num value="1"> (1)</num>
<content> A bank that transfers, presents, or returns a substitute check or a paper or electronic representation of a substitute check for which it receives consideration shall indemnify the recipient and any subsequent recipient (including a collecting or returning bank, the depositary bank, the drawer, the drawee, the payee, the depositor, and any indorser) for any loss incurred by any recipient of a substitute check if that loss occurred due to the receipt of a substitute check instead of the original check.
<?page num="868"?></content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> A bank that rejects a check submitted for deposit and returns to its customer a substitute check (or a paper or electronic representation of a substitute check) shall indemnify the recipient as described in paragraph (a)(1) of this section regardless of whether the bank received consideration.
</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Indemnity amount—</heading>
<paragraph identifier="/us/cfr/t12/s229.53/b/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Unless otherwise indicated by paragraph (b)(2) or (b)(3) of this section, the amount of the indemnity under paragraph (a) of this section is as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s229.53/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> If the loss resulted from a breach of a substitute check warranty provided under <ref href="/us/cfr/t12/s229.52">§ 229.52</ref>, the amount of the indemnity shall be the amount of any loss (including interest, costs, reasonable attorney's fees, and other expenses of representation) proximately caused by the warranty breach.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> If the loss did not result from a breach of a substitute check warranty provided under <ref href="/us/cfr/t12/s229.52">§ 229.52</ref>, the amount of the indemnity shall be the sum of—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.53/b/1/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The amount of the loss, up to the amount of the substitute check; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b/1/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Interest and expenses (including costs and reasonable attorney's fees and other expenses of representation) related to the substitute check.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Comparative negligence.</heading>
<paragraph identifier="/us/cfr/t12/s229.53/b/2/i" class="inline">
<num value="i"> (i)</num>
<content> If a loss described in paragraph (a) of this section results in whole or in part from the indemnified person's negligence or failure to act in good faith, then the indemnity amount described in paragraph (b)(1) of this section shall be reduced in proportion to the amount of negligence or bad faith attributable to the indemnified person.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Nothing in this paragraph (b)(2) reduces the rights of a consumer or any other person under the U.C.C. or other applicable provision of state or federal law.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Effect of producing the original check or a sufficient copy—</heading>
<chapeau />
<paragraph identifier="/us/cfr/t12/s229.53/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> If an indemnifying bank produces the original check or a sufficient copy, the indemnifying bank shall—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.53/b/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Be liable under this section only for losses that are incurred up to the time that the bank provides that original check or sufficient copy to the indemnified person; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Have a right to the return of any funds it has paid under this section in excess of those losses.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The production by the indemnifying bank of the original check or a sufficient copy under paragraph (b)(3)(i) of this section shall not absolve the indemnifying bank from any liability under any warranty that the bank has provided under <ref href="/us/cfr/t12/s229.52">§ 229.52</ref> or other applicable law.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Subrogation of rights—</heading>
<paragraph identifier="/us/cfr/t12/s229.53/c/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<content> An indemnifying bank shall be subrogated to the rights of the person that it indemnifies to the extent of the indemnity it has provided and may attempt to recover from another person based on a warranty or other claim.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.53/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Duty of indemnified person for subrogated claims.</heading>
<content> Each indemnified person shall have a duty to comply with all reasonable requests for assistance from an indemnifying bank in connection with any claim the indemnifying bank brings against a warrantor or other person related to a check that forms the basis for the indemnification.
</content>
</paragraph>
</paragraph>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/69/47311">69 FR 47311</ref>, <date date="2004-08-04">Aug. 4, 2004</date>, as amended at <ref href="/us/fr/82/27585">82 FR 27585</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>]
</source>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.54">
<num value="229.54" style="-uslm-sgm:SECTNO">§ 229.54</num>
<heading style="-uslm-sgm:SUBJECT">Expedited recredit for consumers.</heading>
<paragraph identifier="/us/cfr/t12/s229.54/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Circumstances giving rise to a claim.</heading>
<chapeau> A consumer may make a claim under this section for a recredit with respect to a substitute check if the consumer asserts in good faith that—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> The bank holding the consumer's account charged that account for a substitute check that was provided to the consumer (although the consumer need not be in possession of that substitute check at the time he or she submits a claim);</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The substitute check was not properly charged to the consumer account or the consumer has a warranty claim with respect to the substitute check;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The consumer suffered a resulting loss; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/a/4" style="-uslm-sgm:P">
<num value="4">(4)</num>
<content> Production of the original check or a sufficient copy is necessary to determine whether or not the substitute check in fact was improperly charged or whether the consumer's warranty claim is valid.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Procedures for making claims.</heading>
<chapeau> A consumer shall make his or her claim <?page num="869"?>for a recredit under this section with the bank that holds the consumer's account in accordance with the timing, content, and form requirements of this section.</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Timing of claim.</heading>
<paragraph identifier="/us/cfr/t12/s229.54/b/1/i" class="inline">
<num value="i"> (i)</num>
<chapeau> The consumer shall submit his or her claim such that the bank receives the claim by the end of the 40th calendar day after the later of the calendar day on which the bank mailed or delivered, by a means agreed to by the consumer—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/b/1/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> The periodic account statement that contains information concerning the transaction giving rise to the claim; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/1/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> The substitute check giving rise to the claim.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If the consumer cannot submit his or her claim by the time specified in paragraph (b)(1)(i) of this section because of extenuating circumstances, the bank shall extend the 40-calendar-day period by an additional reasonable amount of time.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/1/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> If a consumer makes a claim orally and the bank requires the claim to be in writing, the consumer's claim is timely if the oral claim was received within the time described in paragraphs (b)(1)(i)–(ii) of this section and the written claim was received within the time described in paragraph (b)(3)(ii) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Content of claim.</heading>
<paragraph identifier="/us/cfr/t12/s229.54/b/2/i" class="inline">
<num value="i"> (i)</num>
<chapeau> The consumer's claim shall include the following information:</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/b/2/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> A description of the consumer's claim, including the reason why the consumer believes his or her account was improperly charged for the substitute check or the nature of his or her warranty claim with respect to such check;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/2/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> A statement that the consumer suffered a loss and an estimate of the amount of that loss;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/2/i/C" style="-uslm-sgm:P">
<num value="C">(C)</num>
<content> The reason why production of the original check or a sufficient copy is necessary to determine whether or not the charge to the consumer's account was proper or the consumer's warranty claim is valid; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/2/i/D" style="-uslm-sgm:P">
<num value="D">(D)</num>
<content> Sufficient information to allow the bank to identify the substitute check and investigate the claim.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> If a consumer attempts to make a claim but fails to provide all the information in paragraph (b)(2)(i) of this section that is required to constitute a claim, the bank shall inform the consumer that the claim is not complete and identify the information that is missing.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Form and submission of claim; computation of time for bank action.</heading>
<chapeau> The bank holding the account that is the subject of the consumer's claim may, in its discretion, require the consumer to submit the information required by this section in writing. A bank that requires a written submission—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/b/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> May permit the consumer to submit the written claim electronically;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Shall inform a consumer who submits a claim orally of the written claim requirement at the time of the oral claim and may require such consumer to submit the written claim such that the bank receives the written claim by the 10th business day after the banking day on which the bank received the oral claim; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/b/3/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Shall compute the time periods for acting on the consumer's claim described in paragraph (c) of this section from the date on which the bank received the written claim.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Action on claims.</heading>
<chapeau> A bank that receives a claim that meets the requirements of paragraph (b) of this section shall act as follows:</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/c/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Valid consumer claim.</heading>
<chapeau> If the bank determines that the consumer's claim is valid, the bank shall—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/c/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Recredit the consumer's account for the amount of the consumer's loss, up to the amount of the substitute check, plus interest if the account is an interest-bearing account, no later than the end of the business day after the banking day on which the bank makes that determination; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Send to the consumer the notice required by paragraph (e)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Invalid consumer claim.</heading>
<content> If a bank determines that the consumer's claim is not valid, the bank shall send to the consumer the notice described in paragraph (e)(2) of this section.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Recredit pending investigation.</heading>
<chapeau> If the bank has not taken an action described in paragraph (c)(1) or (c)(2) of this section before the end of the 10th business day after the banking day on which the bank received the claim, the bank shall—
<?page num="870"?></chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/c/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<chapeau> By the end of that business day—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/c/3/i/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> Recredit the consumer's account for the amount of the consumer's loss, up to the lesser of the amount of the substitute check or $2,500, plus interest on that amount if the account is an interest-bearing account; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c/3/i/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> Send to the consumer the notice required by paragraph (e)(1) of this section; and</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Recredit the consumer's account for the remaining amount of the consumer's loss, if any, up to the amount of the substitute check, plus interest if the account is an interest-bearing account, no later than the end of the 45th calendar day after the banking day on which the bank received the claim and send to the consumer the notice required by paragraph (e)(1) of this section, unless the bank prior to that time has determined that the consumer's claim is or is not valid in accordance with paragraph (c)(1) or (c)(2) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Reversal of recredit.</heading>
<chapeau> A bank may reverse a recredit that it has made to a consumer account under paragraph (c)(1) or (c)(3) of this section, plus interest that the bank has paid, if any, on that amount, if the bank—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/c/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Determines that the consumer's claim was not valid; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/c/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Notifies the consumer in accordance with paragraph (e)(3) of this section.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Availability of recredit—</heading>
<paragraph identifier="/us/cfr/t12/s229.54/d/1" class="inline">
<num value="1">(1) </num>
<heading>Next-day availability.</heading>
<content> Except as provided in paragraph (d)(2) of this section, a bank shall make any amount that it recredits to a consumer account under this section available for withdrawal no later than the start of the business day after the banking day on which the bank provides the recredit.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/d/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Safeguard exceptions.</heading>
<chapeau> A bank may delay availability to a consumer of a recredit provided under paragraph (c)(3)(i) of this section until the start of the earlier of the business day after the banking day on which the bank determines the consumer's claim is valid or the 45th calendar day after the banking day on which the bank received the oral or written claim, as required by paragraph (b) of this section, if—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/d/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The consumer submits the claim during the 30-calendar-day period beginning on the banking day on which the consumer account was established;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/d/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<chapeau> Without regard to the charge that gave rise to the recredit claim—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/d/2/ii/A" style="-uslm-sgm:P">
<num value="A">(A)</num>
<content> On six or more business days during the six-month period ending on the calendar day on which the consumer submitted the claim, the balance in the consumer account was negative or would have become negative if checks or other charges to the account had been paid; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/d/2/ii/B" style="-uslm-sgm:P">
<num value="B">(B)</num>
<content> On two or more business days during such six-month period, the balance in the consumer account was negative or would have become negative in the amount of $5,000 or more if checks or other charges to the account had been paid; or</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/d/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The bank has reasonable cause to believe that the claim is fraudulent, based on facts that would cause a well-grounded belief in the mind of a reasonable person that the claim is fraudulent. The fact that the check in question or the consumer is of a particular class may not be the basis for invoking this exception.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/d/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Overdraft fees.</heading>
<content> A bank that delays availability as permitted in paragraph (d)(2) of this section may not impose an overdraft fee with respect to drafts drawn by the consumer on such recredited funds until the fifth calendar day after the calendar day on which the bank sent the notice required by paragraph (e)(1) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Notices relating to consumer expedited recredit claims—</heading>
<paragraph identifier="/us/cfr/t12/s229.54/e/1" class="inline">
<num value="1">(1) </num>
<heading>Notice of recredit.</heading>
<chapeau> A bank that recredits a consumer account under paragraph (c) of this section shall send notice to the consumer of the recredit no later than the business day after the banking day on which the bank recredits the consumer account. This notice shall describe—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/e/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of the recredit; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/e/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The date on which the recredited funds will be available for withdrawal.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/e/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Notice that the consumer's claim is not valid.</heading>
<chapeau> If a bank determines that a substitute check for which a consumer made a claim under this section was in fact properly charged to the consumer account or that the consumer's warranty claim for that substitute check was not valid, the bank shall send notice to the consumer no later than the <?page num="871"?>business day after the banking day on which the bank makes that determination. This notice shall—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/e/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Include the original check or a sufficient copy, except as provided in <ref href="/us/cfr/t12/s229.58">§ 229.58</ref>;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/e/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Demonstrate to the consumer that the substitute check was properly charged or the consumer's warranty claim is not valid; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/e/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Include the information or documents (in addition to the original check or sufficient copy), if any, on which the bank relied in making its determination or a statement that the consumer may request copies of such information or documents.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/e/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Notice of a reversal of recredit.</heading>
<chapeau> A bank that reverses an amount it previously recredited to a consumer account shall send notice to the consumer no later than the business day after the banking day on which the bank made the reversal. This notice shall include the information listed in paragraph (e)(2) of this section and also describe—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.54/e/3/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of the reversal, including both the amount of the recredit (including the interest component, if any) and the amount of interest paid on the recredited amount, if any, being reversed; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/e/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The date on which the bank made the reversal.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.54/f" style="-uslm-sgm:P">
<num value="f">(f) </num>
<heading>Other claims not affected.</heading>
<content> Providing a recredit in accordance with this section shall not absolve the bank from liability for a claim made under any other provision of law, such as a claim for wrongful dishonor of a check under the U.C.C., or from liability for additional damages, such as damages under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> or <ref href="/us/cfr/t12/s229.56">§ 229.56</ref> of this subpart or U.C.C. 4–402.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.55">
<num value="229.55" style="-uslm-sgm:SECTNO">§ 229.55</num>
<heading style="-uslm-sgm:SUBJECT">Expedited recredit for banks.</heading>
<paragraph identifier="/us/cfr/t12/s229.55/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Circumstances giving rise to a claim.</heading>
<chapeau> A bank that has an indemnity claim under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> with respect to a substitute check may make an expedited recredit claim against an indemnifying bank if—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.55/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<chapeau> The claimant bank or a bank that the claimant bank has indemnified—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.55/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> Has received a claim for expedited recredit from a consumer under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref>; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Would have been subject to such a claim if the consumer account had been charged for the substitute check;</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The claimant bank is obligated to provide an expedited recredit with respect to such substitute check under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> or otherwise has suffered a resulting loss; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/a/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> The production of the original check or a sufficient copy is necessary to determine the validity of the charge to the consumer account or the validity of any warranty claim connected with such substitute check.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Procedures for making claims.</heading>
<chapeau> A claimant bank shall send its claim to the indemnifying bank, subject to the timing, content, and form requirements of this section.</chapeau>
<paragraph identifier="/us/cfr/t12/s229.55/b/1" style="-uslm-sgm:P">
<num value="1">(1) </num>
<heading>Timing of claim.</heading>
<content> The claimant bank shall submit its claim such that the indemnifying bank receives the claim by the end of the 120th calendar day after the date of the transaction that gave rise to the claim.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Content of claim.</heading>
<chapeau> The claimant bank's claim shall include the following information—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.55/b/2/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> A description of the consumer's claim or the warranty claim related to the substitute check, including why the bank believes that the substitute check may not be properly charged to the consumer account;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> A statement that the claimant bank is obligated to recredit a consumer account under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> or otherwise has suffered a loss and an estimate of the amount of that recredit or loss, including interest if applicable;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/2/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> The reason why production of the original check or a sufficient copy is necessary to determine the validity of the charge to the consumer account or the warranty claim; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/2/iv" style="-uslm-sgm:P">
<num value="iv">(iv)</num>
<content> Sufficient information to allow the indemnifying bank to identify the substitute check and investigate the claim.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Requirements relating to copies of substitute checks.</heading>
<content> If the information submitted by a claimant bank under paragraph (b)(2) of this section includes a copy of any substitute check, the claimant bank shall take reasonable steps to ensure that the copy cannot be mistaken for the legal equivalent of the check under <ref href="/us/cfr/t12/s229.51/a">§ 229.51(a)</ref> or sent or <?page num="872"?>handled by any bank, including the indemnifying bank, for forward collection or return.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/4" style="-uslm-sgm:P">
<num value="4">(4) </num>
<heading>Form and submission of claim; computation of time.</heading>
<chapeau> The indemnifying bank may, in its discretion, require the claimant bank to submit the information required by this section in writing, including a copy of the paper or electronic claim submitted by the consumer, if any. An indemnifying bank that requires a written submission—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.55/b/4/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> May permit the claimant bank to submit the written claim electronically;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/4/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Shall inform a claimant bank that submits a claim orally of the written claim requirement at the time of the oral claim; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/b/4/iii" style="-uslm-sgm:P">
<num value="iii">(iii)</num>
<content> Shall compute the 10-day time period for acting on the claim described in paragraph (c) of this section from the date on which the bank received the written claim.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Action on claims.</heading>
<chapeau> No later than the 10th business day after the banking day on which the indemnifying bank receives a claim that meets the requirements of paragraph (b) of this section, the indemnifying bank shall—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.55/c/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> Recredit the claimant bank for the amount of the claim, up to the amount of the substitute check, plus interest if applicable;</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/c/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> Provide to the claimant bank the original check or a sufficient copy; or</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/c/3" style="-uslm-sgm:P">
<num value="3">(3)</num>
<content> Provide information to the claimant bank regarding why the indemnifying bank is not obligated to comply with paragraph (c)(1) or (c)(2) of this section.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Recredit does not abrogate other liabilities.</heading>
<content> Providing a recredit to a claimant bank under this section does not absolve the indemnifying bank from liability for claims brought under any other law or from additional damages under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> or <ref href="/us/cfr/t12/s229.56">§ 229.56</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/e" style="-uslm-sgm:P">
<num value="e">(e) </num>
<heading>Indemnifying bank's right to a refund.</heading>
<paragraph identifier="/us/cfr/t12/s229.55/e/1" class="inline">
<num value="1"> (1)</num>
<content> If a claimant bank reverses a recredit it previously made to a consumer account under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> or otherwise receives reimbursement for a substitute check that formed the basis of its claim under this section, the claimant bank shall provide a refund promptly to any indemnifying bank that previously advanced funds to the claimant bank. The amount of the refund to the indemnifying bank shall be the amount of the reversal or reimbursement obtained by the claimant bank, up to the amount previously advanced by the indemnifying bank.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.55/e/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> If the indemnifying bank provides the claimant bank with the original check or a sufficient copy under paragraph (c)(2) of this section, <ref href="/us/cfr/t12/s229.53/b/3">§ 229.53(b)(3)</ref> governs the indemnifying bank's entitlement to repayment of any amount provided to the claimant bank that exceeds the amount of losses the claimant bank incurred up to that time.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.56">
<num value="229.56" style="-uslm-sgm:SECTNO">§ 229.56</num>
<heading style="-uslm-sgm:SUBJECT">Liability.</heading>
<paragraph identifier="/us/cfr/t12/s229.56/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>Measure of damages—</heading>
<paragraph identifier="/us/cfr/t12/s229.56/a/1" class="inline">
<num value="1">(1) </num>
<heading>In general.</heading>
<chapeau> Except as provided in paragraph (a)(2) or (a)(3) of this section or <ref href="/us/cfr/t12/s229.53">§ 229.53</ref>, any person that breaches a warranty described in <ref href="/us/cfr/t12/s229.52">§ 229.52</ref> or fails to comply with any requirement of this subpart with respect to any other person shall be liable to that person for an amount equal to the sum of—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.56/a/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> The amount of the loss suffered by the person as a result of the breach or failure, up to the amount of the substitute check; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.56/a/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Interest and expenses (including costs and reasonable attorney's fees and other expenses of representation) related to the substitute check.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.56/a/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Offset of recredits.</heading>
<content> The amount of damages a person receives under paragraph (a)(1) of this section shall be reduced by any amount that the person receives and retains as a recredit under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> or <ref href="/us/cfr/t12/s229.55">§ 229.55</ref>.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.56/a/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Comparative negligence.</heading>
<paragraph identifier="/us/cfr/t12/s229.56/a/3/i" class="inline">
<num value="i"> (i)</num>
<content> If a person incurs damages that resulted in whole or in part from that person's negligence or failure to act in good faith, then the amount of any damages due to that person under paragraph (a)(1) of this section shall be reduced in proportion to the amount of negligence or bad faith attributable to that person.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.56/a/3/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> Nothing in this paragraph (a)(3) reduces the rights of a consumer or any other person under the U.C.C. or other applicable provision of federal or state law.</content>
</paragraph>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.56/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Timeliness of action.</heading>
<content> Delay by a bank beyond any time limits prescribed or permitted by this subpart is excused if the delay is caused by interruption of communication or computer <?page num="873"?>facilities, suspension of payments by another bank, war, emergency conditions, failure of equipment, or other circumstances beyond the control of the bank and if the bank uses such diligence as the circumstances require.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.56/c" style="-uslm-sgm:P">
<num value="c">(c) </num>
<heading>Jurisdiction.</heading>
<content> A person may bring an action to enforce a claim under this subpart in any United States district court or in any other court of competent jurisdiction. Such claim shall be brought within one year of the date on which the person's cause of action accrues. For purposes of this paragraph, a cause of action accrues as of the date on which the injured person first learns, or by which such person reasonably should have learned, of the facts and circumstances giving rise to the cause of action, including the identity of the warranting or indemnifying bank against which the action is brought.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.56/d" style="-uslm-sgm:P">
<num value="d">(d) </num>
<heading>Notice of claims.</heading>
<content> Except as otherwise provided in this paragraph (d), unless a person gives notice of a claim under this section to the warranting or indemnifying bank within 30 calendar days after the person has reason to know of both the claim and the identity of the warranting or indemnifying bank, the warranting or indemnifying bank is discharged from liability in an action to enforce a claim under this subpart to the extent of any loss caused by the delay in giving notice of the claim. A timely recredit claim by a consumer under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> constitutes timely notice under this paragraph.
</content>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.57">
<num value="229.57" style="-uslm-sgm:SECTNO">§ 229.57</num>
<heading style="-uslm-sgm:SUBJECT">Consumer awareness.</heading>
<paragraph identifier="/us/cfr/t12/s229.57/a" style="-uslm-sgm:P">
<num value="a">(a) </num>
<heading>General disclosure requirement and content.</heading>
<chapeau> Each bank shall provide, in accordance with paragraph (b) of this section, a brief disclosure to each of its consumer customers that describes—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.57/a/1" style="-uslm-sgm:P">
<num value="1">(1)</num>
<content> That a substitute check is the legal equivalent of an original check; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.57/a/2" style="-uslm-sgm:P">
<num value="2">(2)</num>
<content> The consumer recredit rights that apply when a consumer in good faith believes that a substitute check was not properly charged to his or her account.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.57/b" style="-uslm-sgm:P">
<num value="b">(b) </num>
<heading>Distribution—</heading>
<paragraph identifier="/us/cfr/t12/s229.57/b/1" class="inline">
<num value="1">(1) </num>
<heading>Disclosure to consumers who receive paid checks with periodic account statements.</heading>
<chapeau> A bank shall provide the disclosure described in paragraph (a) of this section to a consumer customer who receives paid original checks or paid substitute checks with his or her periodic account statement—</chapeau>
<paragraph identifier="/us/cfr/t12/s229.57/b/1/i" style="-uslm-sgm:P">
<num value="i">(i)</num>
<content> No later than the first regularly scheduled communication with the consumer after <date date="2004-10-28">October 28, 2004</date>, for each consumer who is a customer of the bank on that date; and</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.57/b/1/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> At the time the customer relationship is initiated, for each customer relationship established after <date date="2004-10-28">October 28, 2004</date>.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.57/b/2" style="-uslm-sgm:P">
<num value="2">(2) </num>
<heading>Disclosure to consumers who receive substitute checks on an occasional basis—</heading>
<paragraph identifier="/us/cfr/t12/s229.57/b/2/i" class="inline">
<num value="i">(i)</num>
<content> The bank shall provide the disclosure described in paragraph (a) of this section to a consumer customer of the bank who requests an original check or a copy of a check and receives a substitute check. If feasible, the bank shall provide this disclosure at the time of the consumer's request; otherwise, the bank shall provide this disclosure no later than the time at which the bank provides a substitute check in response to the consumer's request.</content>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.57/b/2/ii" style="-uslm-sgm:P">
<num value="ii">(ii)</num>
<content> The bank shall provide the disclosure described in paragraph (a) of this section to a consumer customer of the bank who receives a returned substitute check, at the time the bank provides such substitute check.</content>
</paragraph>
</paragraph>
<paragraph identifier="/us/cfr/t12/s229.57/b/3" style="-uslm-sgm:P">
<num value="3">(3) </num>
<heading>Multiple account holders.</heading>
<content> A bank need not give separate disclosures to each customer on a jointly held account.
</content>
</paragraph>
</paragraph>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.58">
<num value="229.58" style="-uslm-sgm:SECTNO">§ 229.58</num>
<heading style="-uslm-sgm:SUBJECT">Mode of delivery of information.</heading>
<content style="-uslm-sgm:P">A bank may deliver any notice or other information that it is required to provide under this subpart by United States mail or by any other means through which the recipient has agreed to receive account information. If a bank is required to provide an original check or a sufficient copy, the bank instead may provide an electronic image of the original check or sufficient copy if the recipient has agreed to receive that information electronically.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.59">
<num value="229.59" style="-uslm-sgm:SECTNO">§ 229.59</num>
<heading style="-uslm-sgm:SUBJECT">Relation to other law.</heading>
<content style="-uslm-sgm:P">The Check 21 Act and this subpart supersede any provision of federal or state law, including the Uniform Commercial Code, that is inconsistent with <?page num="874"?>the Check 21 Act or this subpart, but only to the extent of the inconsistency.
</content>
</section>
<section style="-uslm-sgm:SECTION" identifier="/us/cfr/t12/s229.60">
<num value="229.60" style="-uslm-sgm:SECTNO">§ 229.60</num>
<heading style="-uslm-sgm:SUBJECT">Variation by agreement.</heading>
<content style="-uslm-sgm:P">Any provision of <ref href="/us/cfr/t12/s229.55">§ 229.55</ref> may be varied by agreement of the banks involved. No other provision of this subpart may be varied by agreement by any person or persons.
</content>
</section>
</subpart>
<subpart style="-uslm-sgm:SUBPART" identifier="/us/cfr/t12/p229/spNaN">
<heading style="-uslm-sgm:RESERVED"> 
</heading>
</subpart>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 229, App. A</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix A to Part 229—</num>
<heading style="-uslm-sgm:HED">Routing Number Guide to Next-Day Availability Checks and Local Checks</heading>
<p style="-uslm-sgm:P">A. Each bank is assigned a routing number by an agent of the American Bankers Association. The routing number takes two forms: a fractional form and a nine-digit form. A paying bank generally is identified on the face of a check by its routing number in both the fractional form (which generally appears in the upper right-hand corner of the check) and the nine-digit form (which is printed in magnetic ink along the bottom of the check). Where a check is payable by one bank but payable through another bank, the routing number appearing on the check is that of the payable-through bank, not the payor bank.</p>
<p style="-uslm-sgm:P">B. The first four digits of the nine-digit routing number (and the denominator of the fractional routing number) form the “Federal Reserve routing symbol,” and the first two digits of the routing number identify the Federal Reserve District in which the bank is located. Thus, 01 will be the first two digits of the routing number of a bank in the First Federal Reserve District (Boston), and 12 will be the first two digits of the routing number of a bank in the Twelfth District (San Francisco). Adding 2 to the first digit denotes a thrift institution. Thus, 21 identifies a thrift in the First District, and 32 denotes a thrift in the Twelfth District.</p>
<heading style="-uslm-sgm:HD1">Fourth Federal Reserve District</heading>
<heading style="-uslm-sgm:HD3">[Federal Reserve Bank of Cleveland]</heading>
<heading style="-uslm-sgm:HD2">Head Office</heading>
<list style="-uslm-sgm:SCOL2">
<listItem style="-uslm-sgm:LI">
<listContent>
<sup style="-uslm-sgm:SU">1</sup> 0110</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0111</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0112</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0113</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0114</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0115</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0116</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0117</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0118</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0119</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0210</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0211</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0212</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0213</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0214</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0215</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0216</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0219</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0220</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0223</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0260</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0280</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0310</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0311</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0312</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0313</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0319</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0360</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0410</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0412</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0420</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0421</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0422</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0423</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0430</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0432</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0433</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0434</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0440</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0441</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0442</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0510</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0514</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0515</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0519</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0520</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0521</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0522</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0530</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0531</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0532</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0539</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0540</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0550</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0560</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0570</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0610</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0611</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0612</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0613</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0620</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0621</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0622</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0630</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0631</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0632</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0640</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0641</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0642</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0650</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0651</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0652</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0653</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0654</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0655</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0660</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0670</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0710</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0711</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0712</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0719</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0720</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0724</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0730</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0739</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0740</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0749</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0750</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0759</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0810</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0812</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0813</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0815</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0819</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0820</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0829</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0830</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0839</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0840</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0841</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0842</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0843</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0863</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0865</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0910</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0911</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0912</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0913</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0914</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0915</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0918</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0919</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0920</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0921</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0929</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0960</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1010</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1011</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1012</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1019</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1020</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1021</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1022</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1023</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1030</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1031</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1039</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1040</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1041</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1049</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1070</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1110</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1111</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1113</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1119</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1120</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1122</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1123</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1130</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1131</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1140</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1149</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1163</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1210</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1211</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1212</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1213</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1220</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1221</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1222</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1223</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1224</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1230</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1231</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1232</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1233<?page num="875"?></listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1240</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1241</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1242</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1243</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1250</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1251</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1252</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2111</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2112</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2113</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2114</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2115</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2116</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2117</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2118</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2119</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2210</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2211</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2212</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2213</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2214</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2215</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2216</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2219</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2220</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2223</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2260</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2280</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2310</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2311</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2312</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2313</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2319</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2360</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2410</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2412</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2420</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2421</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2422</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2423</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2430</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2432</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2433</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2434</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2440</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2441</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2442</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2510</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2514</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2515</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2519</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2520</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2521</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2522</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2530</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2531</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2532</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2539</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2540</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2550</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2560</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2570</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2610</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2611</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2612</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2613</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2620</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2621</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2622</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2630</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2631</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2632</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2640</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2641</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2642</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2650</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2651</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2652</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2653</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2654</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2655</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2660</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2670</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2710</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2711</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2712</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2719</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2720</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2724</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2730</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2739</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2740</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2749</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2750</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2759</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2810</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2812</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2813</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2815</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2819</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2820</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2829</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2830</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2839</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2840</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2841</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2842</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2843</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2863</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2865</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2910</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2911</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2912</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2913</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2914</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2915</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2918</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2919</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2920</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2921</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2929</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>2960</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3010</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3011</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3012</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3019</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3020</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3021</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3022</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3023</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3030</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3031</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3039</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3040</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3041</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3049</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3070</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3110</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3111</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3113</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3119</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3120</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3122</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3123</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3130</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3131</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3140</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3149</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3163</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3210</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3211</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3212</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3213</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3220</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3221</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3222</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3223</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3224</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3230</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3231</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3232</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3233</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3240</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3241</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3242</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3243</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3250</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3251</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>3252</listContent>
</listItem>
</list>
<p style="-uslm-sgm:P">
<sup style="-uslm-sgm:SU">1</sup> The first two digits identify the bank's Federal Reserve District. For example, 01 identifies the First Federal Reserve District (Boston), and 12 identifies the Twelfth District (San Francisco). Adding 2 to the first digit denotes a thrift institution. For example, 21 identifies a thrift in the First District, and 32 denotes a thrift in the Twelfth District.</p>
<heading style="-uslm-sgm:HD1">Federal Reserve Banks</heading>
<list style="-uslm-sgm:SCOL2">
<listItem style="-uslm-sgm:LI">
<listContent>0110 0001 5</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0111 0048 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0210 0120 8</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0212 0400 5</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0213 0500 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0220 0026 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0310 0004 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0410 0001 4</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0420 0043 7</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0430 0030 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0440 0050 3</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0510 0003 3</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0519 0002 3</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0520 0027 8</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0530 0020 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0539 0008 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0610 0014 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0620 0019 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0630 0019 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0640 0010 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0650 0021 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0660 0010 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0710 0030 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0711 0711 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0720 0029 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0730 0033 8</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0740 0020 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0750 0012 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0810 0004 5</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0820 0013 8</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0830 0059 3</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0840 0003 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0910 0008 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0920 0026 7</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1010 0004 8</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1020 0019 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1030 0024 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1040 0012 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1110 0003 8</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1120 0001 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1130 0004 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1140 0072 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1210 0037 4</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1220 0016 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1230 0001 3</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1240 0031 3</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1250 0001 1</listContent>
</listItem>
</list>
<heading style="-uslm-sgm:HD1">Federal Home Loan Banks</heading>
<list style="-uslm-sgm:SCOL2">
<listItem style="-uslm-sgm:LI">
<listContent>0110 0053 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0212 0639 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0260 0973 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0410 0291 5</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0420 0091 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0430 0143 5</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0430 1862 2</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0610 0876 6</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0710 0450 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0730 0091 4</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0740 0101 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0810 0091 9</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>0910 0091 2</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1010 0091 2</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1011 0194 7</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1110 1083 7<?page num="876"?></listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1119 1083 0</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1210 0070 1</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1240 0287 4</listContent>
</listItem>
<listItem style="-uslm-sgm:LI">
<listContent>1250 0050 3</listContent>
</listItem>
</list>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>]</source>
<editorialNote style="-uslm-sgm:EDNOTE">
<heading style="-uslm-sgm:HED">Editorial Note:</heading>
<p style="-uslm-sgm:P">For <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> citations affecting appendix A to part 229, see the List of CFR Sections Affected, which appears in the Finding Aids section of the printed volume and at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.govinfo.gov.</inline>
</p>
</editorialNote>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendix B to Part 229 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 229, App. C</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix C to Part 229—</num>
<heading style="-uslm-sgm:HED">Model Availability Policy Disclosures, Clauses, and Notices; Model Substitute Check Policy Disclosure and Notices </heading>
<p style="-uslm-sgm:P">This appendix contains model availability policy and substitute check policy disclosures, clauses, and notices to facilitate compliance with the disclosure and notice requirements of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>). Although use of these models is not required, banks using them properly (with the exception of models C–22 through C–25) to make disclosures required by Regulation CC are deemed to be in compliance.</p>
<heading style="-uslm-sgm:HD2">Model Availability Policy Disclosures </heading>
<p style="-uslm-sgm:FP-2">C–1 Next-day availability </p>
<p style="-uslm-sgm:FP-2">C–2 Next-day availability and <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions </p>
<p style="-uslm-sgm:FP-2">C–3 Next-day availability, case-by-case holds to statutory limits, and <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions </p>
<p style="-uslm-sgm:FP-2">C–4 Holds to statutory limits on all deposits (includes chart) </p>
<p style="-uslm-sgm:FP-2">C–5 Holds to statutory limits on all deposits </p>
<p style="-uslm-sgm:FP-2">C–5A Substitute check policy disclosure</p>
<heading style="-uslm-sgm:HD2">Model Clauses </heading>
<p style="-uslm-sgm:FP-2">C–6 Holds on other funds (check cashing) </p>
<p style="-uslm-sgm:FP-2">C–7 Holds on other funds (other account) </p>
<p style="-uslm-sgm:FP-2">C–8 Appendix B availability (nonlocal checks) </p>
<p style="-uslm-sgm:FP-2">C–9 Automated teller machine deposits (extended hold) </p>
<p style="-uslm-sgm:FP-2">C–10 Cash withdrawal limitation </p>
<p style="-uslm-sgm:FP-2">C–11 Credit union interest payment policy</p>
<p style="-uslm-sgm:FP-2">C–11A Availability of Funds Deposited at Other Locations </p>
<heading style="-uslm-sgm:HD2">Model Notices </heading>
<p style="-uslm-sgm:FP-2">C–12 Exception hold notice </p>
<p style="-uslm-sgm:FP-2">C–13 Reasonable cause hold notice </p>
<p style="-uslm-sgm:FP-2">C–14 One-time notice for large deposit and redeposited check exception holds </p>
<p style="-uslm-sgm:FP-2">C–15 One-time notice for repeated overdraft exception holds </p>
<p style="-uslm-sgm:FP-2">C–16 Case-by-case hold notice </p>
<p style="-uslm-sgm:FP-2">C–17 Notice at locations where employees accept consumer deposits </p>
<p style="-uslm-sgm:FP-2">C–18 Notice at locations where employees accept consumer deposits (case-by-case holds) </p>
<p style="-uslm-sgm:FP-2">C–19 Notice at automated teller machines </p>
<p style="-uslm-sgm:FP-2">C–20 Notice at automated teller machines (delayed receipt) </p>
<p style="-uslm-sgm:FP-2">C–21 Deposit slip notice </p>
<p style="-uslm-sgm:FP-2">C–22 Expedited Recredit Claim, Valid Claim Refund Notice </p>
<p style="-uslm-sgm:FP-2">C–23 Expedited Recredit Claim, Provisional Refund Notice </p>
<p style="-uslm-sgm:FP-2">C–24 Expedited Recredit Claim, Denial Notice </p>
<p style="-uslm-sgm:FP-2">C–25 Expedited Recredit Claim, Reversal Notice</p>
<heading style="-uslm-sgm:HD2">Model Availability Policy Disclosures </heading>
<heading style="-uslm-sgm:HD3">C–1—Next-Day Availability </heading>
<heading style="-uslm-sgm:HD3">Your Ability To Withdraw Funds </heading>
<p style="-uslm-sgm:P">Our policy is to make funds from your cash and check deposits available to you on the first business day after the day we receive your deposit. Electronic direct deposits will be available on the day we receive the deposit. Once the funds are available, you can withdraw them in cash and we will use them to pay checks that you have written. </p>
<p style="-uslm-sgm:P">For determining the availability of your deposits, every day is a business day, except Saturdays, Sundays, and federal holidays. If you make a deposit before (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) on a business day that we are open, we will consider that day to be the day of your deposit. However, if you make a deposit after (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) or on a day we are not open, we will consider that the deposit was made on the next business day we are open. </p>
<heading style="-uslm-sgm:HD3">C–2—Next-day availability and <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions </heading>
<heading style="-uslm-sgm:HD3">Your Ability To Withdraw Funds </heading>
<p style="-uslm-sgm:P">Our policy is to make funds from your cash and check deposits available to you on the first business day after the day we receive your deposit. Electronic direct deposits will be available on the day we receive the deposit. Once they are available, you can withdraw the funds in cash and we will use the funds to pay checks that you have written. </p>
<p style="-uslm-sgm:P">For determining the availability of your deposits, every day is a business day, except Saturdays, Sundays, and federal holidays. If you make a deposit before (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) on a business day that we are open, we will consider that day to be the day of your deposit. However, if you make a deposit after (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) or on a day we are not open, we will consider that the deposit was made on the next business day we are open. </p>
<heading style="-uslm-sgm:HD3">Longer Delays May Apply </heading>
<p style="-uslm-sgm:P">Funds you deposit by check may be delayed for a longer period under the following circumstances: </p>
<p style="-uslm-sgm:P">• We believe a check you deposit will not be paid.
<?page num="877"?></p>
<p style="-uslm-sgm:P">• You deposit checks totaling more than $5,000 on any one day. </p>
<p style="-uslm-sgm:P">• You redeposit a check that has been returned unpaid. </p>
<p style="-uslm-sgm:P">• You have overdrawn your account repeatedly in the last six months. </p>
<p style="-uslm-sgm:P">• There is an emergency, such as failure of computer or communications equipment. </p>
<p style="-uslm-sgm:P">We will notify you if we delay your ability to withdraw funds for any of these reasons, and we will tell you when the funds will be available. They will generally be available no later than the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. </p>
<heading style="-uslm-sgm:HD3">Special Rules for New Accounts </heading>
<p style="-uslm-sgm:P">If you are a new customer, the following special rules will apply during the first 30 days your account is open. </p>
<p style="-uslm-sgm:P">Funds from electronic direct deposits to your account will be available on the day we receive the deposit. Funds from deposits of cash, wire transfers, and the first $5,000 of a day's total deposits of cashier's, certified, teller's, traveler's, and federal, state and local government checks will be available on the first business day after the day of your deposit if the deposit meets certain conditions. For example, the checks must be payable to you (and you may have to use a special deposit slip). The excess over $5,000 will be available on the ninth business day after the day of your deposit. If your deposit of these checks (other than a U.S. Treasury check) is not made in person to one of our employees, the first $5,000 will not be available until the second business day after the day of your deposit. </p>
<p style="-uslm-sgm:P">Funds from all other check deposits will be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. </p>
<heading style="-uslm-sgm:HD3">C–3—Next-Day Availability, Case-by-Case Holds to Statutory Limits, and <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> Exceptions </heading>
<heading style="-uslm-sgm:HD3">Your Ability To Withdraw Funds </heading>
<p style="-uslm-sgm:P">Our policy is to make funds from your cash and check deposits available to you on the first business day after the day we receive your deposit. Electronic direct deposits will be available on the day we receive the deposit. Once they are available, you can withdraw the funds in cash and we will use the funds to pay checks that you have written. </p>
<p style="-uslm-sgm:P">For determining the availability of your deposits, every day is a business day, except Saturdays, Sundays, and federal holidays. If you make a deposit before (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) on a business day that we are open, we will consider that day to be the day of your deposit. However, if you make a deposit after (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) or on a day we are not open, we will consider that the deposit was made on the next business day we are open. </p>
<heading style="-uslm-sgm:HD3">Longer Delays May Apply</heading>
<p style="-uslm-sgm:P">In some cases, we will not make all of the funds that you deposit by check available to you on the first business day after the day of your deposit. Depending on the type of check that you deposit, funds may not be available until the fifth business day after the day of your deposit. The first $100 of your deposits, however, may be available on the first business day. </p>
<p style="-uslm-sgm:P">If we are not going to make all of the funds from your deposit available on the first business day, we will notify you at the time you make your deposit. We will also tell you when the funds will be available. If your deposit is not made directly to one of our employees, or if we decide to take this action after you have left the premises, we will mail you the notice by the day after we receive your deposit. </p>
<p style="-uslm-sgm:P">If you will need the funds from a deposit right away, you should ask us when the funds will be available. </p>
<p style="-uslm-sgm:P">In addition, funds you deposit by check may be delayed for a longer period under the following circumstances: </p>
<p style="-uslm-sgm:P">• We believe a check you deposit will not be paid. </p>
<p style="-uslm-sgm:P">• You deposit checks totaling more than $5,000 on any one day. </p>
<p style="-uslm-sgm:P">• You redeposit a check that has been returned unpaid. </p>
<p style="-uslm-sgm:P">• You have overdrawn your account repeatedly in the last six months. </p>
<p style="-uslm-sgm:P">• There is an emergency, such as failure of computer or communications equipment. </p>
<p style="-uslm-sgm:P">We will notify you if we delay your ability to withdraw funds for any of these reasons, and we will tell you when the funds will be available. They will generally be available no later than the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. </p>
<heading style="-uslm-sgm:HD3">Special Rules for New Accounts</heading>
<p style="-uslm-sgm:P">If you are a new customer, the following special rules will apply during the first 30 days your account is open. </p>
<p style="-uslm-sgm:P">Funds from electronic direct deposits to your account will be available on the day we receive the deposit. Funds from deposits of cash, wire transfers, and the first $5,000 of a day's total deposits of cashier's, certified, teller's, traveler's, and federal, state and local government checks will be available on the first business day after the day of your deposit if the deposit meets certain conditions. For example, the checks must be payable to you (and you may have to use a special deposit slip). The excess over $5,000 will be available on the ninth business day after the day of your deposit. If your deposit of these checks (other than a U.S. Treasury check) is not made in person to one of our employees, the first $5,000 will not be available until the second business day after the day of your deposit.
<?page num="878"?></p>
<p style="-uslm-sgm:P">Funds from all other check deposits will be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. </p>
<heading style="-uslm-sgm:HD3">C–4—Holds to Statutory Limits On All Deposits (Includes Chart) </heading>
<heading style="-uslm-sgm:HD3">Your Ability To Withdraw Funds </heading>
<p style="-uslm-sgm:P">Our policy is to delay the availability of funds from your cash and check deposits. During the delay, you may not withdraw the funds in cash and we will not use the funds to pay checks that you have written. </p>
<heading style="-uslm-sgm:HD3">Determining the Availability of a Deposit</heading>
<p style="-uslm-sgm:P">The length of the delay is counted in business days from the day of your deposit. Every day is a business day except Saturdays, Sundays, and federal holidays. If you make a deposit before (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) on a business day that we are open, we will consider that day to be the day of your deposit. However, if you make a deposit after (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) or on a day we are not open, we will consider that the deposit was made on the next business day we are open. </p>
<p style="-uslm-sgm:P">The length of the delay varies depending on the type of deposit and is explained below. </p>
<heading style="-uslm-sgm:HD3">Same-Day Availability </heading>
<p style="-uslm-sgm:P">Funds from electronic direct deposits to your account will be available on the day we receive the deposit. </p>
<heading style="-uslm-sgm:HD3">Next-Day Availability </heading>
<p style="-uslm-sgm:P">Funds from the following deposits are available on the first business day after the day of your deposit: </p>
<p style="-uslm-sgm:P">• U.S. Treasury checks that are payable to you. </p>
<p style="-uslm-sgm:P">• Wire transfers. </p>
<p style="-uslm-sgm:P">• Checks drawn on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank name</inline>) [unless (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any limitations related to branches in different states or check processing regions</inline>)]. </p>
<p style="-uslm-sgm:P">If you make the deposit in person to one of our employees, funds from the following deposits are also available on the first business day after the day of your deposit: </p>
<p style="-uslm-sgm:P">• Cash. </p>
<p style="-uslm-sgm:P">• State and local government checks that are payable to you [if you use a special deposit slip available from (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">where deposit slip may be obtained</inline>)]. </p>
<p style="-uslm-sgm:P">• Cashier's, certified, and teller's checks that are payable to you [if you use a special deposit slip available from (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">where deposit slip may be obtained</inline>)]. </p>
<p style="-uslm-sgm:P">• Federal Reserve Bank checks, Federal Home Loan Bank checks, and postal money orders, if these items are payable to you. </p>
<p style="-uslm-sgm:P">If you do not make your deposit in person to one of our employees (for example, if you mail the deposit), funds from these deposits will be available on the second business day after the day we receive your deposit. </p>
<heading style="-uslm-sgm:HD3">Other Check Deposits </heading>
<p style="-uslm-sgm:P">To find out when funds from other check deposits will be available, look at the first four digits of the routing number on the check: </p>
<figure style="-uslm-sgm:GPH"><?page num="879"?>
<img src="ER24MR97.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:273; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:P">Some checks are marked “payable through” and have a four-or nine-digit number nearby. For these checks, use this four-digit number (or the first four digits of the nine-digit number), not the routing number on the bottom of the check, to determine if these checks are local or nonlocal. Once you have determined the first four digits of the routing number (1234 in the examples above), the following chart will show you when funds from the check will be available: </p>
<xhtml:table cols="3" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c3,L2,tp0,s50,r100,xs120">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">First four digits from routing<br style="-uslm-sgm:LI" />number</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">When funds are available</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">When funds are available if a deposit is made on a Monday</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">[local numbers]</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$100 on the first business day after the day of your deposit</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Tuesday.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Remaining funds on the second business day after the day of your deposit</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Wednesday. </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">All other numbers</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">$100 on the first business day after the day of your deposit</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Tuesday. </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I22"> </xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Remaining funds on the fifth business day after the day of your deposit</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">Monday of the following week.</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">If you deposit both categories of checks, $100 from the checks will be available on the first business day after the day of your deposit, not $100 from each category of check. </p>
<heading style="-uslm-sgm:HD3">Longer Delays May Apply</heading>
<p style="-uslm-sgm:P">Funds you deposit by check may be delayed for a longer period under the following circumstances: </p>
<p style="-uslm-sgm:P">• We believe a check you deposit will not be paid. </p>
<p style="-uslm-sgm:P">• You deposit checks totaling more than $5,000 on any one day. </p>
<p style="-uslm-sgm:P">• You redeposit a check that has been returned unpaid. </p>
<p style="-uslm-sgm:P">• You have overdrawn your account repeatedly in the last six months.
<?page num="880"?></p>
<p style="-uslm-sgm:P">• There is an emergency, such as failure of computer or communications equipment. </p>
<p style="-uslm-sgm:P">We will notify you if we delay your ability to withdraw funds for any of these reasons, and we will tell you when the funds will be available. They will generally be available no later than the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. </p>
<heading style="-uslm-sgm:HD3">Special Rules for New Accounts </heading>
<p style="-uslm-sgm:P">If you are a new customer, the following special rules will apply during the first 30 days your account is open. </p>
<p style="-uslm-sgm:P">Funds from electronic direct deposits to your account will be available on the day we receive the deposit. Funds from deposits of cash, wire transfers, and the first $5,000 of a day's total deposits of cashier's, certified, teller's, traveler's, and federal, state and local government checks will be available on the first business day after the day of your deposit if the deposit meets certain conditions. For example, the checks must be payable to you (and you may have to use a special deposit slip). The excess over $5,000 will be available on the ninth business day after the day of your deposit. If your deposit of these checks (other than a U.S. Treasury check) is not made in person to one of our employees, the first $5,000 will not be available until the second business day after the day of your deposit. </p>
<p style="-uslm-sgm:P">Funds from all other check deposits will be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. </p>
<heading style="-uslm-sgm:HD3">C–5—Holds to Statutory Limits on All Deposits</heading>
<heading style="-uslm-sgm:HD3">Your Ability To Withdraw Funds</heading>
<p style="-uslm-sgm:P">Our policy is to delay the availability of funds from your cash and check deposits. During the delay, you may not withdraw the funds in cash and we will not use the funds to pay checks that you have written.</p>
<heading style="-uslm-sgm:HD3">Determining the Availability Of A Deposit</heading>
<p style="-uslm-sgm:P">The length of the delay is counted in business days from the day of your deposit. Every day is a business day except Saturdays, Sundays, and federal holidays. If you make a deposit before (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) on a business day that we are open, we will consider that day to be the day of your deposit. However, if you make a deposit after (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time of day</inline>) or on a day we are not open, we will consider that the deposit was made on the next business day we are open.</p>
<p style="-uslm-sgm:P">The length of the delay varies depending on the type of deposit and is explained below.</p>
<heading style="-uslm-sgm:HD3">Same-Day Availability</heading>
<p style="-uslm-sgm:P">Funds from electronic direct deposits to your account will be available on the day we receive the deposit.</p>
<heading style="-uslm-sgm:HD3">Next-Day Availability</heading>
<p style="-uslm-sgm:P">Funds from the following deposits are available on the first business day after the day of your deposit:</p>
<p style="-uslm-sgm:P">• U.S. Treasury checks that are payable to you.</p>
<p style="-uslm-sgm:P">• Wire transfers.</p>
<p style="-uslm-sgm:P">• Checks drawn on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank name</inline>) [unless (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any limitations related to branches in different states or check processing regions</inline>)].</p>
<p style="-uslm-sgm:P">If you make the deposit in person to one of our employees, funds from the following deposits are also available on the first business day after the day of your deposit:</p>
<p style="-uslm-sgm:P">• Cash.</p>
<p style="-uslm-sgm:P">• State and local government checks that are payable to you [if you use a special deposit slip available from (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">where deposit slip may be obtained</inline>)].</p>
<p style="-uslm-sgm:P">• Cashier's, certified, and teller's checks that are payable to you [if you use a special deposit slip available from (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">where deposit slip may be obtained</inline>)].</p>
<p style="-uslm-sgm:P">• Federal Reserve Bank checks, Federal Home Loan Bank checks, and postal money orders, if these items are payable to you.</p>
<p style="-uslm-sgm:P">If you do not make your deposit in person to one of our employees (for example, if you mail the deposit), funds from these deposits will be available on the second business day after the day we receive your deposit.</p>
<heading style="-uslm-sgm:HD3">Other Check Deposits</heading>
<p style="-uslm-sgm:P">The delay for other check deposits depends on whether the check is a local or a nonlocal check. To see whether a check is a local or a nonlocal check, look at the routing number on the check:</p>
<figure style="-uslm-sgm:GPH"><?page num="881"?>
<img src="ER17SE97.000" style="-uslm-sgm:GID; -uslm-sgm-SPAN:2; -uslm-sgm-POSITION:NOFLOAT; -uslm-sgm-BORDER:NODRAW; -uslm-sgm-STRIP:YES; -uslm-sgm-DEEP:362; -uslm-sgm-HTYPE:CENTER; -uslm-sgm-ROTATION:P" />
</figure>
<p style="-uslm-sgm:P">If the first four digits of the routing number (1234 in the examples above) are (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">list of local numbers</inline>), then the check is a local check. Otherwise, the check is a nonlocal check. Some checks are marked “payable through” and have a four- or nine-digit number nearby. For these checks, use the four-digit number (or the first four digits of the nine-digit number), not the routing number on the bottom of the check, to determine if these checks are local or nonlocal. Our policy is to make funds from local and nonlocal checks available as follows.</p>
<p style="-uslm-sgm:P">1. Local checks. The first $100 from a deposit of local checks will be available on the first business day after the day of your deposit. The remaining funds will be available on the second business day after the day of your deposit.</p>
<p style="-uslm-sgm:P">For example, if you deposit a local check of $700 on a Monday, $100 of the deposit is available on Tuesday. The remaining $600 is available on Wednesday.</p>
<p style="-uslm-sgm:P">2. Nonlocal checks. The first $100 from a deposit of nonlocal checks will be available on the first business day after the day of your deposit. The remaining funds will be available on the fifth business day after the day of your deposit.</p>
<p style="-uslm-sgm:P">For example, if you deposit a $700 nonlocal check on a Monday, $100 of the deposit is available on Tuesday. The remaining $600 is available on Monday of the following week.</p>
<p style="-uslm-sgm:P">3. Local and nonlocal checks. If you deposit both categories of checks, $100 from the <?page num="882"?>checks will be available on the first business day after the day of your deposit, not $100 from each category of check.</p>
<heading style="-uslm-sgm:HD3">Longer Delays May Apply</heading>
<p style="-uslm-sgm:P">Funds you deposit by check may be delayed for a longer period under the following circumstances:</p>
<p style="-uslm-sgm:P">• We believe a check you deposit will not be paid.</p>
<p style="-uslm-sgm:P">• You deposit checks totaling more than $5,000 on any one day.</p>
<p style="-uslm-sgm:P">• You redeposit a check that has been returned unpaid.</p>
<p style="-uslm-sgm:P">• You have overdrawn your account repeatedly in the last six months.</p>
<p style="-uslm-sgm:P">• There is an emergency, such as failure of computer or communications equipment.</p>
<p style="-uslm-sgm:P">We will notify you if we delay your ability to withdraw funds for any of these reasons, and we will tell you when the funds will be available. They will generally be available no later than the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit.</p>
<heading style="-uslm-sgm:HD3">Special Rules For New Accounts</heading>
<p style="-uslm-sgm:P">If you are a new customer, the following special rules will apply during the first 30 days your account is open.</p>
<p style="-uslm-sgm:P">Funds from electronic direct deposits to your account will be available on the day we receive the deposit. Funds from deposits of cash, wire transfers, and the first $5,000 of a day's total deposits of cashier's, certified, teller's, traveler's, and federal, state and local government checks will be available on the first business day after the day of your deposit if the deposit meets certain conditions. For example, the checks must be payable to you (and you may have to use a special deposit slip). The excess over $5,000 will be available on the ninth business day after the day of your deposit. If your deposit of these checks (other than a U.S. Treasury check) is not made in person to one of our employees, the first $5,000 will not be available until the second business day after the day of your deposit.</p>
<p style="-uslm-sgm:P">Funds from all other check deposits will be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit.</p>
<heading style="-uslm-sgm:HD3">C–5A—Substitute Check Policy Disclosure </heading>
<heading style="-uslm-sgm:HD3">Substitute Checks and Your Rights—[Important Information About Your Checking Account] </heading>
<heading style="-uslm-sgm:HD3">Substitute Checks and Your Rights </heading>
<heading style="-uslm-sgm:HD3">What Is a Substitute Check?</heading>
<p style="-uslm-sgm:P">To make check processing faster, federal law permits banks to replace original checks with “substitute checks.” These checks are similar in size to original checks with a slightly reduced image of the front and back of the original check. The front of a substitute check states: “This is a legal copy of your check. You can use it the same way you would use the original check.” You may use a substitute check as proof of payment just like the original check.</p>
<p style="-uslm-sgm:P">Some or all of the checks that you receive back from us may be substitute checks. This notice describes rights you have when you receive substitute checks from us. The rights in this notice do not apply to original checks or to electronic debits to your account. However, you have rights under other law with respect to those transactions. </p>
<heading style="-uslm-sgm:HD3">What Are My Rights Regarding Substitute Checks?</heading>
<p style="-uslm-sgm:P">In certain cases, federal law provides a special procedure that allows you to request a refund for losses you suffer if a substitute check is posted to your account (for example, if you think that we withdrew the wrong amount from your account or that we withdrew money from your account more than once for the same check). The losses you may attempt to recover under this procedure may include the amount that was withdrawn from your account and fees that were charged as a result of the withdrawal (for example, bounced check fees).</p>
<p style="-uslm-sgm:P">The amount of your refund under this procedure is limited to the amount of your loss or the amount of the substitute check, whichever is less. You also are entitled to interest on the amount of your refund if your account is an interest-bearing account. If your loss exceeds the amount of the substitute check, you may be able to recover additional amounts under other law.</p>
<p style="-uslm-sgm:P">If you use this procedure, you may receive up to (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount, not lower than $2,500</inline>) of your refund (plus interest if your account earns interest) within (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number of days, not more than 10</inline>) business days after we received your claim and the remainder of your refund (plus interest if your account earns interest) not later than (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number of days, not more than 45</inline>) calendar days after we received your claim.</p>
<p style="-uslm-sgm:P">We may reverse the refund (including any interest on the refund) if we later are able to demonstrate that the substitute check was correctly posted to your account. </p>
<heading style="-uslm-sgm:HD3">How Do I Make a Claim for a Refund?</heading>
<p style="-uslm-sgm:P">If you believe that you have suffered a loss relating to a substitute check that you received and that was posted to your account, please contact us at (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">contact information, for example phone number, mailing address, e-mail address</inline>). You must contact us within (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number of days, not less than 40</inline>) calendar days of the date that we mailed (or otherwise delivered by a means to which you agreed) the substitute check in question or the account statement showing that the substitute check was posted to your account, whichever is later. We will extend this time period if you <?page num="883"?>were not able to make a timely claim because of extraordinary circumstances.</p>
<p style="-uslm-sgm:P">Your claim must include—</p>
<p style="-uslm-sgm:P">• A description of why you have suffered a loss (for example, you think the amount withdrawn was incorrect);</p>
<p style="-uslm-sgm:P">• An estimate of the amount of your loss;</p>
<p style="-uslm-sgm:P">• An explanation of why the substitute check you received is insufficient to confirm that you suffered a loss; and</p>
<p style="-uslm-sgm:P">• A copy of the substitute check [and/or] the following information to help us identify the substitute check: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">identifying information, for example the check number, the name of the person to whom you wrote the check, the amount of the check</inline>).</p>
<heading style="-uslm-sgm:HD2">Model Clauses </heading>
<heading style="-uslm-sgm:HD3">C–6—Holds on Other Funds (Check Cashing) </heading>
<p style="-uslm-sgm:P">If we cash a check for you that is drawn on another bank, we may withhold the availability of a corresponding amount of funds that are already in your account. Those funds will be available at the time funds from the check we cashed would have been available if you had deposited it.</p>
<heading style="-uslm-sgm:HD3">C–7—Holds on Other Funds (Other Account) </heading>
<p style="-uslm-sgm:P">If we accept for deposit a check that is drawn on another bank, we may make funds from the deposit available for withdrawal immediately but delay your availability to withdraw a corresponding amount of funds that you have on deposit in another account with us. The funds in the other account would then not be available for withdrawal until the time periods that are described elsewhere in this disclosure for the type of check that you deposited. </p>
<heading style="-uslm-sgm:HD3">C–8—Appendix B Availability (Nonlocal Checks) </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">3. Certain other checks.</inline> We can process nonlocal checks drawn on financial institutions in certain areas faster than usual. Therefore, funds from deposits of checks drawn on institutions in those areas will be available to you more quickly. Call us if you would like a list of the routing numbers for these institutions. </p>
<heading style="-uslm-sgm:HD3">C–9—Automated Teller Machine Deposits (Extended Hold) </heading>
<heading style="-uslm-sgm:HD3">Deposits at Automated Teller Machines </heading>
<p style="-uslm-sgm:P">Funds from any deposits (cash or checks) made at automated teller machines (ATMs) we do not own or operate will not be available until the fifth business day after the day of your deposit. This rule does not apply at ATMs that we own or operate. </p>
<p style="-uslm-sgm:P">(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">A list of our ATMs is enclosed.</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">A list of ATMs where you can make deposits but that are not owned or operated by us is enclosed.</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">All ATMs that we own or operate are identified as our machines.</inline>) </p>
<heading style="-uslm-sgm:HD3">C–10—Cash Withdrawal Limitation </heading>
<heading style="-uslm-sgm:HD3">Cash Withdrawal Limitation</heading>
<p style="-uslm-sgm:P">We place certain limitations on withdrawals in cash. In general, $100 of a deposit is available for withdrawal in cash on the first business day after the day of deposit. In addition, a total of $400 of other funds becoming available on a given day is available for withdrawal in cash at or after (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">time no later than 5:00 p.m.</inline>) on that day. Any remaining funds will be available for withdrawal in cash on the following business day. </p>
<heading style="-uslm-sgm:HD3">C–11—Credit Union Interest Payment Policy</heading>
<heading style="-uslm-sgm:HD2">Interest Payment Policy</heading>
<p style="-uslm-sgm:P">If we receive a deposit to your account on or before the tenth of the month, you begin earning interest on the deposit (whether it was a deposit of cash or checks) as of the first day of that month. If we receive the deposit after the tenth of the month, you begin earning interest on the deposit as of the first of the following month. For example, a deposit made on June 7 earns interest from June l, while a deposit made on June 17 earns interest from July 1.</p>
<heading style="-uslm-sgm:HD3">C–11A—Availability of Funds Deposited at Other Locations</heading>
<heading style="-uslm-sgm:HD3">Deposits at Other Locations</heading>
<p style="-uslm-sgm:P">This availability policy only applies to funds deposited at (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">location</inline>). Please inquire for information about the availability of funds deposited at other locations.</p>
<heading style="-uslm-sgm:HD2">Model Notices </heading>
<heading style="-uslm-sgm:HD3">C–12—Exception Hold Notice </heading>
<heading style="-uslm-sgm:HD3">Notice of Hold</heading>
<p style="-uslm-sgm:FP-1">Account number: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) </p>
<p style="-uslm-sgm:FP-1">Date of deposit: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>)</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">We are delaying the availability of (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount being held</inline>) from this deposit. These funds will be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. </p>
<p style="-uslm-sgm:P">We are taking this action because:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">—A check you deposited was previously returned unpaid. </p>
<p style="-uslm-sgm:FP-1">—You have overdrawn your account repeatedly in the last six months. </p>
<p style="-uslm-sgm:FP-1">—The checks you deposited on this day exceed $5,000. </p>
<p style="-uslm-sgm:FP-1">—An emergency, such as failure of computer or communications equipment, has occurred. </p>
<p style="-uslm-sgm:FP-1">—We believe a check you deposited will not be paid for the following reasons [*]: </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​</p>
<?GPOvSpace 02?>
<?page num="884"?>
<p style="-uslm-sgm:FP-DASH">​</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP">[*If you did not receive this notice at the time you made the deposit and the check you deposited is paid, we will refund to you any fees for overdrafts or returned checks that result solely from the additional delay that we are imposing. To obtain a refund of such fees, (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">description of procedure for obtaining refund).</inline>] </p>
<heading style="-uslm-sgm:HD3">C–13—Reasonable Cause Hold Notice </heading>
<heading style="-uslm-sgm:HD3">Notice of Hold </heading>
<p style="-uslm-sgm:FP-1">Account number: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) </p>
<p style="-uslm-sgm:FP-1">Date of deposit: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>)</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">We are delaying the availability of the funds you deposited by the following check: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">description of check, such as amount and drawer.</inline>) </p>
<p style="-uslm-sgm:P">These funds will be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit. The reason for the delay is explained below:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-1">—We received notice that the check is being returned unpaid. </p>
<p style="-uslm-sgm:FP-1">—We have confidential information that indicates that the check may not be paid. </p>
<p style="-uslm-sgm:FP-1">—The check is drawn on an account with repeated overdrafts. </p>
<p style="-uslm-sgm:FP-1">—We are unable to verify the endorsement of a joint payee. </p>
<p style="-uslm-sgm:FP-1">—Some information on the check is not consistent with other information on the check. </p>
<p style="-uslm-sgm:FP-1">—There are erasures or other apparent alterations on the check. </p>
<p style="-uslm-sgm:FP-1">—The routing number of the paying bank is not a current routing number. </p>
<p style="-uslm-sgm:FP-1">—The check is postdated or has a stale date. </p>
<p style="-uslm-sgm:FP-1">—Information from the paying bank indicates that the check may not be paid. </p>
<p style="-uslm-sgm:FP-1">—We have been notified that the check has been lost or damaged in collection. </p>
<p style="-uslm-sgm:FP-1">—Other:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:FP-DASH">​</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">[If you did not receive this notice at the time you made the deposit and the check you deposited is paid, we will refund to you any fees for overdrafts or returned checks that result solely from the additional delay that we are imposing. To obtain a refund of such fees, (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">description of procedure for obtaining refund</inline>).] </p>
<heading style="-uslm-sgm:HD3">C–14—One-Time Notice for Large Deposit and Redeposited Check Exception Holds </heading>
<heading style="-uslm-sgm:HD3">Notice of Hold </heading>
<p style="-uslm-sgm:P">If you deposit into your account: </p>
<p style="-uslm-sgm:P">• Checks totaling more than $5,000 on any one day, the first $5,000 deposited on any one banking day will be available to you according to our general policy. The amount in excess of $5,000 will generally be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of deposit for checks drawn on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank name</inline>), the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of deposit for local checks and (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of deposit for nonlocal checks. If checks (not drawn on us) that otherwise would receive next-day availability exceed $5,000, the excess will be treated as either local or nonlocal checks depending on the location of the paying bank. If your check deposit, exceeding $5,000 on any one day, is a mix of local checks, nonlocal checks, checks drawn on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank name</inline>), or checks that generally receive next-day availability, the excess will be calculated by first adding together the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">type of check</inline>), then the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">type of check</inline>), then the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">type of check</inline>), then the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">type of check</inline>). </p>
<p style="-uslm-sgm:P">• A check that has been returned unpaid, the funds will generally be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of deposit for checks drawn on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank name</inline>), the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of deposit for local checks and the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of deposit for nonlocal checks. Checks (not drawn on us) that otherwise would receive next-day availability will be treated as either local or nonlocal checks depending on the location of the paying bank. </p>
<heading style="-uslm-sgm:HD3">C–15—One-Time Notice for Repeated Overdraft Exception Hold </heading>
<heading style="-uslm-sgm:HD3">Notice of Hold</heading>
<p style="-uslm-sgm:FP-1">Account Number: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) Date of Notice: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>) </p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">We are delaying the availability of checks deposited into your account due to repeated overdrafts of your account. For the next six months, deposits will generally be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit for checks drawn on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank name</inline>), the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit for local checks, and the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of deposit for nonlocal checks. Checks (not drawn on us) that otherwise would have received next-day availability will be treated as either local or nonlocal checks depending on the location of the paying bank. </p>
<heading style="-uslm-sgm:HD3">C–16—Case-by-Case Hold Notice </heading>
<heading style="-uslm-sgm:HD3">Notice of Hold </heading>
<p style="-uslm-sgm:FP-1">Account number: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) </p>
<p style="-uslm-sgm:FP-1">Date of deposit: (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>)</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">We are delaying the availability of (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount being held</inline>) from this deposit. These funds will be available on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day of your deposit [(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">subject to our cash withdrawal limitation policy</inline>)]. </p>
<p style="-uslm-sgm:P">[If you did not receive this notice at the time you made the deposit and the check you deposited is paid, we will refund to you any fees for overdrafts or returned checks that result solely from the additional delay that we are imposing. To obtain a refund of <?page num="885"?>such fees, (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">description of procedure for obtaining refund</inline>).] </p>
<heading style="-uslm-sgm:HD3">C–17—Notice at locations where employees accept consumer deposits </heading>
<heading style="-uslm-sgm:HD2">FUNDS AVAILABILITY POLICY</heading>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L2,s50,r50">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Description of deposit</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">When funds can be withdrawn by cash or check </xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Direct deposits</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">The day we receive the deposit </xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Cash, wire transfers, cashier's, certified, teller's, or government checks, checks on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank name</inline>) [unless (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any limitation reIated to branches in different check processing regions</inline>)], and the first $100 of a day's deposits of other checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">The first business day after the day of deposit.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Local checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">The second business day after the day of deposit.</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Nonlocal checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">The fifth business day after the day of deposit.</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<heading style="-uslm-sgm:HD3">C–18—Notice at locations where employees accept consumer deposits (case-by-case holds)</heading>
<heading style="-uslm-sgm:HD2">FUNDS AVAILABILITY POLICY </heading>
<p style="-uslm-sgm:P">Our general policy is to allow you to withdraw funds deposited in your account on the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day after the day we receive your deposit. Funds from electronic direct deposits will be available on the day we receive the deposit. In some cases, we may delay your ability to withdraw funds beyond the (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">number</inline>) business day. Then, the funds will generally be available by the fifth business day after the day of deposit. </p>
<heading style="-uslm-sgm:HD3">C–19—Notice at Automated Teller Machines</heading>
<heading style="-uslm-sgm:HD2">AVAILABILITY OF DEPOSITS</heading>
<p style="-uslm-sgm:P">Funds from deposits may not be available for immediate withdrawal. Please refer to your institution's rules governing funds availability for details.</p>
<heading style="-uslm-sgm:HD3">C–20—Notice at Automated Teller Machines (Delayed Receipt)</heading>
<heading style="-uslm-sgm:HD2">NOTICE </heading>
<p style="-uslm-sgm:P">Deposits at this ATM between (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">day</inline>) and (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">day</inline>) will not be considered received until (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">day</inline>). The availability of funds from the deposit may be delayed as a result.</p>
<heading style="-uslm-sgm:HD3">C–21—Deposit Slip Notice</heading>
<p style="-uslm-sgm:P">Deposits may not be available for immediate withdrawal.</p>
<heading style="-uslm-sgm:HD3">C–22—Expedited Recredit Claim, Valid Claim Refund Notice </heading>
<heading style="-uslm-sgm:HD2">Notice of Valid Claim and Refund</heading>
<p style="-uslm-sgm:P">We have determined that your substitute check claim is valid. We are refunding (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) [of which [(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) represents fees] [and] [(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) represents accrued interest]] to your account. You may withdraw these funds as of (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>). [This refund is the amount in excess of the $2,500 [plus interest] that we credited to your account on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>).] </p>
<heading style="-uslm-sgm:HD3">C–23—Expedited Recredit Claim, Provisional Refund Notice </heading>
<heading style="-uslm-sgm:HD2">Notice of Provisional Refund</heading>
<p style="-uslm-sgm:P">In response to your substitute check claim, we are refunding (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) [of which [(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) represents fees] [and] [(<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) represents accrued interest]] to your account, while we complete our investigation of your claim. You may withdraw these funds as of (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>). [Unless we determine that your claim is not valid, we will credit the remaining amount of your refund to your account no later than the 45th calendar day after we received your claim.]</p>
<p style="-uslm-sgm:P">If, based on our investigation, we determine that your claim is not valid, we will reverse the refund by withdrawing the amount of the refund [plus interest that we have paid you on that amount] from your account. We will notify you within one day of any such reversal. </p>
<heading style="-uslm-sgm:HD3">C–24—Expedited Recredit Claim, Denial Notice </heading>
<heading style="-uslm-sgm:HD2">Denial of Claim</heading>
<p style="-uslm-sgm:P">Based on our review, we are denying your substitute check claim. As the enclosed (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">type of document, for example original check or sufficient) shows, (describe reason for denial, for example the check was properly posted, the signature is authentic, there was no warranty breach</inline>).</p>
<p style="-uslm-sgm:P">[We have also enclosed a copy of the other information we used to make our decision.] [Upon your request, we will send you a copy of the other information that we used to make our decision.] </p>
<heading style="-uslm-sgm:HD3">C–25—Expedited Recredit Claim, Reversal Notice </heading>
<heading style="-uslm-sgm:HD2">Reversal of Refund</heading>
<p style="-uslm-sgm:P">In response to your substitute check claim, we provided a refund of (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) by crediting your account on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date(s)</inline>). We now have determined that your substitute check claim was not valid. As the enclosed (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">type of document, for example original check or sufficient copy</inline>) shows, (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">describe reason for reversal, for example the check was properly posted, the signature is authentic, there was no warranty breach</inline>). As a result, we have reversed the refund to your <?page num="886"?>account [plus interest that we have paid you on that amount] by withdrawing (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">amount</inline>) from your account on (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">date</inline>).</p>
<p style="-uslm-sgm:P">[We have also enclosed a copy of the other information we used to make our decision.] [Upon your request, we will send you a copy of the information we used to make our decision.]</p>
<source style="-uslm-sgm:CITA">[<ref href="/us/fr/53/19433">53 FR 19433</ref>, <date date="1988-05-27">May 27, 1988</date>, as amended at <ref href="/us/fr/53/31293">53 FR 31293</ref>, <date date="1988-08-18" role="amended">Aug. 18, 1988</date>; Reg. CC, <ref href="/us/fr/55/21855">55 FR 21855</ref>, <date date="1990-05-30" role="amended">May 30, 1990</date>; <ref href="/us/fr/55/50818">55 FR 50818</ref>, <date date="1990-12-11" role="amended">Dec. 11, 1990</date>; <ref href="/us/fr/56/7802">56 FR 7802</ref>, <date date="1991-02-26" role="amended">Feb. 26, 1991</date>; <ref href="/us/fr/57/3280">57 FR 3280</ref>, <date date="1992-01-29" role="amended">Jan. 29, 1992</date>; <ref href="/us/fr/60/51671">60 FR 51671</ref>, <date date="1995-10-03" role="amended">Oct. 3, 1995</date>; <ref href="/us/fr/62/13811">62 FR 13811</ref>, <date date="1997-03-24" role="amended">Mar. 24, 1997</date>; <ref href="/us/fr/62/48752">62 FR 48752</ref>, <date date="1997-09-17" role="amended">Sept. 17, 1997</date>; <ref href="/us/fr/69/47315">69 FR 47315</ref>, 47316, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX" role="reserved">
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:RESERVED">Appendix D to Part 229 </num>
<heading style="-uslm-sgm:RESERVED">[Reserved]
</heading>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 229, App. E</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix E to Part 229—</num>
<heading style="-uslm-sgm:HED">Commentary
</heading>
<heading style="-uslm-sgm:HD2">I. Introduction </heading>
<heading style="-uslm-sgm:HD3">A. Background</heading>
<p style="-uslm-sgm:P">1. The Board interpretations, which are labeled “Commentary” and follow each section of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR Part 229</ref>), provide background material to explain the Board's intent in adopting a particular part of the regulation; the Commentary also provides examples to aid in understanding how a particular requirement is to work. Under section 611(e) of the Expedited Funds Availability Act (<ref href="/us/usc/t12/s4010/e">12 U.S.C. 4010(e)</ref>), no provision of section 611 imposing any liability shall apply to any act done or omitted in good faith conformity with any rule, regulation, or interpretation thereof by the Board of Governors of the Federal Reserve System, notwithstanding the fact that after such act or omission has occurred, such rule, regulation, or interpretation is amended, rescinded, or determined by judicial or other authority to be invalid for any reason. The Commentary is an “interpretation” of a regulation by the Board within the meaning of section 611. </p>
<heading style="-uslm-sgm:HD2">II. Section 229.2 Definitions </heading>
<heading style="-uslm-sgm:HD3">A. Background </heading>
<p style="-uslm-sgm:P">1. Section 229.2 defines the terms used in the regulation. For the most part, terms are defined as they are in section 602 of the Expedited Funds Availability Act (<ref href="/us/usc/t12/s4001">12 U.S.C. 4001</ref>). The Board has made a number of changes for the sake of clarity, to conform the terminology to that which is familiar to the banking industry, to define terms that are not defined in the EFA Act, and to carry out the purposes of the EFA Act. The Board also has incorporated by reference the definitions of the Uniform Commercial Code where appropriate. Some of Regulation CC's definitions are self-explanatory and therefore are not discussed in this Commentary. </p>
<heading style="-uslm-sgm:HD3">B. 229.2(a) Account </heading>
<p style="-uslm-sgm:P">1. The EFA Act defines account to mean “a demand deposit account or similar transaction account at a depository institution.” The regulation defines account, for purposes other than subpart D, in terms of the definition of “transaction account” in the Board's Regulation D (<ref href="/us/cfr/t12/p204">12 CFR part 204</ref>). This definition of account, however, excludes certain deposits, such as nondocumentary obligations (see <ref href="/us/cfr/t12/s204.2/a/1/vii">12 CFR 204.2(a)(1)(vii)</ref>), that are covered under the definition of “transaction account” in Regulation D. The definition applies to accounts with general third party payment powers but does not cover time deposits or savings deposits, including money market deposit accounts, even though they may have limited third party payment powers. The Board believes that it is appropriate to exclude these accounts because of the reference to demand deposits in the EFA Act, which suggests that the EFA Act is intended to apply only to accounts that permit unlimited third party transfers. </p>
<p style="-uslm-sgm:P">2. The term account also differs from the definition of transaction account in Regulation D because the term account refers to accounts held at banks. Under Subparts A and C, the term bank includes not only any depository institution, as defined in the EFA Act, but also any person engaged in the business of banking, such as a Federal Reserve Bank, a Federal Home Loan Bank, or a private banker that is not subject to Regulation D. Thus, accounts at these institutions benefit from the expeditious return requirements of Subpart C. </p>
<p style="-uslm-sgm:P">3. Interbank deposits, including accounts of offices of domestic banks or foreign banks located outside the United States, and direct and indirect accounts of the United States Treasury (including Treasury General Accounts and Treasury Tax and Loan deposits) are exempt from subpart B and, in connection therewith, subpart A. However, interbank deposits are included as accounts for purposes of subparts C and D and, in connection therewith, subpart A.</p>
<p style="-uslm-sgm:P">4. The Check 21 Act defines account to mean any deposit account at a bank. Therefore, for purposes of subpart D and, in connection therewith, subpart A, account means any deposit, as that term is defined by <ref href="/us/cfr/t12/s204.2/a/1/i">§ 204.2(a)(1)(i)</ref> of Regulation D, at a bank. Many deposits that are not accounts for purposes of the other subparts of Regulation CC, such as savings deposits, are accounts for purposes of subpart D.</p>
<heading style="-uslm-sgm:HD3">C. 229.2(b) Automated Clearinghouse (ACH) </heading>
<p style="-uslm-sgm:P">1. The Board has defined automated clearinghouse as a facility that processes debit and credit transfers under rules established by a Federal Reserve Bank operating circular governing automated clearinghouse items or the rules of an ACH association. <?page num="887"?>ACH credit transfers are included in the definition of electronic payment. </p>
<p style="-uslm-sgm:P">2. The reference to “debit and credit transfers” does not refer to the corresponding debit and credit entries that are part of the same transaction, but to different kinds of ACH payments. In an ACH credit transfer, the originator orders that its account be debited and another account credited. In an ACH debit transfer, the originator, with prior authorization, orders another account to be debited and the originator's account to be credited. </p>
<p style="-uslm-sgm:P">3. A facility that handles only wire transfers (defined elsewhere) is not an ACH. </p>
<heading style="-uslm-sgm:HD3">D. 229.2(c) Automated Teller Machine (ATM) </heading>
<p style="-uslm-sgm:P">1. ATM is not defined in the EFA Act. The regulation defines an ATM as an electronic device at which a natural person may make deposits to an account by cash or check and perform other account transactions. Point-of-sale terminals, machines that only dispense cash, night depositories, and lobby deposit boxes are not ATMs within the meaning of the definition, either because they do not accept deposits of cash or checks (e.g., point-of-sale terminals and cash dispensers) or because they only accept deposits (e.g., night depositories and lobby boxes) and cannot perform other transactions. A lobby deposit box or similar receptacle in which written payment orders or deposits may be placed is not an ATM. </p>
<p style="-uslm-sgm:P">2. A facility may be an ATM within this definition even if it is a branch under state or federal law, although an ATM is not a branch as that term is used in this regulation. </p>
<heading style="-uslm-sgm:HD3">E. 229.2(d) Available for Withdrawal </heading>
<p style="-uslm-sgm:P">1. Under this definition, when funds become available for withdrawal, the funds may be put to all uses for which the customer may use actually and finally collected funds in the customer's account under the customer's account agreement with the bank. Examples of such uses include payment of checks drawn on the account, certification of checks, electronic payments, and cash withdrawals. Funds are available for these uses notwithstanding provisions of other law that may restrict the use of uncollected funds (e.g., <ref href="/us/usc/t18/s1004">18 U.S.C. 1004</ref>; <ref href="/us/usc/t12/s331">12 U.S.C. 331</ref>). </p>
<p style="-uslm-sgm:P">2. If a bank makes funds available to a customer for a specific purpose (such as paying checks that would otherwise overdraw the customer's account and be returned for insufficient funds) before the funds must be made available under the bank's policy or this regulation, it may nevertheless apply a hold consistent with this regulation to those funds for other purposes (such as cash withdrawals). For purposes of this regulation, funds are considered available for withdrawal even though they are being held by the bank to satisfy an obligation of the customer other than the customer's potential liability for the return of the check. For example, a bank does not violate its obligations under this subpart by holding funds to satisfy a garnishment, tax levy, or court order restricting disbursements from the account; or to satisfy the customer's liability arising from the certification of a check, sale of a cashier's or teller's check, guaranty or acceptance of a check, or similar transaction to be debited from the customer's account. </p>
<heading style="-uslm-sgm:HD3">F. 229.2(e) Bank </heading>
<p style="-uslm-sgm:P">1. The EFA Act uses the term depository institution, which it defines by reference to section 19(b)(1)(A)(i) through (vi) of the Federal Reserve Act (<ref href="/us/usc/t12/s461/b/1/A/i">12 U.S.C. 461(b)(1)(A)(i)</ref> through (vi)). This regulation uses the term bank, a term that conforms to the usage the Board has previously adopted in Regulation J. Bank is also used in Articles 4 and 4A of the Uniform Commercial Code. </p>
<p style="-uslm-sgm:P">2. Bank is defined to include depository institutions, such as commercial banks, savings banks, savings and loan associations, and credit unions as defined in the EFA Act, and U.S. branches and agencies of foreign banks. For purposes of Subpart B, the term does not include corporations organized under section 25A of the Federal Reserve Act, <ref href="/us/usc/t12/s611–631">12 U.S.C. 611–631</ref> (Edge corporations) or corporations having an agreement or undertaking with the Board under section 25 of the Federal Reserve Act, <ref href="/us/usc/t12/s601–604a">12 U.S.C. 601–604a</ref> (agreement corporations). For purposes of Subparts C and D, and in connection therewith, Subpart A, any Federal Reserve Bank, Federal Home Loan Bank, or any other person engaged in the business of banking is regarded as a bank. The phrase “any other person engaged in the business of banking” is derived from U.C.C. 1–201(4), and is intended to cover entities that handle checks for collection and payment, such as Edge and agreement corporations, commercial lending companies under <ref href="/us/usc/t12/s3101">12 U.S.C. 3101</ref>, certain industrial banks, and private bankers, so that virtually all checks will be covered by the same rules for forward collection and return, even though they may not be covered by the requirements of Subpart B. For the purposes of Subparts C and D, and in connection therewith, Subpart A, the term also may include a state or a unit of general local government to the extent that it pays warrants or other drafts drawn directly on the state or local government itself, and the warrants or other drafts are sent to the state or local government for payment or collection. </p>
<p style="-uslm-sgm:P">3. Unless otherwise specified, the term bank includes all of a bank's offices in the United States. The regulation does not cover foreign offices of U.S. banks.
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<p style="-uslm-sgm:P">4. For purposes of subpart D and, in connection therewith, subpart A, the term bank also includes the Treasury of the United States and the United States Postal Service to the extent that they act as paying banks because the Check 21 Act includes these two entities in the definition of the term bank to the extent that they act as payors.</p>
<heading style="-uslm-sgm:HD3">G. 229.2(f) Banking Day and (g) Business Day </heading>
<p style="-uslm-sgm:P">1. The EFA Act defines business day as any day excluding Saturdays, Sundays, and legal holidays. Legal holiday, however, is not defined, and the variety of local holidays, together with the practice of some banks to close midweek, makes the EFA Act's definition difficult to apply. The Board believes that two kinds of business days are relevant. First, when determining the day when funds are deposited or when a bank must perform certain actions (such as returning a check), the focus should be on a day that the bank is actually open for business. Second, when counting days for purposes of determining when funds must be available under the regulation or when notice of nonpayment must be received by the depositary bank, there would be confusion and uncertainty in trying to follow the schedule of a particular bank, and there is less need to identify a day when a particular bank is open. Most banks that act as intermediaries (large correspondents and Federal Reserve Banks) follow the same holiday schedule. Accordingly, the regulation has two definitions: Business day generally follows the standard Federal Reserve Bank holiday schedule (which is followed by most large banks), and banking day is defined to mean that part of a business day on which a bank is open for substantially all of its banking activities. </p>
<p style="-uslm-sgm:P">2. The definition of banking day corresponds to the definition of banking day in U.C.C. 4–104(a)(3), except that a banking day is defined in terms of a business day. Thus, if a bank is open on Saturday, Saturday might be a banking day for purposes of the U.C.C., but it would not be a banking day for purposes of Regulation CC because Saturday is never a business day under the regulation. </p>
<p style="-uslm-sgm:P">3. The definition of banking day is phrased in terms of when “an office of a bank is open” to indicate that a bank may observe a banking day on a per-branch basis. A deposit made at an ATM or off-premise facility (such as a remote depository or a lock box) is considered made at the branch holding the account into which the deposit is made for the purpose of determining the day of deposit. All other deposits are considered made at the branch at which the deposit is received. For example, under <ref href="/us/cfr/t12/s229.19/a/1">§ 229.19(a)(1)</ref>, funds deposited at an ATM are considered deposited at the time they are received at the ATM. On a calendar day that is a banking day for the branch or other location of the depositary bank at which the account is maintained, a deposit received at an ATM before the ATM's cut-off hour is considered deposited on that banking day, and a deposit received at an ATM after the ATM's cut-off hour is considered deposited on the next banking day of the branch or other location where the account is maintained. On a calendar day that is not a banking day for the account-holding location, all ATM deposits are considered deposited on that location's next banking day. This rule for determining the day of deposit also would apply to a deposit to an off-premise facility, such as a night depository or lock box, which is considered deposited when removed from the facility and available for processing under <ref href="/us/cfr/t12/s229.19/a/3">§ 229.19(a)(3)</ref>. If an unstaffed facility, such as a night depository or lock box, is on branch premises, the day of deposit is determined by the banking day at the branch at which the deposit is received, whether or not it is the branch at which the account is maintained. </p>
<heading style="-uslm-sgm:HD3">H. 229.2(h) Cash </heading>
<p style="-uslm-sgm:P">1. Cash means U.S. coins and currency. The phrase in the EFA Act “including Federal Reserve notes” has been deleted as unnecessary. (See <ref href="/us/usc/t31/s5103">31 U.S.C. 5103</ref>.) </p>
<heading style="-uslm-sgm:HD3">I. 229.2(i) Cashier's Check </heading>
<p style="-uslm-sgm:P">1. The regulation adds to the second item in the EFA Act's definition of cashier's check the phrase, “on behalf of the bank as drawer,” to clarify that the term cashier's check is intended to cover only checks that a bank draws on itself. The definition of cashier's check includes checks provided to a customer of the bank in connection with customer deposit account activity, such as account disbursements and interest payments. The definition also includes checks acquired from a bank by noncustomers for remittance purposes, such as certain loan disbursement checks. Cashier's checks provided to customers or others are often labeled as “cashier's check,” “officer's check,” or “official check.” The definition excludes checks that a bank draws on itself for other purposes, such as to pay employees and vendors, and checks issued by the bank in connection with a payment service, such as a payroll or a bill-paying service. Cashier's checks generally are sold by banks to substitute the bank's credit for the customer's credit and thereby enhance the collectibility of the checks. A check issued in connection with a payment service generally is provided as a convenience to the customer rather than as a guarantee of the check's collectibility. In addition, such checks are often more difficult to distinguish from other types of checks than are cashier's checks as defined by this regulation.
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<heading style="-uslm-sgm:HD3">J. 229.2(j) Certified Check </heading>
<p style="-uslm-sgm:P">1. The EFA Act defines a certified check as one to which a bank has certified that the drawer's signature is genuine and that the bank has set aside funds to pay the check. Under the Uniform Commercial Code, certification of a check means the bank's signed agreement that it will honor the check as presented (U.C.C. 3–409). The regulation defines certified check to include both the EFA Act's and U.C.C.'s definitions. </p>
<heading style="-uslm-sgm:HD3">K. 229.2(k) Check </heading>
<p style="-uslm-sgm:P">1. Check is defined in section 602(7) of the EFA Act as a negotiable demand draft drawn on or payable through an office of a depository institution located in the United States, excluding noncash items. The regulation includes six categories of instruments within the definition of check. </p>
<p style="-uslm-sgm:P">2. The first category is negotiable demand drafts drawn on, or payable through or at, an office of a bank. As the definition of bank includes only offices located in the United States, this category is limited to checks drawn on, or payable through or at, a banking office located in the United States. </p>
<p style="-uslm-sgm:P">3. The EFA Act treats drafts payable through a bank as checks, even though under the U.C.C. the payable-through bank is a collecting bank to make presentment and generally is not authorized to make payment (U.C.C. 4–106(a)). The EFA Act does not expressly address items that are payable at a bank. This regulation treats both payable-through and payable-at demand drafts as checks. The Board believes that treating demand drafts payable at a bank as checks will not have a substantial effect on the operations of payable-at banks—by far the largest proportion of payable-at items are not negotiable demand drafts, but time items, such as commercial paper, bonds, notes, bankers' acceptances, and securities. These time items are not covered by the requirements of the EFA Act or this regulation. (The treatment of payable-through drafts is discussed in greater detail in connection with the definitions of local check and paying bank.) </p>
<p style="-uslm-sgm:P">4. The second category is checks drawn on Federal Reserve Banks and Federal Home Loan Banks. Principal and interest payments on federal debt instruments often are paid with checks drawn on a Federal Reserve Bank as fiscal agent of the United States, and these fiscal agency checks are indistinguishable from other checks drawn on Federal Reserve Banks. (See <ref href="/us/cfr/t31/p355">31 CFR Part 355</ref>.) Federal Reserve Bank checks also are used by some banks as substitutes for cashier's or teller's checks. Similarly, savings and loan associations often use checks drawn on Federal Home Loan Banks as teller's checks. The definition of check includes checks drawn on Federal Home Loan Banks and Federal Reserve Banks because in many cases they are the functional equivalent of Treasury checks or teller's checks. </p>
<p style="-uslm-sgm:P">5. The third and fourth categories of instrument included in the definition of check refer to government checks. The EFA Act refers to checks drawn on the U.S. Treasury, even though these instruments are not drawn on or payable through an office of a depository institution, and checks drawn by state and local governments. The EFA Act also gives the Board authority to define functionally equivalent instruments as depository checks. <ref id="fnd3e57311" idref="fnd3e57318" style="-uslm-sgm:SU">1</ref> Thus, the EFA Act is intended to apply to instruments other than those that meet the strict definition of check in section 602(7) of the EFA Act. Checks and warrants drawn by states and local governments often are used for the purposes of making unemployment compensation payments and other payments that are important to the recipients. Consequently, the Board has expressly defined check to include drafts drawn on the U.S. Treasury and drafts or warrants drawn by a state or a unit of general local government on itself. </p>
<footnote id="fnd3e57318" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e57311" style="-uslm-sgm:SU">1</ref> Section 602(11) of the EFA Act (<ref href="/us/usc/t12/s4001/11">12 U.S.C. 4001(11)</ref>) defines “depository check” as “any cashier's check, certified check, teller's check, and any other functionally equivalent instrument as determined by the Board.”</p>
</content>
</footnote>
<p style="-uslm-sgm:P">6. The fifth category of instrument included in the definition of check is U.S. Postal Service money orders. These instruments are defined as checks because they often are used as a substitute for checks by consumers, even though money orders are not negotiable under Postal Service regulations. The Board has not provided specific rules for other types of money orders; these instruments generally are drawn on or payable through or payable at banks and are treated as checks on that basis. </p>
<p style="-uslm-sgm:P">7. The sixth and final category of instrument included in the definition of check is traveler's checks drawn on or payable through or at a bank. Traveler's check is defined in paragraph (hh) of this section. </p>
<p style="-uslm-sgm:P">8. Finally, for the purposes of Subparts C and D, and in connection therewith, Subpart A, the definition of check includes nonnegotiable demand drafts because these instruments are often handled as cash items in the forward collection process. </p>
<p style="-uslm-sgm:P">9. A substitute check as defined in <ref href="/us/cfr/t12/s229.2/aaa">§ 229.2(aaa)</ref> is a check for purposes of Regulation CC and the U.C.C., even if that substitute check does not meet the requirements for legal equivalence set forth in <ref href="/us/cfr/t12/s229.51/a">§ 229.51(a)</ref>.</p>
<p style="-uslm-sgm:P">10. The definition of check does not include an instrument payable in a foreign currency (i.e., other than in United States money as defined in <ref href="/us/usc/t31/s5101">31 U.S.C. 5101</ref>) or a credit card draft (i.e., a sales draft used by a merchant <?page num="890"?>or a draft generated by a bank as a result of a cash advance), or an ACH debit transfer. The definition of check includes a check that a bank may supply to a customer as a means of accessing a credit line without the use of a credit card. </p>
<heading style="-uslm-sgm:HD3" role="reserved">L. 229.2(l) [Reserved] </heading>
<heading style="-uslm-sgm:HD3">M. 229.2(m) Check Processing Region </heading>
<p style="-uslm-sgm:P">1. The EFA Act defines this term as “the geographic area served by a Federal Reserve bank check processing center or such larger area as the Board may prescribe by regulations.” The Board has defined check processing region as the territory served by one of the Federal Reserve head offices, branches, or regional check processing centers. Appendix A includes a list of routing numbers arranged by Federal Reserve Bank office. The definition of check processing region is key to determining whether a check is considered local or nonlocal. </p>
<heading style="-uslm-sgm:HD3">N. 229.2(n) Consumer Account </heading>
<p style="-uslm-sgm:P">1. Consumer account is defined as an account used primarily for personal, family, or household purposes. An account that does not meet the definition of consumer account is a nonconsumer account. A clearing account maintained at a bank directly by a brokerage firm is not a consumer account, even if the account is used to pay checks drawn by consumers using the funds in that account. The bank's relationship is with the brokerage firm, and the account is used by the brokerage firm to facilitate the clearing of its customers' checks. Because for purposes of Regulation CC the term account includes only deposit accounts, a consumer's revolving credit relationship or other line of credit with a bank is not a consumer account, even if the consumer draws on such credit lines by using a check. Both consumer and nonconsumer accounts are subject to the requirements of this regulation, including the requirement that funds be made available according to specific schedules and that the bank make specified disclosures of its availability policies. Section 229.18(b) (notices at branch locations) and <ref href="/us/cfr/t12/s229.18/e">§ 229.18(e)</ref> (notice of changes in policy) apply only to consumer accounts. Section 229.13(g)(2) (one-time exception notice) and <ref href="/us/cfr/t12/s229.19/d">§ 229.19(d)</ref> (use of calculated availability) apply only to nonconsumer accounts. </p>
<heading style="-uslm-sgm:HD3">O. 229.2(o) Depositary Bank </heading>
<p style="-uslm-sgm:P">1. The regulation uses the term depositary bank rather than the term receiving depository institution. Receiving depository institution is a term unique to the EFA Act, while depositary bank is the term used in Article 4 of the U.C.C. and Regulation J. </p>
<p style="-uslm-sgm:P">2. A depositary bank includes the bank in which the check is first deposited. If a foreign office of a U.S. or foreign bank sends checks to its U.S. correspondent bank for forward collection, the U.S. correspondent is the depositary bank because foreign offices of banks are not included in the definition of bank. </p>
<p style="-uslm-sgm:P">3. If a customer deposits a check in its account at a bank, the customer's bank is the depositary bank with respect to the check. For example, if a person deposits a check into an account at a nonproprietary ATM, the bank holding the account into which the check is deposited is the depositary bank even though another bank may service the nonproprietary ATM and send the check for collection. (Under <ref href="/us/cfr/t12/s229.35">§ 229.35</ref> the depositary bank may agree with the bank servicing the nonproprietary ATM to have the servicing bank place its own indorsement on the check as the depositary bank. For the purposes of Subpart C, the bank applying its indorsement as the depositary bank indorsement on the check is the depositary bank.) </p>
<p style="-uslm-sgm:P">4. For purposes of Subpart B, a bank may act as both the depositary bank and the paying bank with respect to a check, if the check is payable by the bank in which it was deposited, or if the check is payable by a nonbank payor and payable through or at the bank in which it was deposited. A bank also is considered a depositary bank with respect to checks it receives as payee. For example, a bank is a depositary bank with respect to checks it receives for loan repayment, even though these checks are not deposited in an account at the bank. Because these checks would not be “deposited to accounts,” they would not be subject to the availability or disclosure requirements of Subpart B. </p>
<heading style="-uslm-sgm:HD3">P. 229.2(p) Electronic Payment </heading>
<p style="-uslm-sgm:P">1. Electronic payment is defined to mean a wire transfer as defined in <ref href="/us/cfr/t12/s229.2/11">§ 229.2(11)</ref> or an ACH credit transfer. The EFA Act requires that funds deposited by wire transfer be made available for withdrawal on the business day following deposit but expressly leaves the definition of the term wire transfer to the Board. Because ACH credit transfers frequently involve important consumer payments, such as wages, the regulation requires that funds deposited by ACH credit transfers be available for withdrawal on the business day following deposit. </p>
<p style="-uslm-sgm:P">2. ACH debit transfers, even though they may be transmitted electronically, are not defined as electronic payments because the receiver of an ACH debit transfer has the right to return the transfer, which would reverse the credit given to the originator. Thus, ACH debit transfers are more like checks than wire transfers. Further, bank customers that receive funds by originating ACH debit transfers are primarily large corporations, which generally would be able to <?page num="891"?>negotiate with their banks for prompt availability. </p>
<p style="-uslm-sgm:P">3. A point-of-sale transaction would not be considered an electronic payment unless the transaction was effected by means of an ACH credit transfer or wire transfer. </p>
<heading style="-uslm-sgm:HD3">Q. 229.2(q) Forward Collection </heading>
<p style="-uslm-sgm:P">1. Forward collection is defined to mean the process by which a bank sends a check to the paying bank for collection, including sending the check to an intermediary collecting bank for settlement, as distinguished from the process by which the check is returned unpaid. Noncash collections are not included in the term forward collection. </p>
<heading style="-uslm-sgm:HD3">R. 229.2(r) Local Check </heading>
<p style="-uslm-sgm:P">1. Local check is defined as a check payable by or at a local paying bank, or, in the case of nonbank payors, payable through a local paying bank. A check payable by a local bank but payable through a nonlocal bank is a local check. Conversely, a check payable through a local bank but payable by a nonlocal bank is a nonlocal check. Where two banks are named on a check and neither is designated as a payable-through bank, the check is considered payable by either bank and may be considered local or nonlocal depending on the bank to which it is sent for payment. Generally, the depositary bank may rely on the routing number to determine whether a check is local or nonlocal. Appendix A includes a list of routing numbers arranged by Federal Reserve Bank Office to assist persons in determining whether or not such a check is local. If, however, a check is payable by one bank but payable through another bank, the routing number appearing on the check will be that of the payable-through bank, not the paying bank. Many credit union share drafts and certain other checks payable by banks are payable through other banks. In such cases, the routing number cannot be relied on to determine whether the check is local or nonlocal. For payable-through checks that meet the labeling requirements of <ref href="/us/cfr/t12/s229.36/e">§ 229.36(e)</ref>, the depositary bank may rely on the four-digit routing symbol of the paying bank that is printed on the face of the check as required by that section, e.g., in the title plate, but not on the first four digits of the payable-through bank's routing number printed in magnetic ink in the MICR line or in fractional form, to determine whether the check is local or nonlocal. </p>
<heading style="-uslm-sgm:HD3">S. 229.2(s) Local Paying Bank </heading>
<p style="-uslm-sgm:P">1. “Local paying bank” is defined as a paying bank located in the same check-processing region as the branch, contractual branch, or proprietary ATM of the depositary bank. For example, a check deposited at a contractual branch would be deemed local or nonlocal based on the location of the contractual branch with respect to the location of the paying bank. </p>
<p style="-uslm-sgm:P">Examples.</p>
<p style="-uslm-sgm:P">a. If a check that is payable by a bank that is located in the same check processing region as the depositary bank is payable through a bank located in another check processing region, the check is considered local or nonlocal depending on the location of the bank by which it is payable even if the check is sent to the nonlocal bank for collection. </p>
<p style="-uslm-sgm:P">b. The location of the depositary bank is determined by the physical location of the branch or proprietary ATM at which a check is deposited, regardless of whether the deposit is made in person, by mail, or otherwise. For example, if a branch of the depositary bank located in one check-processing region sends a check that was deposited at that branch to the depositary bank's central facility in another check-processing region, and the central facility is in the same check-processing region as the paying bank, the check is still considered nonlocal. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> the commentary to the definition of “paying bank.”)</p>
<p style="-uslm-sgm:P">c. If a person deposits a check to an account by mailing or otherwise sending the check to a facility or office that is not a bank, the check is considered local or nonlocal depending on the location of the bank whose indorsement appears on the check as the depositary bank. </p>
<heading style="-uslm-sgm:HD3">T. 229.2(t) Merger Transaction </heading>
<p style="-uslm-sgm:P">1. Merger transaction is a term used in Subparts B and C in connection with transition rules for merged banks. It encompasses mergers, consolidations, and purchase/assumption transactions of the type that usually must be approved under the Bank Merger Act (<ref href="/us/usc/t12/s1828/c">12 U.S.C. 1828(c)</ref>) or similar statutes; it does not encompass acquisitions of a bank under the Bank Holding Company Act (<ref href="/us/usc/t12/s1842">12 U.S.C. 1842</ref>) where an acquired bank maintains its separate corporate existence. </p>
<p style="-uslm-sgm:P">2. Regulation CC adopts a one-year transition period for banks that are party to a merger transaction during which the merged banks will continue to be treated as separate entities. (See <ref href="/us/cfr/t12/s229.19/g">§§ 229.19(g)</ref> and 229.40.) </p>
<heading style="-uslm-sgm:HD3">U. 229.2(u) Noncash Item </heading>
<p style="-uslm-sgm:P">1. The EFA Act defines the term check to exclude noncash items, and defines noncash items to include checks to which another document is attached, checks accompanied by special instructions, or any similar item classified as a noncash item in the Board's regulation. To qualify as a noncash item, an item must be handled as such and may not be handled as a cash item by the depositary bank. </p>
<p style="-uslm-sgm:P">2. The regulation's definition of noncash item also includes checks that consist of <?page num="892"?>more than a single thickness of paper (except checks that qualify for handling by automated check processing equipment, e.g. those placed in carrier envelopes) and checks that have not been preprinted or post-encoded in magnetic ink with the paying bank's routing number, as well as checks with documents attached or accompanied by special instructions. (In the context of this definition, paying bank refers to the paying bank as defined for purposes of Subpart C.) </p>
<p style="-uslm-sgm:P">3. A check that has been preprinted or post-encoded with a routing number that has been retired (e.g., because of a merger) for at least three years is a noncash item unless the current number is added for processing purposes by placing the check in an encoded carrier envelope or adding a strip to the check. </p>
<p style="-uslm-sgm:P">4. Checks that are accompanied by special instructions are also noncash items. For example, a person concerned about whether a check will be paid may request the depositary bank to send a check for collection as a noncash item with an instruction to the paying bank to notify the depositary bank promptly when the check is paid or dishonored. </p>
<p style="-uslm-sgm:P">5. For purposes of forward collection, a copy of a check is neither a check nor a noncash item, but may be treated as either. For purposes of return, a copy is generally a notice in lieu of return. (See <ref href="/us/cfr/t12/s229.30/f">§§ 229.30(f)</ref> and 229.31(f).) </p>
<heading style="-uslm-sgm:HD3" role="reserved">V. 229.2(v) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">W. 229.2(w) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">X. 229.2(x) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">Y. 229.2(y) [Reserved] </heading>
<heading style="-uslm-sgm:HD3">Z. 229.2(z) Paying Bank </heading>
<p style="-uslm-sgm:P">1. The regulation uses this term in lieu of the EFA Act's “originating depository institution.” For purposes of all subparts of Regulation CC, the term paying bank includes the bank by which a check is payable, the payable-at bank to which a check is sent, or, if the check is payable by a nonbank payor, the bank through which the check is payable and to which it is sent for payment or collection. For purposes of subparts C and D, the term paying bank also includes the payable-through bank and the bank whose routing number appears on the check, regardless of whether the check is payable by a different bank, provided that the check is sent for payment or collection to the payable through bank or the bank whose routing number appears on the check.
</p>
<p style="-uslm-sgm:P">2. Under <ref href="/us/cfr/t12/s229.31">§ 229.31</ref>, a bank designated as a payable-through bank or payable-at bank and to which the check is sent for payment or collection is responsible for the expedited return of checks and notice of nonpayment requirements of Subpart C. The payable-through or payable-at bank may contract with the payor with respect to its liability in discharging these responsibilities. The Board believes that the EFA Act makes a clear connection between availability and the time it takes for checks to be cleared and returned. Allowing the payable-through bank additional time to forward checks to the payor and await return or pay instructions from the payor may delay the return of these checks, increasing the risks to depositary banks. Subpart C of this part requires payable-through and payable-at banks to return a check expeditiously based on the time the payable-through or payable-at bank received the check for forward collection.
</p>
<p style="-uslm-sgm:P">3. If a check is sent for forward collection based on the routing number, the bank associated with the routing number is a paying bank for the purposes of Subparts C and D requirements, including notice of nonpayment, even if the check is not drawn by a customer of that bank or the check is fraudulent. </p>
<p style="-uslm-sgm:P">4. The phrase “and to which [the check] is sent for payment or collection” includes sending not only the physical check, but information regarding the check under a truncation arrangement. </p>
<p style="-uslm-sgm:P">5. Federal Reserve Banks and Federal Home Loan Banks are also paying banks under all subparts of the regulation with respect to checks payable by them, even though such banks are not defined as banks for purposes of Subpart B. </p>
<p style="-uslm-sgm:P">6. In accordance with the Check 21 Act, for purposes of subpart D and, in connection therewith, subpart A, paying bank includes the Treasury of the United States or the United States Postal Service with respect to a check payable by that entity and sent to that entity for payment or collection, even though the Treasury and Postal Service are not defined as banks for purposes of subparts B and C. Because the Federal Reserve Banks act as fiscal agents for the Treasury and the U.S. Postal Service and in that capacity are designated as presentment locations for Treasury checks and U.S. Postal Service money orders, a Treasury check or U.S. Postal Service money order presented to a Federal Reserve Bank is considered to be presented to the Treasury or U.S. Postal Service, respectively.</p>
<heading style="-uslm-sgm:HD3">AA. 229.2(aa) Proprietary ATM </heading>
<p style="-uslm-sgm:P">1. All deposits at nonproprietary ATMs are treated as deposits of nonlocal checks, and deposits at proprietary ATMs generally are treated as deposits at banking offices. The Conference Report on the EFA Act indicates that the special availability rules for deposits received through nonproprietary ATMs are provided because “nonproprietary ATMs today do not distinguish among check deposits or between check and cash deposits” (H.R. Rep. No. 261, 100th Cong., 1st Sess. at <?page num="893"?>179 (1987)). Thus, a deposit of any combination of cash and checks at a nonproprietary ATM may be treated as if it were a deposit of nonlocal checks, because the depositary bank does not know the makeup of the deposit and consequently is unable to place different holds on cash, local check, and nonlocal check deposits made at the ATM. </p>
<p style="-uslm-sgm:P">2. A colloquy between Senators Proxmire and Dodd during the floor debate on the Competitive Equality Banking Act (133 Cong. Rec. S11289 (Aug. 4, 1987)) indicates that whether a bank operates the ATM is the primary criterion in determining whether the ATM is proprietary to that bank. Because a bank should be capable of ascertaining the composition of deposits made to an ATM operated by that bank, an exception to the availability schedules is not warranted for these deposits. If more than one bank meets the “owns or operates” criterion, the ATM is considered proprietary to the bank that operates it. For the purpose of this definition, the bank that operates an ATM is the bank that puts checks deposited into the ATM into the forward collection stream. An ATM owned by one or more banks, but operated by a nonbank servicer, is considered proprietary to the bank or banks that own it. </p>
<p style="-uslm-sgm:P">3. The EFA Act also includes location as a factor in determining whether an ATM that is either owned or operated by a bank is proprietary to that bank. The definition of proprietary ATM includes an ATM located on the premises of the bank, either inside the branch or on its outside wall, regardless of whether the ATM is owned or operated by that bank. Because the EFA Act also defines a proprietary ATM as one that is “in close proximity” to the bank, the regulation defines an ATM located within 50 feet of a bank to be proprietary to that bank unless it is identified as being owned or operated by another entity. The Board believes that the statutory proximity test was designed to apply to situations where it would appear to the depositor that the ATM is run by his or her bank, because of the proximity of the ATM to the bank. The Board believes that an ATM located within 50 feet of a banking office would be presumed proprietary to that bank unless it is clearly identified as being owned or operated by another entity. </p>
<heading style="-uslm-sgm:HD3">BB. 229.2(bb) Qualified Returned Check </heading>
<p style="-uslm-sgm:P">1. Subpart C requires the paying bank and returning bank(s) to return checks in an expeditious manner. The banks may meet this responsibility by returning a check to the depositary bank by the same general means used for forward collection of a check from the depositary bank to the paying bank. One way to speed the return process is to prepare the returned check for automated processing. Qualified returned checks are identified by placing a “2” in the case of an original check (or a “5” in the case of a substitute check) in position 44 of the qualified return MICR line as a return identifier in accordance with American National Standard Specifications for Placement and Location of MICR Printing, X9.13 (hereinafter “ANS X9.13”) for original checks or American National Standard Specifications for an Image Replacement Document—IRD, X9.100–140 (hereinafter “ANS X9.100–140”) for substitute checks.</p>
<p style="-uslm-sgm:P">2. Generally, under the standard of care imposed by <ref href="/us/cfr/t12/s229.38">§ 229.38</ref>, a paying or returning bank would be liable for any damages incurred due to misencoding of the routing number, the amount of the check, or return identifier on a qualified returned check unless the error was due to problems with the depositary bank's indorsement. (See also discussion of <ref href="/us/cfr/t12/s229.38/c">§ 229.38(c)</ref>.) A qualified returned check that contains an encoding error would still be a qualified returned check for purposes of the regulation. </p>
<p style="-uslm-sgm:P">3. A qualified returned check need not contain the elements of a check drawn on the depositary bank, such as the name of the depositary bank. Because indorsements and other information on carrier envelopes or strips will not appear on a returned check itself, banks will wish to retain carrier envelopes and/or microfilm or other records of carrier envelopes or strips with their check records. </p>
<heading style="-uslm-sgm:HD3">CC. 229.2(cc) Returning Bank </heading>
<p style="-uslm-sgm:P">1. Returning bank is defined to mean any bank (excluding the paying bank and the depositary bank) handling a returned check. A returning bank may or may not be a bank that handled the returned check in the forward collection process. A returning bank includes a bank that agrees to handle a returned check for expeditious return to the depositary bank under <ref href="/us/cfr/t12/s229.31/a">§ 229.31(a)</ref>. A returning bank is also a collecting bank for the purpose of a collecting bank's duty to exercise ordinary care under U.C.C. 4–202(b) and is analogous to a collecting bank for purposes of final settlement. (See Commentary to <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>.)
</p>
<heading style="-uslm-sgm:HD3">DD. 229.2(dd) Routing Number</heading>
<p style="-uslm-sgm:P">1. Each bank is assigned a routing number by an agent of the American Bankers Association. The routing number takes two forms—a fractional form and a nine-digit form. A paying bank is identified by both the fractional form routing number (which normally appears in the upper right hand corner of the check) and the nine-digit form. The nine-digit form of the routing number of the paying bank generally is printed in magnetic ink near the bottom of the check (the MICR line; see ANS X9.13). In the case of an electronic check, the routing number of the paying bank is contained in the electronic <?page num="894"?>image of the check (in nine-digit form and fractional form) and in the electronic information related to the check (in nine-digit form). When a check is payable by one bank but payable through another bank, the routing number appearing on the check is that of the payable-through bank, not the payor bank. Industry standards require depositary banks, subsequent collecting banks, and returning banks to place their routing numbers in nine-digit form in their indorsements. (See <ref href="/us/cfr/t12/s229.35">§ 229.35</ref> and commentary thereto).
</p>
<heading style="-uslm-sgm:HD3" role="reserved">EE. 229.2(ee) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">FF. 229.2(ff) [Reserved] </heading>
<heading style="-uslm-sgm:HD3">GG. 229.2(gg) Teller's Check </heading>
<p style="-uslm-sgm:P">1. Teller's check is defined in the EFA Act to mean a check issued by a depository institution and drawn on another depository institution. The definition in the regulation includes not only checks drawn by a bank on another bank, but also checks payable through or at a bank. This would include checks drawn on a nonbank, as long as the check is payable through or at a bank. The definition does not include checks that are drawn by a nonbank on a nonbank even if payable through or at a bank. The definition includes checks provided to a customer of the bank in connection with customer deposit account activity, such as account disbursements and interest payments. The definition also includes checks acquired from a bank by a noncustomer for remittance purposes, such as certain loan disbursement checks. The definition excludes checks used by the bank to pay employees or vendors and checks issued by the bank in connection with a payment service, such as a payroll or a bill-paying service. Teller's checks generally are sold by banks to substitute the bank's credit for the customer's credit and thereby enhance the collectibility of the checks. A check issued in connection with a payment service generally is provided as a convenience to the customer rather than as a guarantee of the check's collectibility. In addition, such checks are often more difficult to distinguish from other types of checks than are teller's checks as defined by this regulation. </p>
<heading style="-uslm-sgm:HD3">HH. 229.2(hh) Traveler's Check </heading>
<p style="-uslm-sgm:P">1. The EFA Act and regulation require that traveler's checks be treated as cashier's, teller's, or certified checks when a new depositor opens an account. (See <ref href="/us/cfr/t12/s229.13/a">§ 229.13(a)</ref>; <ref href="/us/usc/t12/s4003/a/1/C">12 U.S.C. 4003(a)(1)(C)</ref>.) The EFA Act does not define traveler's check. </p>
<p style="-uslm-sgm:P">2. One element of the definition states that a traveler's check is “drawn on or payable through or at a bank.” Sometimes traveler's checks that are not issued by banks do not have any words on them identifying a bank as drawee or paying agent, but instead bear unique routing numbers with an 8000 prefix that identifies a bank as paying agent. </p>
<p style="-uslm-sgm:P">3. Because a traveler's check is payable by, at, or through a bank, it is also a check for purposes of this regulation. When not subject to the next-day availability requirement for new accounts, a traveler's check should be treated as a local or nonlocal check depending on the location of the paying bank. The depositary bank may rely on the designation of the paying bank by the routing number to determine whether local or nonlocal treatment is required. </p>
<heading style="-uslm-sgm:HD3">II. 229.2(ii) Uniform Commercial Code </heading>
<p style="-uslm-sgm:P">1. Uniform Commercial Code is defined as the version of the Code adopted by the individual states. For purposes of uniform citation, all citations to the U.C.C. in this part refer to the Official Text as approved by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. </p>
<heading style="-uslm-sgm:HD3" role="reserved">JJ. 229.2(jj) [Reserved] </heading>
<heading style="-uslm-sgm:HD3">KK. 229.2(kk) Unit of General Local Government </heading>
<p style="-uslm-sgm:P">1. Unit of general local government is defined to include a city, county, parish, town, township, village, or other general purpose political subdivision of a state. The term does not include special purpose units, such as school districts, water districts, or Indian nations. </p>
<heading style="-uslm-sgm:HD3">LL. 229.2(ll) Wire Transfer </heading>
<p style="-uslm-sgm:P">1. The EFA Act delegates to the Board the authority to define the term wire transfer. The regulation defines wire transfer as an unconditional order to a bank to pay a fixed or determinable amount of money to a beneficiary, upon receipt or on a day stated in the order, that is transmitted by electronic or other means over certain networks or on the books of banks and that is used primarily to transfer funds between commercial accounts. “Unconditional” means that no condition, such as presentation of documents, must be met before the bank receiving the order is to make payment. A wire transfer may be transmitted by electronic or other means. “Electronic means” include computer-to-computer links, on-line terminals, telegrams (including TWX, TELEX, or similar methods of communication), telephone calls, or other similar methods. Fedwire (the Federal Reserve's wire transfer network), CHIPS (Clearing House Interbank Payments System, operated by the New York Clearing House), and book transfers among banks or within one bank are covered by this definition. Credits for credit and <?page num="895"?>debit card transactions are not wire transfers. The term wire transfer excludes electronic fund transfers as that term is defined by the Electronic Fund Transfer Act. </p>
<heading style="-uslm-sgm:HD3" role="reserved">MM. 229.2(mm) [Reserved] </heading>
<heading style="-uslm-sgm:HD3">NN. 229.2(nn) Good Faith </heading>
<p style="-uslm-sgm:P">1. This definition of good faith derives from U.C.C. 3–103(a)(4). </p>
<heading style="-uslm-sgm:HD3">OO. 229.2(oo) Interest Compensation</heading>
<p style="-uslm-sgm:P">1. This calculation of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">interest compensation</inline> derives from U.C.C. 4A–506(b). (See <ref href="/us/cfr/t12/s229.34/e">§§ 229.34(e)</ref> and 229.36(f).) </p>
<heading style="-uslm-sgm:HD3">PP. 229.2(pp) Contractual Branch </heading>
<p style="-uslm-sgm:P">1. When one bank arranges for another bank to accept deposits on its behalf, the second bank is a contractual branch of the first bank. For further discussion of contractual branch deposits and related disclosures, see <ref href="/us/cfr/t12/s229.2/s">§§ 229.2(s)</ref> and 229.19(a) of the regulation and the commentary to <ref href="/us/cfr/t12/s229.2/s">§§ 229.2(s)</ref>, 229.10(c), 229.14(a), 229.16(a), 229.18(b), and 229.19(a). </p>
<heading style="-uslm-sgm:HD3" role="reserved">QQ. 229.2(qq) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">RR. 229.2(rr) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">SS. 229.2(ss) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">TT. 229.2(tt) [Reserved] </heading>
<heading style="-uslm-sgm:HD3" role="reserved">UU. 229.2(uu) [Reserved]
</heading>
<heading style="-uslm-sgm:HD3">VV. 229.2(vv) MICR Line</heading>
<p style="-uslm-sgm:P">1. Information in the MICR line of a check must be printed in accordance with ANS X9.13 for original checks and in accordance with ANS X9.100–140 for substitute checks, and must be contained in electronic checks in accordance with ANS X9.100–187. These standards could vary the requirements for printing the MICR line, such as by indicating circumstances under which the use of magnetic ink is not required. Banks that exchange checks electronically may agree to other standards for including MICR line information in the checks that they exchange electronically.
</p>
<heading style="-uslm-sgm:HD3">WW. 229.2(ww) Original Check</heading>
<p style="-uslm-sgm:P">1. The definition of original check distinguishes the first paper check signed or otherwise authorized by the drawer to effect a particular payment transaction from a substitute check or other paper or electronic representation that is derived from an original check or substitute check. There is only one original check for any particular payment transaction. However, multiple substitute checks could be created to represent that original check at various points in the check collection and return process. </p>
<heading style="-uslm-sgm:HD3">XX. 229.2(xx) Paper or Electronic Representation of a Substitute Check</heading>
<p style="-uslm-sgm:P">1. Receipt of a paper or electronic representation of a substitute check does not trigger indemnity or expedited recredit rights, although the recipient nonetheless could have a warranty claim or a claim under other check law with respect to that document or the underlying payment transaction. A paper or electronic representation of a substitute check would include a representation of a substitute check that was drawn on an account, as well as a representation of a substitute traveler's check, credit card check, or other item that meets the substitute check definition. The following examples illustrate the scope of the definition. </p>
<heading style="-uslm-sgm:HD2">Examples.</heading>
<p style="-uslm-sgm:P">a. A bank receives electronic presentment of a substitute check that has been converted to electronic form and charges the customer's account for that electronic item. The periodic account statement that the bank provides to the customer includes information about the electronically-presented substitute check in a line-item list describing all the checks the bank charged to the customer's account during the previous month. The electronic file that the bank received for presentment and charged to the customer's account would be an electronic representation of a substitute check, and the line-item appearing on the customer's account statement would be a paper representation of a substitute check.</p>
<p style="-uslm-sgm:P">b. A paying bank receives and settles for a substitute check and then realizes that its settlement was for the wrong amount. The paying bank sends an adjustment request to the presenting bank to correct the error. The adjustment request is not a paper or electronic representation of a substitute check under the definition because it is not being handled for collection or return as a check. Rather, it is a separate request that is related to a check. As a result, no substitute check warranty, indemnity, or expedited recredit rights attach to the adjustment. </p>
<heading style="-uslm-sgm:HD3" role="reserved">YY. 229.2(yy) [Reserved] </heading>
<heading style="-uslm-sgm:HD3">ZZ. 229.2(zz) Reconverting Bank</heading>
<p style="-uslm-sgm:P">1. A substitute check is “created” when and where a paper reproduction of an original check that meets the requirements of <ref href="/us/cfr/t12/s229.2/aaa">§ 229.2(aaa)</ref> is physically printed. A bank is a reconverting bank if it creates a substitute check directly or if another person by agreement creates a substitute check on the bank's behalf. A bank also is a reconverting bank if it is the first bank that receives a substitute check created by a nonbank and transfers, presents, or returns that substitute check or, in lieu thereof, the first <?page num="896"?>paper or electronic representation of such substitute check. </p>
<heading style="-uslm-sgm:HD2">Examples.</heading>
<p style="-uslm-sgm:P">a. Bank A, by agreement, sends an electronic check file for collection to Bank B. Bank B chooses to use that file to print a substitute check that meets the requirements of <ref href="/us/cfr/t12/s229.2/aaa">§ 229.2(aaa)</ref>. Bank B is the reconverting bank as of the time it prints the substitute check.</p>
<p style="-uslm-sgm:P">b. Company A, which is not a bank, by agreement receives check information electronically from Bank A. Bank A becomes the reconverting bank when Company A prints a substitute check on behalf of Bank A in accordance with that agreement.</p>
<p style="-uslm-sgm:P">c. A depositary bank's customer, which is a nonbank business, receives a check for payment, truncates that original check, and creates a substitute check to deposit with its bank. The depositary bank receives that substitute check from its customer and is the first bank to handle the substitute check. The depositary bank becomes the reconverting bank as of the time that it transfers or presents the substitute check (or in lieu thereof the first paper or electronic representation of the substitute check) for forward collection.</p>
<p style="-uslm-sgm:P">d. A bank is the payable-through bank for checks that are drawn on a nonbank payor, which is the bank's customer. When the customer decides not to pay a check that is payable through the bank, the customer creates a substitute check for purposes of return. The payable-through bank becomes the reconverting bank when it returns the substitute check (or in lieu thereof the first paper or electronic representation of the substitute check) to a returning bank or the depositary bank.</p>
<p style="-uslm-sgm:P">e. A paying bank returns a substitute check to the depositary bank, which in turn gives that substitute check back to its nonbank customer. That customer then redeposits the substitute check for collection at a different bank. Because the substitute check was already transferred by a bank, the second depositary bank does not become a reconverting bank when it transfers or presents that substitute check for collection.</p>
<p style="-uslm-sgm:P">2. In some cases there will be one or more banks between the truncating bank and the reconverting bank. </p>
<heading style="-uslm-sgm:HD2">Example.</heading>
<p style="-uslm-sgm:P">A depositary bank truncates the original check and sends an electronic representation of the original check for collection to an intermediary bank. The intermediary bank sends the electronic representation of the original check to the presenting bank, which creates a substitute check to present to the paying bank. The presenting bank is the reconverting bank.</p>
<p style="-uslm-sgm:P">3. A check could move from electronic form to substitute check form several times during the collection and return process. It therefore is possible that there could be multiple substitute checks, and thus multiple reconverting banks, with respect to the same underlying payment. </p>
<heading style="-uslm-sgm:HD3">AAA. 229.2(aaa) Substitute Check</heading>
<p style="-uslm-sgm:P">1. “A paper reproduction of an original check” could include a reproduction created directly from the original check or a reproduction of the original check that is created from some other source that contains an image of the original check, such as an electronic representation of an original check or substitute check, or a previous substitute check.</p>
<p style="-uslm-sgm:P">2. Because a substitute check must be a piece of paper, an electronic file or electronic check image that has not yet been printed in accordance with the substitute check definition is not a substitute check.</p>
<p style="-uslm-sgm:P">3. Because a substitute check must be a representation of a check, a paper reproduction of something that is not a check cannot be a substitute check. For example, a savings bond or a check drawn on a non-U.S. branch of a foreign bank cannot be reconverted to a substitute check.</p>
<p style="-uslm-sgm:P">4. As described in <ref href="/us/cfr/t12/s229.51/b">§ 229.51(b)</ref> and the commentary thereto, a reconverting bank is required to ensure that a substitute check contains all indorsements applied by previous parties that handled the check in any form. Therefore, the image of the original check that appears on the back of a substitute check would include indorsements that were physically applied to the original check before an image of the original check was captured. An indorsement that was applied physically to the original check after an image of the original check was captured would be conveyed as an electronic indorsement (see paragraph 3 of the commentary to <ref href="/us/cfr/t12/s229.35/a">§ 229.35(a)</ref>). The back of the substitute check would contain a physical representation of any indorsements that were applied electronically to the check after an image of the check was captured but before creation of the substitute check. </p>
<heading style="-uslm-sgm:HD2">Example.</heading>
<p style="-uslm-sgm:P">Bank A, which is the depositary bank, captures an image of an original check, indorses it electronically and, by agreement, transmits to Bank B an electronic image of the check accompanied by the electronic indorsement. Bank B then creates a substitute check to send to Bank C. The back of the substitute check created by Bank B must contain a representation of the indorsement previously applied electronically by Bank A and Bank B's own indorsement. (For more information on indorsement requirements, <?page num="897"?>see <ref href="/us/cfr/t12/s229.35">§ 229.35</ref>, appendix D, and the commentary thereto.)</p>
<p style="-uslm-sgm:P">5. Some substitute checks will not be created directly from the original check, but rather will be created from a previous substitute check. The back of a subsequent substitute check will contain an image of the full length of the back of the previous substitute check. ANS X9.100–140 requires preservation of the full length of the back of the previous substitute check in order to preserve previous indorsements and reconverting bank identifications. By contrast, the front of a subsequent substitute check will not contain an image of the entire previous substitute check. Rather, the image field of the subsequent substitute check will contain the image of the front of the original check that appeared on the previous substitute check at the time the previous substitute check was converted to electronic form. The portions of the front of the subsequent substitute check other than the image field will contain information applied by the subsequent reconverting bank, such as its reconverting bank identification, the MICR line, the legal equivalence legend, and optional security information. </p>
<heading style="-uslm-sgm:HD2">Examples.</heading>
<p style="-uslm-sgm:P">a. The back of a subsequent substitute check would contain the following indorsements, all of which would be preserved through the image of the back of the previous substitute check: (1) The indorsements that were applied physically to the original check before an image of the original check was captured; (2) a physical representation of indorsements that were applied electronically to the original check after an image of the original check was captured but before creation of the first substitute check; and (3) indorsements that were applied physically to the previous substitute check. In addition, the reconverting bank for the subsequent substitute check must overlay onto the back of that substitute check a physical representation of any indorsements that were applied electronically after the previous substitute check was converted to electronic form but before creation of the subsequent substitute check.</p>
<p style="-uslm-sgm:P">b. Because information could have been physically added to the image of the front of the original check that appeared on the previous substitute check, the original check image that appears on the front of a subsequent substitute check could contain information in addition to that which appeared on the original check at the time it was truncated.</p>
<p style="-uslm-sgm:P">6. The MICR line applied to a substitute check must contain information in all fields of the MICR line that were encoded on the original check at any time before an image of the original check was captured. This includes all the MICR-line information that was preprinted on the original check, plus any additional information that was added to the MICR line before the image of the original check was captured (for example, the amount of the check). The information in each field of the substitute check's MICR line must be the same information as in the corresponding field of the MICR line of the original check, except as provided by ANS X9.100–140 (unless the Board by rule or order determines that a different standard applies). Industry standards may not, however, vary the requirement that a substitute check at the time of its creation must bear a full-field MICR line.</p>
<p style="-uslm-sgm:P">7. ANS X9.100–140, provides that a substitute check must have a “4” in position 44 and that a qualified returned substitute check must have a “4” in position 44 of the forward-collection MICR line as well as a “5” in position 44 of the qualified return MICR line. The “4” and “5” indicate that the document is a substitute check so that the size of the check image remains constant throughout the collection and return process, regardless of the number of substitute checks created that represent the same original check (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">see also</inline> <ref href="/us/cfr/t12/s229.30/a/2">§§ 229.30(a)(2)</ref> and 229.31(a)(2) and the commentary thereto regarding requirements for qualified returned substitute checks). An original check generally has a blank position 44 for forward collection. Because a reconverting bank must encode position 44 of a substitute check's forward collection MICR line with a “4,” the reconverting bank must vary any character that appeared in position 44 of the forward-collection MICR line of the original check. A bank that misencodes or fails to encode position 44 at the time it attempts to create a substitute check has failed to create a substitute check. A bank that receives a properly-encoded substitute check may further encode that item but does so subject to the encoding warranties in Regulation CC and the U.C.C.</p>
<p style="-uslm-sgm:P">8. A substitute check's MICR line could contain information in addition to the information required at the time the substitute check is created. For example, if the amount field of the original check was not encoded and the substitute check therefore did not, when created, have an encoded amount field, the MICR line of the substitute check later could be amount-encoded.</p>
<p style="-uslm-sgm:P">9. A bank may receive a substitute check that contains a MICR-line variation but nonetheless meets the MICR-line replication requirements of <ref href="/us/cfr/t12/s229.2/aaa/2">§ 229.2(aaa)(2)</ref> because that variation is permitted by ANS X9.100–140. If such a substitute check contains a MICR-line error, a bank that receives it may, but is not required to, repair that error. Such a repair must be made in accordance with ANS X9.100–140 for repairing a MICR line, which generally allows a bank to correct an error <?page num="898"?>by applying a strip that may or may not contain information in all fields encoded on the check's MICR line. A bank's repair of a MICR-line error on a substitute check is subject to the encoding warranties in Regulation CC and the U.C.C.</p>
<p style="-uslm-sgm:P">10. A substitute check must conform to all the generally applicable industry standards for substitute checks set forth in ANS X9.100–140, which incorporates other industry standards by reference. Thus, multiple substitute check images contained on the same page of an account statement are not substitute checks.
</p>
<heading style="-uslm-sgm:HD3">BBB. 229.2(bbb) Sufficient Copy and Copy</heading>
<p style="-uslm-sgm:P">1. A “copy” or a “sufficient copy” as defined in 229.2(bbb) must be a paper reproduction of a check, unless the parties sending and receiving the copy otherwise agree. Therefore, an electronic image of a check is not a “copy” or a “sufficient copy” absent an agreement to that effect. If a customer has agreed to receive such information electronically, however, a bank that is required to provide a copy or sufficient copy may satisfy that requirement by providing an electronic image. (See <ref href="/us/cfr/t12/s229.58">§ 229.58</ref>).</p>
<p style="-uslm-sgm:P">2. A sufficient copy, which is used to resolve claims related to the receipt of a substitute check, must be a copy of the original check.</p>
<p style="-uslm-sgm:P">3. A bank under <ref href="/us/cfr/t12/s229.53/b/3">§ 229.53(b)(3)</ref> may limit its liability for an indemnity claim and under <ref href="/us/cfr/t12/s229.54/e/2">§§ 229.54(e)(2)</ref> and 229.55(c)(2) may respond to an expedited recredit claim by providing the claimant with a copy of a check that accurately represents all of the information on the front and back of the original check as of the time the original check was truncated or that otherwise is sufficient to determine the validity of the claim against the bank.</p>
<heading style="-uslm-sgm:HD2">Examples</heading>
<p style="-uslm-sgm:P">a. A copy of an original check that accurately represents all the information on the front and back of the original check as of the time of truncation would constitute a sufficient copy if that copy resolved the claim. For example, if resolution of the claim required accurate payment and indorsement information, an accurate copy of the front and back of a legible original check (including but not limited to a substitute check) would be a sufficient copy.</p>
<p style="-uslm-sgm:P">b. A copy of the original check that does not accurately represent all the information on both the front and back of the original check also could be a sufficient copy if such copy contained all the information necessary to determine the validity of the relevant claim. For instance, if a consumer received a substitute check that contained a blurry image of a legible original check, the consumer might seek an expedited recredit because his or her account was charged for $1,000, but he or she believed that the check was written for only $100. If the amount that appeared on the front of the original check was legible, an accurate copy of only the front of the original check that showed the amount of the check would be sufficient to determine whether or not the consumer's claim regarding the amount of the check was valid.
</p>
<heading style="-uslm-sgm:HD3">CCC. 229.2(ccc) Transfer and Consideration</heading>
<p style="-uslm-sgm:P">1. Under <ref href="/us/cfr/t12/s229.52">§§ 229.52</ref> and 229.53, a bank is responsible for the warranties and indemnity when it transfers, presents, or returns a substitute check (or a paper or electronic representation thereof) for consideration. Drawers and other nonbank persons that receive checks from a bank are not transferees that receive consideration as those terms are defined in the U.C.C. However, the Check 21 Act clearly contemplates that such nonbank persons that receive substitute checks (or representations thereof) from a bank will receive the warranties and indemnity from all previous banks that handled the check. To ensure that these parties are covered by the substitute check warranties and indemnity in the manner contemplated by the Check 21 Act, <ref href="/us/cfr/t12/s229.2/ccc">§ 229.2(ccc)</ref> incorporates the U.C.C. definitions of the term transfer and consideration by reference and expands those definitions to cover a broader range of situations. Delivering a check to a nonbank that is acting on behalf of a bank (such as a third-party check processor or presentment point) is a transfer of the check to that bank. </p>
<heading style="-uslm-sgm:HD2">Examples.</heading>
<p style="-uslm-sgm:P">a. A paying bank pays a substitute check and then provides that paid substitute check (or a representation thereof) to a drawer with a periodic statement. Under the expanded definitions, the paying bank thereby transfers the substitute check (or representation thereof) to the drawer for consideration and makes the substitute check warranties described in <ref href="/us/cfr/t12/s229.52">§ 229.52</ref>. A drawer that suffers a loss due to receipt of a substitute check may have warranty, indemnity, and, if the drawer is a consumer, expedited recredit rights under the Check 21 Act and subpart D. A drawer that suffers a loss due to receipt of a paper or electronic representation of a substitute check would receive the substitute check warranties but would not have indemnity or expedited recredit rights.</p>
<p style="-uslm-sgm:P">b. The expanded definitions also operate such that a paying bank that pays an original check (or a representation thereof) and then creates a substitute check to provide to the drawer with a periodic statement transfers the substitute check for consideration and thereby provides the warranties and indemnity.</p>
<p style="-uslm-sgm:P">c. The expanded definitions ensure that a bank that receives a returned check in any <?page num="899"?>form and then provides a substitute check to the depositor gives the substitute check warranties and indemnity to the depositor.</p>
<p style="-uslm-sgm:P">d. The expanded definitions apply to substitute checks representing original checks that are not drawn on deposit accounts, such as checks used to access a credit card or a home equity line of credit.</p>
<heading style="-uslm-sgm:HD3">DDD. 229.2(ddd) Truncate</heading>
<p style="-uslm-sgm:P">1. Truncate means to remove the original check from the forward collection or return process and to send in lieu of the original check either a substitute check or, by agreement, information relating to the original check. Truncation does not include removal of a substitute check from the check collection or return process.</p>
<heading style="-uslm-sgm:HD3">EEE. 229.2(eee) Truncating Bank</heading>
<p style="-uslm-sgm:P">1. A bank is a truncating bank if it truncates an original check or if it is the first bank to transfer, present, or return another form of an original check that was truncated by a person that is not a bank. </p>
<heading style="-uslm-sgm:HD2">Example.</heading>
<p style="-uslm-sgm:P">a. A bank's customer that is a nonbank business receives a check for payment and deposits either a substitute check or an electronic representation of the original check with its depositary bank instead of the original check. That depositary bank is the truncating bank when it transfers, presents, or returns the substitute check or electronic representation in lieu of the original check. That bank also would be the reconverting bank if it were the first bank to transfer, present, or return a substitute check that it received from (or created from the information given by) its nonbank customer (see <ref href="/us/cfr/t12/s229.2/yy">§ 229.2(yy)</ref> and the commentary thereto).</p>
<p style="-uslm-sgm:P">2. A truncating bank does not make the subpart D warranties and indemnity unless it also is the reconverting bank. Therefore, a bank that truncates the original check and sends an electronic file to a collecting bank does not provide subpart D protections to the recipient of that electronic item. However, a recipient of an electronic item may protect itself against losses associated with that item by agreement with the truncating bank.</p>
<heading style="-uslm-sgm:HD3">FFF. 229.2(fff) Remotely Created Check</heading>
<p style="-uslm-sgm:P">1. A check authorized by a consumer over the telephone that is not created by the paying bank and bears a legend on the signature line, such as “Authorized by Drawer,” is an example of a remotely created check. A check that bears the signature applied, or purported to be applied, by the person on whose account the check is drawn is not a remotely created check. A typical forged check, such as a stolen personal check fraudulently signed by a person other than the drawer, is not covered by the definition of a remotely created check.</p>
<p style="-uslm-sgm:P">2. The term signature as used in this definition has the meaning set forth at U.C.C. 3–401. The term “applied by” refers to the physical act of placing the signature on the check.</p>
<p style="-uslm-sgm:P">3. The definition of a “remotely created check” differs from the definition of a “remotely created consumer item” under the U.C.C. A “remotely created check” may be drawn on an account held by a consumer, corporation, unincorporated company, partnership, government unit or instrumentality, trust, or any other entity or organization. A “remotely created consumer item” under the U.C.C., however, must be drawn on a consumer account.</p>
<p style="-uslm-sgm:P">4. Under Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), the term “check” includes a negotiable demand draft drawn on or payable through or at an office of a bank. In the case of a “payable through” or “payable at” check, the signature of the person on whose account the check is drawn would include the signature of the payor institution or the signatures of the customers who are authorized to draw checks on that account, depending on the arrangements between the “payable through” or “payable at” bank, the payor institution, and the customers.</p>
<p style="-uslm-sgm:P">5. The definition of a remotely created check includes a remotely created check that has been reconverted to a substitute check.
</p>
<heading style="-uslm-sgm:HD3">GGG. 229.2(ggg) Electronic Check and Electronic Returned Check</heading>
<p style="-uslm-sgm:P">1. Banks often enter into agreements under which a check may be transferred, returned, or presented electronically instead of transferring, returning, or presenting the paper check. For example, an agreement may provide that either an electronic image of the check or electronic information related to the check may be sent instead of the paper check. In order to satisfy Regulation CC's definition of “electronic check” (or “electronic returned check”), however, both the electronic image of the check and electronic information derived from the check must be sent. A sending bank and receiving bank may also agree, for example, that instead of sending the electronic check or electronic returned check directly to the receiving bank, the electronic check or electronic returned check may be sent to an intermediary that stores the electronic check or electronic returned check on the receiving bank's behalf and makes the electronic check or electronic returned check available for the receiving bank to retrieve.</p>
<p style="-uslm-sgm:P">2. A sending bank must have an agreement with the receiving bank in order to send an electronic check instead of a paper check. The agreement to receive an electronic check or electronic returned check may be <?page num="900"?>either bilateral or through a Federal Reserve Bank operating circular, clearinghouse rule, or other interbank agreement. (See UCC 4–110).</p>
<p style="-uslm-sgm:P">3. ANS X9.100–187 is the most prevalent industry standard for electronic checks and electronic returned checks that will enable banks to create substitute checks. Multiple standards, however, exist that would enable a bank to create a substitute check from an electronic check. Therefore, the banks exchanging electronic checks may agree that a different standard applies to electronic checks exchanged between the two banks. Additionally, banks that exchange checks electronically may agree to transfer, present, or return only electronic images of checks or only electronic information related to checks. In these situations, the sending bank and receiving bank will have agreed to a different standard as ANS X9.100–187 requires both an electronic image and electronic information.</p>
<p style="-uslm-sgm:P">4. Electronic checks and electronic returned checks as defined in Regulation CC are subject to subpart C, except as otherwise provided in that subpart. (See <ref href="/us/cfr/t12/s229.30">§ 229.30</ref> and commentary thereto).
</p>
<heading style="-uslm-sgm:HD3">HHH. 229.2(hhh) Electronically-Created Item</heading>
<p style="-uslm-sgm:P">1. Electronically-created items are also sometimes referred to in the industry as “electronic payment orders” or “EPOs.”</p>
<p style="-uslm-sgm:P">2. Because an electronically-created item as defined in Regulation CC never existed in paper form, it does not meet the definition of “electronic check” in 229.2(ggg) and therefore an electronically-created item cannot be used to create a substitute check that is the legal equivalent of the original paper check.</p>
<p style="-uslm-sgm:P">3. An electronically-created item can resemble an electronic image of a paper check or an electronic image of a remotely created check. (See 229.2(fff) (definition of remotely created check)).</p>
<heading style="-uslm-sgm:HD2">Examples</heading>
<p style="-uslm-sgm:P">a. A corporate customer of a bank, rather than printing and mailing a paper check to a payee, electronically creates an image that looks like an image of the corporate customer's paper checks and emails the image to the payee.</p>
<p style="-uslm-sgm:P">b. A consumer uses a smart-phone application through which the consumer provides the payee name, amount, and the consumer's signature. The application electronically sends this information, appearing formatted as a check, to the payee.</p>
<p style="-uslm-sgm:P">c. A consumer calls his utility company to make an emergency bill payment, and provides his bank account information. The utility company uses this information to create an electronically-created item and deposits the electronically-created item with its bank to obtain payment from the consumer.
</p>
<heading style="-uslm-sgm:HD2" role="reserved">III. Section 229.3 Administrative Enforcement [Reserved] </heading>
<heading style="-uslm-sgm:HD2">IV. Section 229.10 Next-Day Availability </heading>
<heading style="-uslm-sgm:HD3">A. Business Days and Banking Days </heading>
<p style="-uslm-sgm:P">1. This section, as well as other provisions of this subpart governing the availability of funds, provides that funds must be made available for withdrawal not later than a specified number of business days following the banking day on which the funds are deposited. Thus, a deposit is considered made only on a banking day, i.e., a day that the bank is open to the public for carrying on substantially all of its banking functions. For example, if a deposit is made at an ATM on a Saturday, Sunday, or other day on which the bank is closed to the public, the deposit is considered received on that bank's next banking day. </p>
<p style="-uslm-sgm:P">2. Nevertheless, business days are used to determine the number of days following the banking day of deposit that funds must be available for withdrawal. For example, if a deposit of a local check were made on a Monday, the availability schedule requires that funds be available for withdrawal on the second business day after deposit. Therefore, funds must be made available on Wednesday regardless of whether the bank was closed on Tuesday for other than a standard legal holiday as specified in the definition of business day. </p>
<heading style="-uslm-sgm:HD3">B. 229.10(a) Cash Deposits </heading>
<p style="-uslm-sgm:P">1. This paragraph implements the EFA Act's requirement for next-day availability for cash deposits to accounts at a depositary bank “staffed by individuals employed by such institution.” <ref id="fnd3e57713" idref="fnd3e57719" style="-uslm-sgm:SU">2</ref> Under this paragraph, cash deposited in an account at a staffed teller station on a Monday must become available for withdrawal by the start of business on Tuesday. It must become available for withdrawal by the start of business on Wednesday if it is deposited by mail, at a proprietary ATM, or by other means other than at a staffed teller station.
</p>
<footnote id="fnd3e57719" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e57713" style="-uslm-sgm:SU">2</ref> Nothing in the EFA Act or this regulation affects terms of account arrangements, such as negotiable order of withdrawal accounts, which may require prior notice of withdrawal. (See <ref href="/us/cfr/t12/s204.2/e/2">12 CFR 204.2(e)(2)</ref>.)</p>
</content>
</footnote>
<heading style="-uslm-sgm:HD3">C. 229.10(b) Electronic Payments</heading>
<p style="-uslm-sgm:P">1. The EFA Act provides next-day availability for funds received for deposit by wire transfer. The regulation uses the term electronic payment, rather than wire transfer, to include both wire transfers and ACH credit <?page num="901"?>transfers under the next-day availability requirement. (See discussion of definitions of automated clearinghouse, electronic payment, and wire transfer in <ref href="/us/cfr/t12/s229.2">§ 229.2</ref>.) </p>
<p style="-uslm-sgm:P">2. The EFA Act requires that funds received by wire transfer be available for withdrawal not later than the business day following the day a wire transfer is received. This paragraph clarifies what constitutes receipt of an electronic payment. For the purposes of this paragraph, a bank receives an electronic payment when the bank receives both payment in finally collected funds and the payment instructions indicating the customer accounts to be credited and the amount to be credited to each account. For example, in the case of Fedwire, the bank receives finally collected funds at the time the payment is made. (See <ref href="/us/cfr/t12/s210.31">12 CFR 210.31</ref>.) Finally collected funds generally are received for an ACH credit transfer when they are posted to the receiving bank's account on the settlement day. In certain cases, the bank receiving ACH credit payments will not receive the specific payment instructions indicating which accounts to credit until after settlement day. In these cases, the payments are not considered received until the information on the account and amount to be credited is received. </p>
<p style="-uslm-sgm:P">3. This paragraph also establishes the extent to which an electronic payment is considered made. Thus, if a participant on a private network fails to settle and the receiving bank receives finally settled funds representing only a partial amount of the payment, it must make only the amount that it actually received available for withdrawal. </p>
<p style="-uslm-sgm:P">4. The availability requirements of this regulation do not preempt or invalidate other rules, regulations, or agreements which require funds to be made available on a more prompt basis. For example, the next-day availability requirement for ACH credits in this section does not preempt ACH association rules and Treasury regulations (<ref href="/us/cfr/t31/p210">31 CFR part 210</ref>), which provide that the proceeds of these credit payments be available to the recipient for withdrawal on the day the bank receives the funds. </p>
<heading style="-uslm-sgm:HD3">D. 229.10(c) Certain Check Deposits </heading>
<p style="-uslm-sgm:P">1. The EFA Act generally requires that funds be made available on the business day following the banking day of deposit for Treasury checks, state and local government checks, cashier's checks, certified checks, teller's checks, and “on us” checks, under specified conditions. (Treasury checks are checks drawn on the Treasury of the United States and have a routing number beginning with the digits “0000.”) This section also requires next-day availability for additional types of checks not addressed in the EFA Act. Checks drawn on a Federal Reserve Bank or a Federal Home Loan Bank and U.S. Postal Service money orders also must be made available on the first business day following the day of deposit under specified conditions. For the purposes of this section, all checks drawn on a Federal Reserve Bank or a Federal Home Loan Bank that contain in the MICR line a routing number that is listed in appendix A are subject to the next-day availability requirement if they are deposited in an account held by a payee of the check and in person to an employee of the depositary bank, regardless of the purposes for which the checks were issued. For all new accounts, even if the new account exception is not invoked, traveler's checks must be included in the $5,000 aggregation of checks deposited on any one banking day that are subject to the next-day availability requirement. (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">See</inline> <ref href="/us/cfr/t12/s229.13/a">§ 229.13(a)</ref>.) </p>
<p style="-uslm-sgm:P">2. Deposit in Account of Payee. One statutory condition to receipt of next-day availability of Treasury checks, state and local government checks, cashier's checks, certified checks, and teller's checks is that the check must be “endorsed only by the person to whom it was issued.” The EFA Act could be interpreted to include a check that has been indorsed in blank and deposited into an account of a third party that is not named as payee. The Board believes that such a check presents greater risks than a check deposited by the payee and that Congress did not intend to require next-day availability for such checks. The regulation, therefore, provides that funds must be available on the business day following deposit only if the check is deposited in an account held by a payee of the check. For the purposes of this section, payee does not include transferees other than named payees. The regulation also applies this condition to Postal Service money orders and checks drawn on Federal Reserve Banks and Federal Home Loan Banks. </p>
<p style="-uslm-sgm:P">3. Deposits Made to an Employee of the Depositary Bank. </p>
<p style="-uslm-sgm:P">a. In most cases, next-day availability of the proceeds of checks subject to this section is conditioned on the deposit of these checks in person to an employee of the depositary bank. If the deposit is not made to an employee of the depositary bank on the premises of such bank, the proceeds of the deposit must be made available for withdrawal by the start of business on the second business day after deposit, under paragraph (c)(2) of this section. For example, second-day availability rather than next-day availability would be allowed for deposits of checks subject to this section made at a proprietary ATM, night depository, through the mail or a lock box, or at a teller station staffed by a person who is not an employee of the depositary bank. Second-day availability also may be allowed for deposits picked up by an employee of the depositary bank at the customer's premises; such deposits would be considered made upon receipt at the branch or other location of the depositary bank. <?page num="902"?>Employees of a contractual branch would not be considered employees of the depositary bank for the purposes of this regulation, and deposits at contractual branches would be treated the same as deposits to a proprietary ATM for the purposes of this regulation. (See also, Commentary to <ref href="/us/cfr/t12/s229.19/a">§ 229.19(a)</ref>.) </p>
<p style="-uslm-sgm:P">b. In the case of Treasury checks, the EFA Act and regulation do not condition the receipt of next-day availability to deposits at staffed teller stations. Therefore, Treasury checks deposited at a proprietary ATM must be accorded next-day availability, if the check is deposited to an account of a payee of the check. </p>
<p style="-uslm-sgm:P">4. “On Us” Checks. The EFA Act and regulation require next-day availability for “on us” checks, i.e., checks deposited in a branch of the depositary bank and drawn on the same or another branch of the same bank, if both branches are located in the same state or check processing region. Thus, checks deposited in one branch of a bank and drawn on another branch of the same bank must receive next-day availability even if the branch on which the checks are drawn is located in another check processing region but in the same state as the branch in which the check is deposited. For the purposes of this requirement, deposits at facilities that are not located on the premises of a brick-and-mortar branch of the bank, such as off-premise ATMs and remote depositories, are not considered deposits made at branches of the depositary bank. </p>
<p style="-uslm-sgm:P">5. First $100. </p>
<p style="-uslm-sgm:P">a. The EFA Act and regulation also require that up to $100 of the aggregate deposit by check or checks not subject to next-day availability on any one banking day be made available on the next business day. For example, if $70 were deposited in an account by check(s) on a Monday, the entire $70 must be available for withdrawal at the start of business on Tuesday. If $200 were deposited by check(s) on a Monday, this section requires that $100 of the funds be available for withdrawal at the start of business on Tuesday. The portion of the customer's deposit to which the $100 must be applied is at the discretion of the depositary bank, as long as it is not applied to any checks subject to next-day availability. The $100 next-day availability rule does not apply to deposits at nonproprietary ATMs. </p>
<p style="-uslm-sgm:P">b. The $100 that must be made available under this rule is in addition to the amount that must be made available for withdrawal on the business day after deposit under other provisions of this section. For example, if a customer deposits a $1,000 Treasury check, and a $1,000 local check in its account on Monday, $1,100 must be made available for withdrawal on Tuesday—the proceeds of the $1,000 Treasury check, as well as the first $100 of the local check. </p>
<p style="-uslm-sgm:P">c. A depositary bank may aggregate all local and nonlocal check deposits made by the customer on a given banking day for the purposes of the $100 next-day availability rule. Thus, if a customer has two accounts at the depositary bank, and on a particular banking day makes deposits to each account, $100 of the total deposited to the two accounts must be made available on the business day after deposit. Banks may aggregate deposits to individual and joint accounts for the purposes of this provision. </p>
<p style="-uslm-sgm:P">d. If the customer deposits a $500 local check, and gets $100 cash back at the time of deposit, the bank need not make an additional $100 available for withdrawal on the following day. Similarly, if the customer depositing the local check has a negative book balance, or negative available balance in its account at the time of deposit, the $100 that must be available on the next business day may be made available by applying the $100 to the negative balance, rather than making the $100 available for withdrawal by cash or check on the following day. </p>
<p style="-uslm-sgm:P">6. Special Deposit Slips. </p>
<p style="-uslm-sgm:P">a. Under the EFA Act, a depositary bank may require the use of a special deposit slip as a condition to providing next-day availability for certain types of checks. This condition was included in the EFA Act because many banks determine the availability of their customers' check deposits in an automated manner by reading the MICR-encoded routing number on the deposited checks. Using these procedures, a bank can determine whether a check is a local or nonlocal check, a check drawn on the Treasury, a Federal Reserve Bank, a Federal Home Loan Bank, or a branch of the depositary bank, or a U.S. Postal Service money order. Appendix A includes the routing numbers of certain categories of checks that are subject to next-day availability. The bank cannot require a special deposit slip for these checks. </p>
<p style="-uslm-sgm:P">b. A bank cannot distinguish whether the check is a state or local government check, cashier's check, certified check, or teller's check by reading the MICR-encoded routing number, because these checks bear the same routing number as other checks drawn on the same bank that are not accorded next-day availability. Therefore, a bank may require a special deposit slip for these checks. </p>
<p style="-uslm-sgm:P">c. The regulation specifies that if a bank decides to require the use of a special deposit slip (or a special deposit envelope in the case of a deposit at an ATM or other unstaffed facility) as a condition to granting next-day availability under paragraphs (c)(1)(iv) or (c)(1)(v) of this section or second-day availability under paragraph (c)(2) of this section, and if the deposit slip that must be used is different from the bank's regular deposit slips, the bank must either provide the special slips to its customers or inform its customers how such slips may be obtained and <?page num="903"?>make the slips reasonably available to the customers. </p>
<p style="-uslm-sgm:P">d. A bank may meet this requirement by providing customers with an order form for the special deposit slips and allowing sufficient time for the customer to order and receive the slips before this condition is imposed. If a bank provides deposit slips in its branches for use by its customers, it also must provide the special deposit slips in the branches. If special deposit envelopes are required for deposits at an ATM, the bank must provide such envelopes at the ATM. </p>
<p style="-uslm-sgm:P">e. Generally, a teller is not required to advise depositors of the availability of special deposit slips merely because checks requiring special deposit slips for next-day availability are deposited without such slips. If a bank provides the special deposit slips only upon the request of a depositor, however, the teller must advise the depositor of the availability of the special deposit slips, or the bank must post a notice advising customers that the slips are available upon request. Such notice need not be posted at each teller window, but the notice must be posted in a place where consumers seeking to make deposits are likely to see it before making their deposits. For example, the notice might be posted at the point where the line forms for teller service in the lobby. The notice is not required at any drive-through teller windows nor is it required at night depository locations, or at locations where consumer deposits are not accepted. If a bank prepares a deposit for a depositor, it must use a special deposit slip where appropriate. A bank may require the customer to segregate the checks subject to next-day availability for which special deposit slips could be required, and to indicate on a regular deposit slip that such checks are being deposited, if the bank so instructs its customers in its initial disclosure. </p>
<heading style="-uslm-sgm:HD2" role="reserved">V. Section 229.11 [Reserved] </heading>
<heading style="-uslm-sgm:HD2">VI. Section 229.12 Availability Schedule </heading>
<heading style="-uslm-sgm:HD3">A. 229.12(a) Effective Date </heading>
<p style="-uslm-sgm:P">1. The availability schedule set forth in this section supersedes the temporary schedule that was effective <date date="1988-09-01">September 1, 1988</date>, through <date date="1990-08-31">August 31, 1990</date>. </p>
<heading style="-uslm-sgm:HD3">B. 229.12(b) Local Checks and Certain Other Checks </heading>
<p style="-uslm-sgm:P">1. Local checks must be made available for withdrawal not later than the second business day following the banking day on which the checks were deposited. </p>
<p style="-uslm-sgm:P">2. In addition, the proceeds of Treasury checks and U.S. Postal Service money orders not subject to next-day (or second-day) availability under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>, checks drawn on Federal Reserve Banks and Federal Home Loan Banks, checks drawn by a state or unit of general local government, cashier's checks, certified checks, and teller's checks not subject to next-day (or second-day) availability under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref> and payable in the same check processing region as the depositary bank, must be made available for withdrawal by the second business day following deposit. </p>
<p style="-uslm-sgm:P">3. Exceptions are made for withdrawals by cash or similar means and for deposits in banks located outside the 48 contiguous states. Thus, the proceeds of a local check deposited on a Monday generally must be made available for withdrawal on Wednesday. </p>
<heading style="-uslm-sgm:HD3">C. 229.12(c) Nonlocal Checks </heading>
<p style="-uslm-sgm:P">1. Nonlocal checks must be made available for withdrawal not later than the fifth business day following deposit, i.e., proceeds of a nonlocal check deposited on a Monday must be made available for withdrawal on the following Monday. In addition, a check described in <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref> that does not meet the conditions for next-day availability (or second-day availability) is treated as a nonlocal check, if the check is drawn on or payable through or at a nonlocal paying bank. Adjustments are made to the schedule for withdrawals by cash or similar means and deposits in banks located outside the 48 contiguous states. </p>
<p style="-uslm-sgm:P">2. Reduction in Schedules. </p>
<p style="-uslm-sgm:P">a. Section 603(d)(1) of the EFA Act (<ref href="/us/usc/t12/s4002/d/1">12 U.S.C. 4002(d)(1)</ref>) requires the Board to reduce the statutory schedules for any category of checks where most of those checks would be returned in a shorter period of time than provided in the schedules. The conferees indicated that “if the new system makes it possible for two-thirds of the items of a category of checks to meet this test in a shorter period of time, then the Federal Reserve must shorten the schedules accordingly.” H.R. Rep. No. 261, 100th Cong., 1st Sess. at 179 (1987). </p>
<p style="-uslm-sgm:P">b. Reduced schedules are provided for certain nonlocal checks where significant improvements can be made to the EFA Act's schedules due to transportation arrangements or proximity between the check processing regions of the depositary bank and the paying bank, allowing for faster collection and return. Appendix B sets forth the specific reduction of schedules applicable to banks located in certain check processing regions. </p>
<p style="-uslm-sgm:P">c. A reduction in schedules may apply even in those cases where the determination that the check is nonlocal cannot be made based on the routing number on the check. For example, a nonlocal credit union payable-through share draft may be subject to a reduction in schedules if the routing number of the payable-through bank that appears on the draft is included in appendix B, even though the determination that the payable-<?page num="904"?>through share draft is nonlocal is based on the location of the credit union and not the routing number on the draft. </p>
<heading style="-uslm-sgm:HD3">D. 229.12(d) Time Period Adjustment for Withdrawal by Cash or Similar Means </heading>
<p style="-uslm-sgm:P">1. The EFA Act provides an adjustment to the availability rules for cash withdrawals. Funds from local and nonlocal checks need not be available for cash withdrawal until 5:00 p.m. on the day specified in the schedule. At 5:00 p.m., $400 of the deposit must be made available for cash withdrawal. This $400 is in addition to the first $100 of a day's deposit, which must be made available for withdrawal at the start of business on the first business day following the banking day of deposit. If the proceeds of local and nonlocal checks become available for withdrawal on the same business day, the $400 withdrawal limitation applies to the aggregate amount of the funds that became available for withdrawal on that day. The remainder of the funds must be available for cash withdrawal at the start of business on the business day following the business day specified in the schedule. </p>
<p style="-uslm-sgm:P">2. The EFA Act recognizes that the $400 that must be provided on the day specified in the schedule may exceed a bank's daily ATM cash withdrawal limit, and explicitly provides that the EFA Act does not supersede the bank's policy in this regard. The Board believes that the rationale for accommodating a bank's ATM withdrawal limit also applies to other cash withdrawal limits established by that bank. Section 229.19(c)(4) of the regulation addresses the relation between a bank's cash withdrawal limit (for over-the-counter cash withdrawals as well as ATM cash withdrawals) and the requirements of this subpart. </p>
<p style="-uslm-sgm:P">3. The Board believes that the Congress included this special cash withdrawal rule to provide a depositary bank with additional time to learn of the nonpayment of a check before it must make funds available to its customer. If a customer deposits a local check on a Monday, and that check is returned by the paying bank, the depositary bank may not receive the returned check until Thursday, the day after funds for a local check ordinarily must be made available for withdrawal. The intent of the special cash withdrawal rule is to minimize this risk to the depositary bank. For this rule to minimize the depositary bank's risk, it must apply not only to cash withdrawals, but also to withdrawals by other means that result in an irrevocable debit to the customer's account or commitment to pay by the bank on the customer's behalf during the day. Thus, the cash withdrawal rule also includes withdrawals by electronic payment, issuance of a cashier's or teller's check, certification of a check, or other irrevocable commitment to pay, such as authorization of an on-line point-of-sale debit. The rule also would apply to checks presented over the counter for payment on the day of presentment by the depositor or another person. Such checks could not be dishonored for insufficient funds if an amount sufficient to cover the check had became available for cash withdrawal under this rule; however, payment of such checks would be subject to the bank's cut-off hour established under U.C.C. 4–108. The cash withdrawal rule does not apply to checks and other provisional debits presented to the bank for payment that the bank has the right to return. </p>
<heading style="-uslm-sgm:HD3">E. 229.12(e) Extension of Schedule for Certain Deposits in Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands </heading>
<p style="-uslm-sgm:P">1. The EFA Act and regulation provide an extension of the availability schedules for check deposits at a branch of a bank if the branch is located in Alaska, Hawaii, Puerto Rico, or the U.S. Virgin Islands. The schedules for local checks, nonlocal checks (including nonlocal checks subject to the reduced schedules of appendix B), and deposits at nonproprietary ATMs are extended by one business day for checks deposited to accounts in banks located in these jurisdictions that are drawn on or payable at or through a paying bank not located in the same jurisdiction as the depositary bank. For example, a check deposited in a bank in Hawaii and drawn on a San Francisco paying bank must be made available for withdrawal not later than the third business day following deposit. This extension does not apply to deposits that must be made available for withdrawal on the next business day. </p>
<p style="-uslm-sgm:P">2. The Congress did not provide this extension of the schedules to checks drawn on a paying bank located in Alaska, Hawaii, Puerto Rico, or the U.S. Virgin Islands and deposited in an account at a depositary bank in the 48 contiguous states. Therefore, a check deposited in a San Francisco bank drawn on a Hawaii paying bank must be made available for withdrawal not later than the second rather than the third business day following deposit. </p>
<heading style="-uslm-sgm:HD3">F. 229.12(f) Deposits at Nonproprietary ATMs </heading>
<p style="-uslm-sgm:P">1. The EFA Act and regulation provide a special rule for deposits made at nonproprietary ATMs. This paragraph does not apply to deposits made at proprietary ATMs. All deposits at a nonproprietary ATM must be made available for withdrawal by the fifth business day following the banking day of deposit. For example, a deposit made at a nonproprietary ATM on a Monday, including any deposit by cash or checks that would otherwise be subject to next-day (or second-day) availability, must be made available for <?page num="905"?>withdrawal not later than Monday of the following week. The provisions of <ref href="/us/cfr/t12/s229.10/c/1/vii">§ 229.10(c)(1)(vii)</ref> requiring a depositary bank to make up to $100 of an aggregate daily deposit available for withdrawal on the first business day after the banking day of deposit do not apply to deposits at a nonproprietary ATM. </p>
<heading style="-uslm-sgm:HD2">VII. Section 229.13 Exceptions </heading>
<heading style="-uslm-sgm:HD3">A. Introduction </heading>
<p style="-uslm-sgm:P">1. While certain safeguard exceptions (such as those for new accounts and checks the bank has reasonable cause to believe are uncollectible) are established in the EFA Act, the Congress gave the Board the discretion to determine whether certain other exceptions should be included in its regulations. Specifically, the EFA Act gives the Board the authority to establish exceptions to the schedules for large or redeposited checks and for accounts that have been repeatedly overdrawn. These exceptions apply to local and nonlocal checks as well as to checks that must otherwise be accorded next-day (or second-day) availability under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. </p>
<p style="-uslm-sgm:P">2. Many checks will not be returned to the depositary bank by the time funds must be made available for withdrawal under the next-day (or second-day), local, and nonlocal schedules. In order to reduce risk to depositary banks, the Board has exercised its statutory authority to adopt these exceptions to the schedules in the regulation to allow the depositary bank to extend the time within which it is required to make funds available. </p>
<p style="-uslm-sgm:P">3. The EFA Act also gives the Board the authority to suspend the schedules for any classification of checks, if the schedules result in an unacceptable level of fraud losses. The Board will adopt regulations or issue orders to implement this statutory authority if and when circumstances requiring its implementation arise. </p>
<heading style="-uslm-sgm:HD3">B. 229.13(a) New Accounts </heading>
<p style="-uslm-sgm:P">1. Definition of New Account. </p>
<p style="-uslm-sgm:P">a. The EFA Act provides an exception to the availability schedule for new accounts. An account is defined as a new account during the first 30 calendar days after the account is opened. An account is opened when the first deposit is made to the account. An account is not considered a new account, however, if each customer on the account has a transaction account relationship with the depositary bank, including a dormant account, that is at least 30 calendar days old or if each customer has had an established transaction account with the depositary bank within the 30 calendar days prior to opening the second account. </p>
<p style="-uslm-sgm:P">b. The following are examples of what constitutes, and does not constitute, a new account: </p>
<p style="-uslm-sgm:P">i. If the customer has an established account with a bank and opens a second account with the bank, the second account is not subject to the new account exception. </p>
<p style="-uslm-sgm:P">ii. If a customer's account were closed and another account opened as a successor to the original account (due, for example, to the theft of checks or a debit card used to access the original account), the successor account is not subject to the new account exception, assuming the previous account relationship is at least 30 days old. Similarly, if a customer closes an established account and opens a separate account within 30 days, the new account is not subject to the new account exception. </p>
<p style="-uslm-sgm:P">iii. If a customer has a savings deposit or other deposit that is not an account (as that term is defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref>) at the bank, and opens an account, the account is subject to the new account exception. </p>
<p style="-uslm-sgm:P">iv. If a person that is authorized to sign on a corporate account (but has no other relationship with the bank) opens a personal account, the personal account is subject to the new account exception. </p>
<p style="-uslm-sgm:P">v. If a customer has an established joint account at a bank, and subsequently opens an individual account with that bank, the individual account is not subject to the new account exception. </p>
<p style="-uslm-sgm:P">vi. If two customers that each have an established individual account with the bank open a joint account, the joint account is not subject to the new account exception. If one of the customers on the account has no current or recent established account relationship with the bank, however, the joint account is subject to the new account exception, even if the other individual on the account has an established account relationship with the bank. </p>
<p style="-uslm-sgm:P">2. Rules Applicable to New Accounts. </p>
<p style="-uslm-sgm:P">a. During the new account exception period, the schedules for local and nonlocal checks do not apply, and, unlike the other exceptions provided in this section, the regulation provides no maximum time frames within which the proceeds of these deposits must be made available for withdrawal. Maximum times within which funds must be available for withdrawal during the new account period are provided, however, for certain other deposits. Deposits received by cash and electronic payments must be made available for withdrawal in accordance with <ref href="/us/cfr/t12/s229.10">§ 229.10</ref>. </p>
<p style="-uslm-sgm:P">b. Special rules also apply to deposits of Treasury checks, U.S. Postal Service money orders, checks drawn on Federal Reserve Banks and Federal Home Loan Banks, state and local government checks, cashier's checks, certified checks, teller's checks, and, for the purposes of the new account exception only, traveler's checks. The first $5,000 of funds deposited to a new account on any one banking day by these check deposits <?page num="906"?>must be made available for withdrawal in accordance with <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. Thus, the first $5,000 of the proceeds of these check deposits must be made available on the first business day following deposit, if the deposit is made in person to an employee of the depositary bank and the other conditions of next-day availability are met. Funds must be made available on the second business day after deposit for deposits that are not made over the counter, in accordance with <ref href="/us/cfr/t12/s229.10/c/2">§ 229.10(c)(2)</ref>. (Proceeds of Treasury check deposits must be made available on the first business day after deposit, even if the check is not deposited in person to an employee of the depositary bank.) Funds in excess of the first $5,000 deposited by these types of checks on a banking day must be available for withdrawal not later than the ninth business day following the banking day of deposit. The requirements of <ref href="/us/cfr/t12/s229.10/c/1/vi">§ 229.10(c)(1)(vi)</ref> and (vii) that “on us” checks and the first $100 of a day's deposit be made available for withdrawal on the next business day do not apply during the new account period. </p>
<p style="-uslm-sgm:P">3. Representation by Customer. The depositary bank may rely on the representation of the customer that the customer has no established account relationship with the bank, and has not had any such account relationship within the past 30 days, to determine whether an account is subject to the new account exception. </p>
<heading style="-uslm-sgm:HD3">C. 229.13(b) Large Deposits </heading>
<p style="-uslm-sgm:P">1. Under the large deposit exception, a depositary bank may extend the hold placed on check deposits to the extent that the amount of the aggregate deposit on any banking day exceeds $5,000. This exception applies to local and nonlocal checks, as well as to checks that otherwise would be made available on the next (or second) business day after the day of deposit under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. Although the first $5,000 of a day's deposit is subject to the availability otherwise provided for checks, the amount in excess of $5,000 may be held for an additional period of time as provided in <ref href="/us/cfr/t12/s229.13/h">§ 229.13(h)</ref>. When the large deposit exception is applied to deposits composed of a mix of checks that would otherwise be subject to differing availability schedules, the depositary bank has the discretion to choose the portion of the deposit to which it applies the exception. Deposits by cash or electronic payment are not subject to this exception for large deposits. </p>
<p style="-uslm-sgm:P">2. The following example illustrates the operation of the large deposit exception. If a customer deposits $2,000 in cash and a $9,000 local check on a Monday, $2,100 (the proceeds of the cash deposit and $100 from the local check deposit) must be made available for withdrawal on Tuesday. An additional $4,900 of the proceeds of the local check must be available for withdrawal on Wednesday in accordance with the local schedule, and the remaining $4,000 may be held for an additional period of time under the large deposit exception. </p>
<p style="-uslm-sgm:P">3. Where a customer has multiple accounts with a depositary bank, the bank may apply the large deposit exception to the aggregate deposits to all of the customer's accounts, even if the customer is not the sole holder of the accounts and not all of the holders of the customer's accounts are the same. Thus, a depositary bank may aggregate the deposits made to two individual accounts in the same name, to an individual and a joint account with one common name, or to two joint accounts with at least one common name for the purpose of applying the large deposit exception. Aggregation of deposits to multiple accounts is permitted because the Board believes that the risk to the depositary bank associated with large deposits is similar regardless of how the deposits are allocated among the customer's accounts. </p>
<heading style="-uslm-sgm:HD3">D. 229.13(c) Redeposited Checks </heading>
<p style="-uslm-sgm:P">1. The EFA Act gives the Board the authority to promulgate an exception to the schedule for checks that have been returned unpaid and redeposited. Section 229.13(c) provides such an exception for checks that have been returned unpaid and redeposited by the customer or the depositary bank. This exception applies to local and nonlocal checks, as well as to checks that would otherwise be made available on the next (or second) business day after the day of deposit under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. </p>
<p style="-uslm-sgm:P">2. This exception addresses the increased risk to the depositary bank that checks that have been returned once will be uncollectible when they are presented to the paying bank a second time. The Board, however, does not believe that this increased risk is present for checks that have been returned due to a missing indorsement. Thus, the exception does not apply to checks returned unpaid due to missing indorsements and redeposited after the missing indorsement has been obtained, if the reason for return indicated on the check (see <ref href="/us/cfr/t12/s229.30/d">§ 229.30(d)</ref>) states that it was returned due to a missing indorsement. For the same reason, this exception does not apply to a check returned because it was postdated (future dated), if the reason for return indicated on the check states that it was returned because it was postdated, and if it is no longer postdated when redeposited. </p>
<p style="-uslm-sgm:P">3. To determine when funds must be made available for withdrawal, the banking day on which the check is redeposited is considered to be the day of deposit. A depositary bank that made $100 of a check available for withdrawal under <ref href="/us/cfr/t12/s229.10/c/1/vii">§ 229.10(c)(1)(vii)</ref> can charge back the full amount of the check, including the $100, if the check is returned unpaid, and the $100 need not be made available again if the check is redeposited.
<?page num="907"?></p>
<heading style="-uslm-sgm:HD3">E. 229.13(d) Repeated Overdrafts </heading>
<p style="-uslm-sgm:P">1. The EFA Act gives the Board the authority to establish an exception for “deposit accounts which have been overdrawn repeatedly.” This paragraph provides two tests to determine what constitutes repeated overdrafts. Under the first test, a customer's accounts are considered repeatedly overdrawn if, on six banking days within the preceding six months, the available balance in any account held by the customer is negative, or the balance would have become negative if checks or other charges to the account had been paid, rather than returned. This test can be met based on separate occurrences (e.g., checks that are returned for insufficient funds on six different days), or based on one occurrence (e.g., a negative balance that remains on the customer's account for six banking days). If the bank dishonors a check that otherwise would have created a negative balance, however, the incident is considered an overdraft only on that day. </p>
<p style="-uslm-sgm:P">2. The second test addresses substantial overdrafts. Such overdrafts increase the risk to the depositary bank of dealing with the repeated overdrafter. Under this test, a customer incurs repeated overdrafts if, on two banking days within the preceding six months, the available balance in any account held by the customer is negative in an amount of $5,000 or more, or would have become negative in an amount of $5,000 or more if checks or other charges to the account had been paid. </p>
<p style="-uslm-sgm:P">3. The exception relates not only to overdrafts caused by checks drawn on the account, but also overdrafts caused by other debit charges (e.g. ACH debits, point-of-sale transactions, returned checks, account fees, etc.). If the potential debit is in excess of available funds, the exception applies regardless of whether the items were paid or returned unpaid. An overdraft resulting from an error on the part of the depositary bank, or from the imposition of overdraft charges for which the customer is entitled to a refund under <ref href="/us/cfr/t12/s229.13/e">§§ 229.13(e)</ref> or 229.16(c), cannot be considered in determining whether the customer is a repeated overdrafter. The exception excludes accounts with overdraft lines of credit, unless the credit line has been exceeded or would have been exceeded if the checks or other charges to the account had been paid. </p>
<p style="-uslm-sgm:P">4. This exception applies to local and nonlocal checks, as well as to checks that otherwise would be made available on the next (or second) business day after the day of deposit under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. When a bank places or extends a hold under this exception, it need not make the first $100 of a deposit available for withdrawal on the next business day, as otherwise would be required by <ref href="/us/cfr/t12/s229.10/c/1/vii">§ 229.10(c)(1)(vii)</ref>. </p>
<heading style="-uslm-sgm:HD3">F. 229.13(e) Reasonable Cause To Doubt Collectibility </heading>
<p style="-uslm-sgm:P">1. In the case of certain check deposits, if the bank has reasonable cause to believe the check is uncollectible, it may extend the time funds must be made available for withdrawal. This exception applies to local and nonlocal checks, as well as to checks that would otherwise be made available on the next (or second) business day after the day of deposit under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. When a bank places or extends a hold under this exception, it need not make the first $100 of a deposit available for withdrawal on the next business day, as otherwise would be required by <ref href="/us/cfr/t12/s229.10/c/1/vii">§ 229.10(c)(1)(vii)</ref>. If the reasonable cause exception is invoked, the bank must include in the notice to its customer, required by <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref>, the reason that the bank believes that the check is uncollectible. </p>
<p style="-uslm-sgm:P">2. The following are several examples of circumstances under which the reasonable cause exception may be invoked: </p>
<p style="-uslm-sgm:P">a. If a bank received a notice from the paying bank that a check was not paid and is being returned to the depositary bank, the depositary bank could place a hold on the check or extend a hold previously placed on that check, and notify the customer that the bank had received notice that the check is being returned. The exception could be invoked even if the notice were incomplete, if the bank had reasonable cause to believe that the notice applied to that particular check. </p>
<p style="-uslm-sgm:P">b. The depositary bank may have received information from the paying bank, prior to the presentment of the check, that gives the bank reasonable cause to believe that the check is uncollectible. For example, the paying bank may have indicated that payment has been stopped on the check, or that the drawer's account does not currently have sufficient funds to honor the check. Such information may provide sufficient basis to invoke this exception. In these cases, the depositary bank could invoke the exception and disclose as the reason the exception is being invoked the fact that information from the paying bank indicates that the check may not be paid. </p>
<p style="-uslm-sgm:P">c. The fact that a check is deposited more than six months after the date on the check (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.</inline> a stale check) is a reasonable indication that the check may be uncollectible, because under U.C.C. 4–404 a bank has no duty to its customer to pay a check that is more than six months old. Similarly, if a check being deposited is postdated (future dated), the bank may have a reasonable cause to believe the check is uncollectible, because the check may not be properly payable under U.C.C. 4–401. The bank, in its notice, should specify that the check is stale-dated or postdated. </p>
<p style="-uslm-sgm:P">d. There are reasons that may cause a bank to believe that a check is uncollectible that <?page num="908"?>are based on confidential information. For example, a bank could conclude that a check being deposited is uncollectible based on its reasonable belief that the depositor is engaging in kiting activity. Reasonable belief as to the insolvency or pending insolvency of the drawer of the check or the drawee bank and that the checks will not be paid also may justify invoking this exception. In these cases, the bank may indicate, as the reason it is invoking the exception, that the bank has confidential information that indicates that the check might not be paid. </p>
<p style="-uslm-sgm:P">3. The Board has included a reasonable cause exception notice as a model notice in appendix C (C–13). The model notice includes several reasons for which this exception may be invoked. The Board does not intend to provide a comprehensive list of reasons for which this exception may be invoked; another reason that does not appear on the model notice may be used as the basis for extending a hold, if the reason satisfies the conditions for invoking this exception. A depositary bank may invoke the reasonable cause exception based on a combination of factors that give rise to a reasonable cause to doubt the collectibility of a check. In these cases, the bank should disclose the primary reasons for which the exception was invoked in accordance with paragraph (g) of this section. </p>
<p style="-uslm-sgm:P">4. The regulation provides that the determination that a check is uncollectible shall not be based on a class of checks or persons. For example, a depositary bank cannot invoke this exception simply because the check is drawn on a paying bank in a rural area and the depositary bank knows it will not have the opportunity to learn of nonpayment of that check before funds must be made available under the availability schedules. Similarly, a depositary bank cannot invoke the reasonable cause exception based on the race or national origin of the depositor. </p>
<p style="-uslm-sgm:P">5. If a depositary bank invokes this exception with respect to a particular check and does not provide a written notice to the depositor at the time of deposit, the depositary bank may not assess any overdraft fee (such as an “NSF” charge) or charge interest for use of overdraft credit, if the check is paid by the paying bank and these charges would not have occurred had the exception not been invoked. A bank may assess an overdraft fee under these circumstances, however, if it provides notice to the customer, in the notice of exception required by paragraph (g) of this section, that the fee may be subject to refund, and refunds the charges upon the request of the customer. The notice must state that the customer may be entitled to a refund of any overdraft fees that are assessed if the check being held is paid, and indicate where such requests for a refund of overdraft fees should be directed. </p>
<heading style="-uslm-sgm:HD3">G. 229.13(f) Emergency Conditions </heading>
<p style="-uslm-sgm:P">1. Certain emergency conditions may arise that delay the collection or return of checks, or delay the processing and updating of customer accounts. In the circumstances specified in this paragraph, the depositary bank may extend the holds that are placed on deposits of checks that are affected by such delays, if the bank exercises such diligence as the circumstances require. For example, if a bank learns that a check has been delayed in the process of collection due to severe weather conditions or other causes beyond its control, an emergency condition covered by this section may exist and the bank may place a hold on the check to reflect the delay. This exception applies to local and nonlocal checks, as well as checks that would otherwise be made available on the next (or second) business day after the day of deposit under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. When a bank places or extends a hold under this exception, it need not make the first $100 of a deposit available for withdrawal on the next business day, as otherwise would be required by <ref href="/us/cfr/t12/s229.10/c/1/vii">§ 229.10(c)(1)(vii)</ref>. In cases where the emergency conditions exception does not apply, as in the case of deposits of cash or electronic payments under <ref href="/us/cfr/t12/s229.10">§ 229.10</ref> (a) and (b), the depositary bank may not be liable for a delay in making funds available for withdrawal if the delay is due to a bona fide error such as an unavoidable computer malfunction. </p>
<heading style="-uslm-sgm:HD3">H. 229.13(g) Notice of Exception </heading>
<p style="-uslm-sgm:P">1. In general. </p>
<p style="-uslm-sgm:P">a. If a depositary bank invokes any of the safeguard exceptions to the schedules listed above, other than the new account or emergency conditions exception, and extends the hold on a deposit beyond the time periods permitted in <ref href="/us/cfr/t12/s229.10/c">§§ 229.10(c)</ref> and 229.12, it must provide a notice to its customer. Except in the cases described in paragraphs (g)(2) and (g)(3) of this section, notices must be given each time an exception hold is invoked and must state the customer's account number, the date of deposit, the reason the exception was invoked, and the time period within which funds will be available for withdrawal. For a customer that is not a consumer, a depositary bank satisfies the written-notice requirement by sending an electronic notice that displays the text and is in a form that the customer may keep, if the customer agrees to such means of notice. Information is in a form that the customer may keep if, for example, it can be downloaded or printed. For a customer who is a consumer, a depositary bank satisfies the written-notice requirement by sending an electronic notice in compliance with the requirements of the Electronic Signatures in Global and National Commerce Act (<ref href="/us/usc/t12/s7001">12 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), which <?page num="909"?>include obtaining the consumer's affirmative consent to such means of notice. </p>
<p style="-uslm-sgm:P">b. With respect to paragraph (g)(1), the requirement that the notice state the time period within which the funds shall be made available may be satisfied if the notice identifies the date the deposit is received and information sufficient to indicate when funds will be available and the amounts that will be available at those times. For example, for a deposit involving more than one check, the bank need not provide a notice that discloses when funds from each individual check in the deposit will be available for withdrawal; instead, the bank may provide a total dollar amount for each of the time periods when funds will be available, or provide the customer with an explanation of how to determine the amount of the deposit that will be held and when the funds will be available for deposit. Appendix C (C–12) contains a model notice. </p>
<p style="-uslm-sgm:P">c. For deposits made in person to an employee of the depositary bank, the notice generally must be given to the person making the deposit, i.e., the “depositor”, at the time of deposit. The depositor need not be the customer holding the account. For other deposits, such as deposits received at an ATM, lobby deposit box, night depository, or through the mail, notice must be mailed to the customer not later than the close of the business day following the banking day on which the deposit was made. </p>
<p style="-uslm-sgm:P">d. Notice to the customer also may be provided at a later time, if the facts upon which the determination to invoke the exception do not become known to the depositary bank until after notice would otherwise have to be given. In these cases, the bank must mail the notice to the customer as soon as practicable, but not later than the business day following the day the facts become known. A bank is deemed to have knowledge when the facts are brought to the attention of the person or persons in the bank responsible for making the determination, or when the facts would have been brought to their attention if the bank had exercised due diligence. </p>
<p style="-uslm-sgm:P">e. In those cases described in paragraphs (g)(2) and (g)(3), the depositary bank need not provide a notice every time an exception hold is applied to a deposit. When paragraph (g)(2) or (g)(3) requires disclosure of the time period within which deposits subject to the exception generally will be available for withdrawal, the requirement may be satisfied if the one-time notice states when “on us,” local, and nonlocal checks will be available for withdrawal if an exception is invoked. </p>
<p style="-uslm-sgm:P">2. One-time exception notice. </p>
<p style="-uslm-sgm:P">a. Under paragraph (g)(2), if a nonconsumer account (see Commentary to <ref href="/us/cfr/t12/s229.2/n">§ 229.2(n)</ref>) is subject to the large deposit or redeposited check exception, the depositary bank may give its customer a single notice at or prior to the time notice must be provided under paragraph (g)(1). Notices provided under paragraph (g)(2) must contain the reason the exception may be invoked and the time period within which deposits subject to the exception will be available for withdrawal (see Model Notice C–14). A depositary bank may provide a one-time notice to a nonconsumer customer under paragraph (g)(2) only if each exception cited in the notice (the large deposit and/or the redeposited check exception) will be invoked for most check deposits to the customer's account to which the exception could apply. A one-time notice may state that the depositary bank will apply exception holds to certain subsets of deposits to which the large deposit or redeposited check exception may apply, and the notice should identify such subsets. For example, the depositary bank may apply the redeposited check exception only to checks that were redeposited automatically by the depositary bank in accordance with an agreement with the customer, rather than to all redeposited checks. In lieu of sending the one-time notice, a depositary bank may send individual hold notices for each deposit subject to the large deposit or redeposited check exception in accordance with <ref href="/us/cfr/t12/s229.13/g/1">§ 229.13(g)(1)</ref> (see Model Notice C–12). </p>
<p style="-uslm-sgm:P">b. In the case of a deposit of multiple checks, the depositary bank has the discretion to place an exception hold on any combination of checks in excess of $5,000. The notice should enable a customer to determine the availability of the deposit in the case of a deposit of multiple checks. For example, if a customer deposits a $5,000 local check and a $5,000 nonlocal check, under the large deposit exception, the depositary bank may make funds available in the amount of (1) $100 on the first business day after deposit, $4,900 on the second business day after deposit (local check), and $5,000 on the eleventh business day after deposit (nonlocal check with 6-day exception hold), or (2) $100 on the first business day after deposit, $4,900 on the fifth business day after deposit (nonlocal check), and $5,000 on the seventh business day after deposit (local check with 5-day exception hold). The notice should reflect the bank's priorities in placing exception holds on next-day (or second-day), local, and nonlocal checks. </p>
<p style="-uslm-sgm:P">3. Notice of repeated overdraft exception. Under paragraph (g)(3), if an account is subject to the repeated overdraft exception, the depositary bank may provide one notice to its customer for each time period during which the exception will apply. Notices sent pursuant to paragraph (g)(3) must state the customer's account number, the fact the exception was invoked under the repeated overdraft exception, the time period within which deposits subject to the exception will be made available for withdrawal, and the time period during which the exception will <?page num="910"?>apply (see Model Notice C–15). A depositary bank may provide a one-time notice to a customer under paragraph (g)(3) only if the repeated overdraft exception will be invoked for most check deposits to the customer's account. </p>
<p style="-uslm-sgm:P">4. Emergency conditions exception notice. </p>
<p style="-uslm-sgm:P">a. If an account is subject to the emergency conditions exception under <ref href="/us/cfr/t12/s229.13/f">§ 229.13(f)</ref>, the depositary bank must provide notice in a reasonable form within a reasonable time, depending on the circumstances. For example, a depositary bank may learn of a weather emergency or a power outage that affects the paying bank's operations. Under these circumstances, it likely would be reasonable for the depositary bank to provide an emergency conditions exception notice in the same manner and within the same time as required for other exception notices. On the other hand, if a depositary bank experiences a weather or power outage emergency that affects its own operations, it may be reasonable for the depositary bank to provide a general notice to all depositors via postings at branches and ATMs, or through newspaper, television, or radio notices. </p>
<p style="-uslm-sgm:P">b. If the depositary bank extends the hold placed on a deposit due to an emergency condition, the bank need not provide a notice if the funds would be available for withdrawal before the notice must be sent. For example, if on the last day of a hold period the depositary bank experiences a computer failure and customer accounts cannot be updated in a timely fashion to reflect the funds as available balances, notices are not required if the funds are made available before the notices must be sent. </p>
<p style="-uslm-sgm:P">5. Record retention. A depositary bank must retain a record of each notice of a reasonable cause exception for a period of two years, or such longer time as provided in the record retention requirements of <ref href="/us/cfr/t12/s229.21">§ 229.21</ref>. This record must contain a brief description of the facts on which the depositary bank based its judgment that there was reasonable cause to doubt the collectibility of a check. In many cases, such as where the exception was invoked on the basis of a notice of nonpayment received, the record requirement may be met by retaining a copy of the notice sent to the customer. In other cases, such as where the exception was invoked on the basis of confidential information, a further description to the facts, such as insolvency of drawer, should be included in the record. </p>
<heading style="-uslm-sgm:HD3">I. 229.13(h) Availability of Deposits Subject to Exceptions </heading>
<p style="-uslm-sgm:P">1. If a depositary bank invokes any exception other than the new account exception, the bank may extend the time within which funds must be made available under the schedule by a reasonable period of time. This provision establishes that an extension of up to one business day for “on us” checks, five business days for local checks, and six business days for nonlocal checks and checks deposited in a nonproprietary ATM is reasonable. Under certain circumstances, however, a longer extension of the schedules may be reasonable. In these cases, the burden is placed on the depositary bank to establish that a longer period is reasonable. </p>
<p style="-uslm-sgm:P">2. For example, assume a bank extended the hold on a local check deposit by five business days based on its reasonable cause to believe that the check is uncollectible. If, on the day before the extended hold is scheduled to expire, the bank receives a notification from the paying bank that the check is being returned unpaid, the bank may determine that a longer hold is warranted, if it decides not to charge back the customer's account based on the notification. If the bank decides to extend the hold, the bank must send a second notice, in accordance with paragraph (g) of this section, indicating the new date that the funds will be available for withdrawal. </p>
<p style="-uslm-sgm:P">3. With respect to Treasury checks, U.S. Postal Service money orders, checks drawn on Federal Reserve Banks or Federal Home Loan Banks, state and local government checks, cashier's checks, certified checks, and teller's checks subject to the next-day (or second-day) availability requirement, the depositary bank may extend the time funds must be made available for withdrawal under the large deposit, redeposited check, repeated overdraft, or reasonable cause exception by a reasonable period beyond the delay that would have been permitted under the regulation had the checks not been subject to the next-day (or second-day) availability requirement. The additional hold is added to the local or nonlocal schedule that would apply based on the location of the paying bank. </p>
<p style="-uslm-sgm:P">4. One business day for “on us” checks, five business days for local checks, and six business days for nonlocal checks or checks deposited in a nonproprietary ATM, in addition to the time period provided in the schedule, should provide adequate time for the depositary bank to learn of the nonpayment of virtually all checks that are returned. For example, if a customer deposits a $7,000 cashier's check drawn on a nonlocal bank, and the depositary bank applies the large deposit exception to that check, $5,000 must be available for withdrawal on the first business day after the day of deposit and the remaining $2,000 must be available for withdrawal on the eleventh business day following the day of deposit (six business days added to the five-day schedule for nonlocal checks), unless the depositary bank establishes that a longer hold is reasonable. </p>
<p style="-uslm-sgm:P">5. In the case of the application of the emergency conditions exception, the depositary bank may extend the hold placed on a check by not more than a reasonable period <?page num="911"?>following the end of the emergency or the time funds must be available for withdrawal under <ref href="/us/cfr/t12/s229.10/c">§§ 229.10(c)</ref> or 229.12, whichever is later. </p>
<p style="-uslm-sgm:P">6. This provision does not apply to holds imposed under the new account exception. Under that exception, the maximum time period within which funds must be made available for withdrawal is specified for deposits that generally must be accorded next-day availability under <ref href="/us/cfr/t12/s229.10">§ 229.10</ref>. This subpart does not specify the maximum time period within which the proceeds of local and nonlocal checks must be made available for withdrawal during the new account period. </p>
<heading style="-uslm-sgm:HD2">VIII. Section 229.14 Payment of Interest </heading>
<heading style="-uslm-sgm:HD3">A. 229.14(a) In General </heading>
<p style="-uslm-sgm:P">1. This section requires that a depositary bank begin accruing interest on interest-bearing accounts not later than the day on which the depositary bank receives credit for the funds deposited. <ref id="fnd3e57993" idref="fnd3e57999" style="-uslm-sgm:SU">3</ref> A depositary bank generally receives credit on checks within one or two days following deposit. A bank receives credit on a cash deposit, an electronic payment, and the deposit of a check that is drawn on the depositary bank itself on the day the cash, electronic payment, or check is received. In the case of a deposit at a nonproprietary ATM, credit generally is received on the day the bank that operates the ATM credits the depositary bank for the amount of the deposit. In the case of a deposit at a contractual branch, credit is received on the day the depositary bank receives credit for the amount of the deposit, which may be different from the day the contractual branch receives credit for the deposit. </p>
<footnote id="fnd3e57999" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e57993" style="-uslm-sgm:SU">3</ref> This section implements section 606 of the EFA Act (<ref href="/us/usc/t12/s4005">12 U.S.C. 4005</ref>). The EFA Act keys the requirement to pay interest to the time the depositary bank receives provisional credit for a check. Provisional credit is a term used in the U.C.C. that is derived from the Code's concept of provisional settlement. (See U.C.C. 4–214 and 4–215.) Provisional credit is credit that is subject to charge-back if the check is returned unpaid; once the check is finally paid, the right to charge back expires and the provisional credit becomes final. Under Subpart C, a paying bank no longer has an automatic right to charge back credits given in settlement of a check, and the concept of provisional settlement is no longer useful and has been eliminated by the regulation. Accordingly, this section uses the term credit rather than provisional credit, and this section applies regardless of whether a credit would be provisional or final under the U.C.C. Credit does not include a bookkeeping entry (sometimes referred to as deferred credit) that does not represent funds actually available for the bank's use.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">2. Because account includes only transaction accounts, other interest-bearing accounts of the depositary bank, such as money market deposit accounts, savings deposits, and time deposits, are not subject to this requirement; however, a bank may accrue interest on such deposits in the same way that it accrues interest under this paragraph for simplicity of operation. The Board intends the term interest to refer to payments to or for the account of any customer as compensation for the use of funds, but to exclude the absorption of expenses incident to providing a normal banking function or a bank's forbearance from charging a fee in connection with such a service. (See <ref href="/us/cfr/t12/s217.2/d">12 CFR 217.2(d)</ref>.) Thus, earnings credits often applied to corporate accounts are not interest payments for the purposes of this section. </p>
<p style="-uslm-sgm:P">3. It may be difficult for a depositary bank to track which day the depositary bank receives credit for specific checks in order to accrue interest properly on the account to which the check is deposited. This difficulty may be pronounced if the bank uses different means of collecting checks based on the time of day the check is received, the dollar amount of the check, and/or the paying bank to which it must be sent. Thus, for the purpose of the interest accrual requirement, a bank may rely on an availability schedule from its Federal Reserve Bank, Federal Home Loan Bank, or correspondent to determine when the depositary bank receives credit. If availability is delayed beyond that specified in the availability schedule, a bank may charge back interest erroneously accrued or paid on the basis of that schedule. </p>
<p style="-uslm-sgm:P">4. This paragraph also permits a depositary bank to accrue interest on checks deposited to all of its interest-bearing accounts based on when the bank receives credit on all checks sent for payment or collection. For example, if a bank receives credit on 20 percent of the funds deposited in the bank by check as of the business day of deposit (e.g., “on us” checks), 70 percent as of the business day following deposit, and 10 percent on the second business day following deposit, the bank can apply these percentages to determine the day interest must begin to accrue on check deposits to all interest-bearing accounts, regardless of when the bank received credit on the funds deposited in any particular account. Thus, a bank may begin accruing interest on a uniform basis for all interest-bearing accounts, without the need to track the type of check deposited to each account. </p>
<p style="-uslm-sgm:P">5. This section is not intended to limit a policy of a depositary bank that provides that interest accrues only on balances that exceed a specified amount, or on the minimum balance maintained in the account <?page num="912"?>during a given period, provided that the balance is determined based on the date that the depositary bank receives credit for the funds. This section also is not intended to limit any policy providing that interest accrues sooner than required by this paragraph. </p>
<heading style="-uslm-sgm:HD3">B. 229.14(b) Special Rule for Credit Unions </heading>
<p style="-uslm-sgm:P">1. This provision implements a requirement in section 606(b) of the EFA Act, and provides an exemption from the payment-of-interest requirements for credit unions that do not begin to accrue interest or dividends on their customer accounts until a later date than the day the credit union receives credit for those deposits, including cash deposits. These credit unions are exempt from the payment-of-interest requirements, as long as they provide notice of their interest accrual policies in accordance with <ref href="/us/cfr/t12/s229.16/d">§ 229.16(d)</ref>. For example, if a credit union has a policy of computing interest on all deposits received by the 10th of the month from the first of that month, and on all deposits received after the 10th of the month from the first of the next month, that policy is not superseded by this regulation, if the credit union provides proper disclosure of this policy to its customers. </p>
<p style="-uslm-sgm:P">2. The EFA Act limits this exemption to credit unions; other types of banks must comply with the payment-of-interest requirements. In addition, credit unions that compute interest from the day of deposit or day of credit should not change their existing practices in order to avoid compliance with the requirement that interest accrue from the day the credit union receives credit. </p>
<heading style="-uslm-sgm:HD3">C. 229.14(c) Exception for Checks Returned Unpaid </heading>
<p style="-uslm-sgm:P">1. This provision is based on section 606(c) of the EFA Act (<ref href="/us/usc/t12/s4005/c">12 U.S.C. 4005(c)</ref>) and provides that interest need not be paid on funds deposited in an interest-bearing account by check that has been returned unpaid, regardless of the reason for return. </p>
<heading style="-uslm-sgm:HD2">IX. Section 229.15 General Disclosure Requirements </heading>
<heading style="-uslm-sgm:HD3">A. 229.15(a) Form of Disclosures </heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the general requirements for the disclosures required under Subpart B. All of the disclosures must be given in a clear and conspicuous manner, must be in writing, and, in most cases, must be in a form the customer may keep. A disclosure is in a form that the customer may keep if, for example, it can be downloaded or printed. For a customer that is not a consumer, a depositary bank satisfies the written-disclosure requirement by sending an electronic disclosure that displays the text and is in a form that the customer may keep, if the customer agrees to such means of disclosure. For a customer who is a consumer, a depositary bank satisfies the written-notice requirement by sending an electronic notice in compliance with the requirements of the Electronic Signatures in Global and National Commerce Act (<ref href="/us/usc/t12/s7001">12 U.S.C. 7001</ref> <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>), which include obtaining the consumer's affirmative consent to such means of notice. Disclosures posted at locations where employees accept consumer deposits, at ATMs, and on preprinted deposit slips need not be in a form that the customer may keep. Appendix C of the regulation contains model forms, clauses, and notices to assist banks in preparing disclosures. </p>
<p style="-uslm-sgm:P">2. Disclosures concerning availability must be grouped together and may not contain any information that is not related to the disclosures required by this subpart. Therefore, banks may not intersperse the required disclosures with other account disclosures, and may not include other account information that is not related to their availability policy within the text of the required disclosures. Banks may, however, include information that is related to their availability policies. For example, a bank may inform its customers that, even when the bank has already made funds available for withdrawal, the customer is responsible for any problem with the deposit, such as the return of a deposited check. </p>
<p style="-uslm-sgm:P">3. The regulation does not require that the disclosures be segregated from other account terms and conditions. For example, banks may include the disclosure of their specific availability policy in a booklet or pamphlet that sets out all of the terms and conditions of the bank's accounts. The required disclosures must, however, be grouped together and highlighted or identified in some manner, for example, by use of a separate heading for the disclosures, such as “When Deposits are Available for Withdrawal.” </p>
<p style="-uslm-sgm:P">4. A bank may, by agreement or at the consumer's request, provide any disclosure or notice required by subpart B in a language other than English, provided that the bank makes a complete disclosure available in English at the customer's request.</p>
<heading style="-uslm-sgm:HD3">B. 229.15(b) Uniform Reference to Day of Availability </heading>
<p style="-uslm-sgm:P">1. This paragraph requires banks to disclose in a uniform manner when deposited funds will be available for withdrawal. Banks must disclose when deposited funds are available for withdrawal by stating the business day on which the customer may begin to withdraw funds. The business day funds will be available must be disclosed as “the ________ business day after” the day of deposit, or substantially similar language. The business day of availability is determined by counting the number of business <?page num="913"?>days starting with the business day following the banking day on which the deposit is received, as determined under <ref href="/us/cfr/t12/s229.19/a">§ 229.19(a)</ref>, and ending with the business day on which the customer may begin to withdraw funds. For example, a bank that imposes delays of four intervening business days for nonlocal checks must describe those checks as being available on “the fifth business day after” the day of the deposit. </p>
<heading style="-uslm-sgm:HD3">C. 229.15(c) Multiple Accounts and Multiple Account Holders </heading>
<p style="-uslm-sgm:P">1. This paragraph clarifies that banks need not provide multiple disclosures under the regulation. A single disclosure to a customer that holds multiple accounts, or a single disclosure to one of the account holders of a jointly held account, satisfies the disclosure requirements of the regulation. </p>
<heading style="-uslm-sgm:HD3">D. 229.15(d) Dormant or Inactive Accounts </heading>
<p style="-uslm-sgm:P">1. This paragraph makes clear that banks need not provide disclosure of their specific availability policies to customers that hold accounts that are either dormant or inactive. The determination that certain accounts are dormant or inactive must be made by the bank. If a bank considers an account dormant or inactive for purposes other than this regulation and no longer provides statements and other mailings to an account for this reason, such an account is considered dormant or inactive for purposes of this regulation. </p>
<heading style="-uslm-sgm:HD2">X. Section 229.16 Specific Availability Policy Disclosure </heading>
<heading style="-uslm-sgm:HD3">A. 229.16(a) General </heading>
<p style="-uslm-sgm:P">1. This section describes the information that must be disclosed by banks to comply with <ref href="/us/cfr/t12/s229.17">§§ 229.17</ref> and 229.18(d), which require that banks furnish notices of their specific policy regarding availability of deposited funds. The disclosure provided by a bank must reflect the availability policy followed by the bank in most cases, even though a bank may in some cases make funds available sooner or impose a longer delay. </p>
<p style="-uslm-sgm:P">2. The disclosure must reflect the policy and practice of the bank regarding availability as to most accounts and most deposits into those accounts. In disclosing the availability policy that it follows in most cases, a bank may provide a single disclosure that reflects one policy to all its transaction account customers, even though some of its customers may receive faster availability than that reflected in the policy disclosure. Thus, a bank need not disclose to some customers that they receive faster availability than indicated in the disclosure. If, however, a bank has a policy of imposing delays in availability on any customers longer than those specified in its disclosure, those customers must receive disclosures that reflect the longer applicable availability periods. A bank may establish different availability policies for different groups of customers, such as customers in a particular geographic area or customers of a particular branch. For purposes of providing a specific availability policy, the bank may allocate customers among groups through good faith use of a reasonable method. A bank may also establish different availability policies for deposits at different locations, such as deposits at a contractual branch. </p>
<p style="-uslm-sgm:P">3. A bank may disclose that funds are available for withdrawal on a given day notwithstanding the fact that the bank uses the funds to pay checks received before that day. For example, a bank may disclose that its policy is to make funds available from deposits of local checks on the second business day following the day of deposit, even though it may use the deposited funds to pay checks prior to the second business day; the funds used to pay checks in this example are not available for withdrawal until the second business day after deposit because the funds are not available for all uses until the second business day. (See the definition of available for withdrawal in <ref href="/us/cfr/t12/s229.2/d">§ 229.2(d)</ref>.) </p>
<heading style="-uslm-sgm:HD3">B. 229.16(b) Content of Specific Policy Disclosure </heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the items that must be included, as applicable, in a bank's specific availability policy disclosure. The information that must be disclosed by a particular bank will vary considerably depending upon the bank's availability policy. For example, a bank that makes deposited funds available for withdrawal on the business day following the day of deposit need simply disclose that deposited funds will be available for withdrawal on the first business day after the day of deposit, the bank's business days, and when deposits are considered received. </p>
<p style="-uslm-sgm:P">2. On the other hand, a bank that has a policy of routinely delaying on a blanket basis the time when deposited funds are available for withdrawal would have a more detailed disclosure. Such blanket hold policies might be for the maximum time allowed under the federal law or might be for shorter periods. These banks must disclose the types of deposits that will be subject to delays, how the customer can determine the type of deposit being made, and the day that funds from each type of deposit will be available for withdrawal. </p>
<p style="-uslm-sgm:P">3. Some banks may have a combination of next-day availability and blanket delays. For example, a bank may provide next-day availability for all deposits except for one or two categories, such as deposits at nonproprietary ATMs and nonlocal personal checks over a specified dollar amount. The bank would describe the categories that are subject to delays in availability and tell the <?page num="914"?>customer when each category would be available for withdrawal, and state that other deposits will be available for withdrawal on the first business day after the day of deposit. Similarly, a bank that provides availability on the second business day for most of its deposits would need to identify the categories of deposits which, under the regulation, are subject to next-day availability and state that all other deposits will be available on the second business day. </p>
<p style="-uslm-sgm:P">4. Because many banks' availability policies may be complex, a bank must give a brief summary of its policy at the beginning of the disclosure. In addition, the bank must describe any circumstances when actual availability may be longer than the schedules disclosed. Such circumstances would arise, for example, when the bank invokes one of the exceptions set forth in <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> of the regulation, or when the bank delays or extends the time when deposited funds are available for withdrawal up to the time periods allowed by the regulation on a case-by-case basis. Also, a bank that must make certain checks available faster under appendix B (reduction of schedules for certain nonlocal checks) must state that some check deposits will be available for withdrawal sooner because of special rules and that a list of the pertinent routing numbers is available upon request. </p>
<p style="-uslm-sgm:P">5. Generally, a bank that distinguishes in its disclosure between local and nonlocal checks based on the routing number on the check must disclose to its customers that certain checks, such as some credit union payable-through drafts, will be treated as local or nonlocal based on the location of the bank by which they are payable (e.g., the credit union), and not on the basis of the location of the bank whose routing number appears on the check. A bank is not required to provide this disclosure, however, if it makes the proceeds of both local and nonlocal checks available for withdrawal within the time periods required for local checks in <ref href="/us/cfr/t12/s229.12">§§ 229.12</ref> and 229.13. </p>
<p style="-uslm-sgm:P">6. The business day cut-off time used by the bank must be disclosed and if some locations have different cut-off times the bank must note this in the disclosure and state the earliest time that might apply. A bank need not list all of the different cut-off times that might apply. If a bank does not have a cut-off time prior to its closing time, the bank need not disclose a cut-off time. </p>
<p style="-uslm-sgm:P">7. A bank taking advantage of the extended time period for making deposits at nonproprietary ATMs available for withdrawal under <ref href="/us/cfr/t12/s229.12/f">§ 229.12(f)</ref> must explain this in the initial disclosure. In addition, the bank must provide a list (on or with the initial disclosure) of either the bank's proprietary ATMs or those ATMs that are nonproprietary at which customers may make deposits. As an alternative to providing such a list, the bank may label all of its proprietary ATMs with the bank's name and state in the initial disclosure that this has been done. Similarly, a bank taking advantage of the cash withdrawal limitations of <ref href="/us/cfr/t12/s229.12/d">§ 229.12(d)</ref>, or the provision in <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> allowing holds to be placed on other deposits when a deposit is made or a check is cashed, must explain this in the initial disclosure. </p>
<p style="-uslm-sgm:P">8. A bank that provides availability based on when the bank generally receives credit for deposited checks need not disclose the time when a check drawn on a specific bank will be available for withdrawal. Instead, the bank may disclose the categories of deposits that must be available on the first business day after the day of deposit (deposits subject to <ref href="/us/cfr/t12/s229.10">§ 229.10</ref>) and state the other categories of deposits and the time periods that will be applicable to those deposits. For example, a bank might disclose the four-digit Federal Reserve routing symbol for local checks and indicate that such checks as well as certain nonlocal checks will be available for withdrawal on the first or second business day following the day of deposit, depending on the location of the particular bank on which the check is drawn, and disclose that funds from all other checks will be available on the second or third business day. The bank must also disclose that the customer may request a copy of the bank's detailed schedule that would enable the customer to determine the availability of any check and must provide such schedule upon request. A change in the bank's detailed schedule would not trigger the change in policy disclosure requirement of <ref href="/us/cfr/t12/s229.18/e">§ 229.18(e)</ref>. </p>
<heading style="-uslm-sgm:HD3">C. 229.16(c) Longer Delays on a Case-by-Case Basis </heading>
<p style="-uslm-sgm:P">1. Notice in specific policy disclosure. </p>
<p style="-uslm-sgm:P">a. Banks that make deposited funds available for withdrawal sooner than required by the regulation—for example, providing their customers with immediate or next-day availability for deposited funds—and delay the time when funds are available for withdrawal only from time to time determined on a case-by-case basis, must provide notice of this in their specific availability policy disclosure. This paragraph outlines the requirements for that notice. </p>
<p style="-uslm-sgm:P">b. In addition to stating what their specific availability policy is in most cases, banks that may delay or extend the time when deposits are available on a case-by-case basis must: state that from time to time funds may be available for withdrawal later than the time periods in their specific policy disclosure, disclose the latest time that a customer may have to wait for deposited funds to be available for withdrawal when a case-by-case hold is placed, state that customers will be notified when availability of a deposit is delayed on a case-by-case basis, and advise customers to ask if they need to be <?page num="915"?>sure of the availability of a particular deposit. </p>
<p style="-uslm-sgm:P">c. A bank that imposes delays on a case-by-case basis is still subject to the availability requirements of this regulation. If the bank imposes a delay on a particular deposit that is not longer than the availability required by <ref href="/us/cfr/t12/s229.12">§ 229.12</ref> for local and nonlocal checks, the reason for the delay need not be based on the exceptions provided in <ref href="/us/cfr/t12/s229.13">§ 229.13</ref>. If the delay exceeds the time periods permitted under <ref href="/us/cfr/t12/s229.12">§ 229.12</ref>, however, then it must be based on an exception provided in <ref href="/us/cfr/t12/s229.13">§ 229.13</ref>, and the bank must comply with the <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> notice requirements. A bank that imposes delays on a case-by-case basis may avail itself of the one-time notice provisions in <ref href="/us/cfr/t12/s229.13/g/2">§ 229.13(g)(2)</ref> and (3) for deposits to which those provisions apply. </p>
<p style="-uslm-sgm:P">2. Notice at time of case-by-case delay. </p>
<p style="-uslm-sgm:P">a. In addition to including the disclosures required by paragraph (c)(1) of this section in their specific availability policy disclosure, banks that delay or extend the time period when funds are available for withdrawal on a case-by-case basis must give customers a notice when availability of funds from a particular deposit will be delayed or extended beyond the time when deposited funds are generally available for withdrawal. The notice must state that a delay is being imposed and indicate when the funds will be available. In addition, the notice must include the account number, the date of the deposit, and the amount of the deposit being delayed. </p>
<p style="-uslm-sgm:P">b. If notice of the delay was not given at the time the deposit was made and the bank assesses overdraft or returned check fees on accounts when a case-by-case hold has been placed, the case-by-case hold notice provided to the customer must include a notice concerning overdraft or returned check fees. The notice must state that the customer may be entitled to a refund of any overdraft or returned check fees that result from the deposited funds not being available if the check that was deposited was in fact paid by the payor bank, and explain how to request a refund of any fees. (See <ref href="/us/cfr/t12/s229.16/c/3">§ 229.16(c)(3)</ref>.) </p>
<p style="-uslm-sgm:P">c. The requirement that the case-by-case hold notice state the day that funds will be made available for withdrawal may be met by stating the date or the number of business days after deposit that the funds will be made available. This requirement is satisfied if the notice provides information sufficient to indicate when funds will be available and the amounts that will be available at those times. For example, for a deposit involving more than one check, the bank need not provide a notice that discloses when funds from each individual item in the deposit will be available for withdrawal. Instead, the bank may provide a total dollar amount for each of the time periods when funds will be available, or provide the customer with an explanation of how to determine the amount of the deposit that will be held and when the held funds will be available for withdrawal. </p>
<p style="-uslm-sgm:P">d. For deposits made in person to an employee of the depositary bank, the notice generally must be given at the time of the deposit. The notice at the time of the deposit must be given to the person making the deposit, that is, the “depositor.” The depositor need not be the customer holding the account. For other deposits, such as deposits received at an ATM, lobby deposit box, night depository, through the mail, or by armored car, notice must be mailed to the customer not later than the close of the business day following the banking day on which the deposit was made. Notice to the customer also may be provided not later than the close of the business day following the banking day on which the deposit was made if the decision to delay availability is made after the time of the deposit. </p>
<p style="-uslm-sgm:P">3. Overdraft and returned check fees. If a depositary bank delays or extends the time when funds from a deposited check are available for withdrawal on a case-by-case basis and does not provide a written notice to its depositor at the time of deposit, the depositary bank may not assess any overdraft or returned check fees (such as an insufficient funds charge) or charge interest for use of an overdraft line of credit, if the deposited check is paid by the paying bank and these fees would not have occurred had the additional case-by-case delay not been imposed. A bank may assess an overdraft or returned check fee under these circumstances, however, if it provides notice to the customer in the notice required by paragraph (c)(2) of this section that the fee may be subject to refund, and refunds the fee upon the request of the customer when required to do so. The notice must state that the customer may be entitled to a refund of any overdraft or returned check fees that are assessed if the deposited check is paid, and indicate where such requests for a refund of overdraft fees should be directed. Paragraph (c)(3) applies when a bank provides a case-by-case notice in accordance with paragraph (c)(2) and does not apply if the bank has provided an exception hold notice in accordance with <ref href="/us/cfr/t12/s229.13">§ 229.13</ref>. </p>
<heading style="-uslm-sgm:HD3">D. 229.16(d) Credit Union Notice of Interest Payment Policy </heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the special disclosure requirement for credit unions that delay accrual of interest or dividends for all cash and check deposits beyond the date of receiving provisional credit for checks being deposited. (The interest payment requirement is set forth in <ref href="/us/cfr/t12/s229.14/a">§ 229.14(a)</ref>.) Such credit unions are required to describe their policy with respect to accrual of interest or dividends on deposits in their specific availability policy disclosure.
<?page num="916"?></p>
<heading style="-uslm-sgm:HD2">XI. Section 229.17 Initial Disclosures </heading>
<p style="-uslm-sgm:P">A. This paragraph requires banks to provide a notice of their availability policy to all potential customers prior to opening an account. The requirement of a notice prior to opening an account requires banks to provide disclosures prior to accepting a deposit to open an account. Disclosures must be given at the time the bank accepts an initial deposit regardless of whether the bank has opened the account yet for the customer. If a bank, however, receives a written request by mail from a person asking that an account be opened and the request includes an initial deposit, the bank may open the account with the deposit, provided the bank mails the required disclosures to the customer not later than the business day following the banking day on which the bank receives the deposit. Similarly, if a bank receives a telephone request from a customer asking that an account be opened with a transfer from a separate account of the customer's at the bank, the disclosure may be mailed not later than the business day following the banking day of the request. </p>
<heading style="-uslm-sgm:HD2">XII. Section 229.18 Additional Disclosure Requirements </heading>
<heading style="-uslm-sgm:HD3">A. 229.18(a) Deposit Slips </heading>
<p style="-uslm-sgm:P">1. This paragraph requires banks to include a notice on all preprinted deposit slips. The deposit slip notice need only state, somewhere on the front of the deposit slip, that deposits may not be available for immediate withdrawal. The notice is required only on preprinted deposit slips—those printed with the customer's account number and name and furnished by the bank in response to a customer's order to the bank. A bank need not include the notice on deposit slips that are not preprinted and supplied to the customer—such as counter deposit slips—or on those special deposit slips provided to the customer under <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref>. A bank is not responsible for ensuring that the notice appear on deposit slips that the customer does not obtain from or through the bank. This paragraph applies to preprinted deposit slips furnished to customers on or after <date date="1988-09-01">September 1, 1988</date>. </p>
<heading style="-uslm-sgm:HD3">B. 229.18(b) Locations Where Employees Accept Consumer Deposits </heading>
<p style="-uslm-sgm:P">1. This paragraph describes the statutory requirement that a bank post in each location where its employees accept consumer deposits a notice of its availability policy pertaining to consumer accounts. The notice that is required must specifically state the availability periods for the various deposits that may be made to consumer accounts. The notice need not be posted at each teller window, but the notice must be posted in a place where consumers seeking to make deposits are likely to see it before making their deposits. For example, the notice might be posted at the point where the line forms for teller service in the lobby. The notice is not required at any drive-through teller windows nor is it required at night depository locations, or at locations where consumer deposits are not accepted. A bank that acts as a contractual branch at a particular location must include the availability policy that applies to its own customers but need not include the policy that applies to the customers of the bank for which it is acting as a contractual branch.</p>
<heading style="-uslm-sgm:HD3">C. 229.18(c) Automated Teller Machines </heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the required notices for ATMs. Paragraph (c)(1) provides that the depositary bank is responsible for posting a notice on all ATMs at which deposits can be made to accounts at the depositary bank. The depositary bank may arrange for a third party, such as the owner or operator of the ATM, to post the notice and indemnify the depositary bank from liability if the depositary bank is liable under <ref href="/us/cfr/t12/s229.21">§ 229.21</ref> for the owner or operator failing to provide the required notice. </p>
<p style="-uslm-sgm:P">2. The notice may be posted on a sign, shown on the screen, or included on deposit envelopes provided at the ATM. This disclosure must be given before the customer has made the deposit. Therefore, a notice provided on the customer's deposit receipt or appearing on the ATM's screen after the customer has made the deposit would not satisfy this requirement. </p>
<p style="-uslm-sgm:P">3. Paragraph (c)(2) requires a depositary bank that operates an off-premise ATM from which deposits are removed not more than two times a week to make a disclosure of this fact on the off-premise ATM. The notice must disclose to the customer the days on which deposits made at the ATM will be considered received. </p>
<heading style="-uslm-sgm:HD3">D. 229.18(d) Upon Request </heading>
<p style="-uslm-sgm:P">1. This paragraph requires banks to provide written notice of their specific availability policy to any person upon that person's oral or written request. The notice must be sent within a reasonable period of time following receipt of the request. </p>
<heading style="-uslm-sgm:HD3">E. 229.18(e) Changes in Policy </heading>
<p style="-uslm-sgm:P">1. This paragraph requires banks to send notices to their customers when the banks change their availability policies with regard to consumer accounts. A notice may be given in any form as long as it is clear and conspicuous. If the bank gives notice of a change by sending the customer a complete new availability disclosure, the bank must direct the customer to the changed terms in the disclosure by use of a letter or insert, or <?page num="917"?>by highlighting the changed terms in the disclosure. </p>
<p style="-uslm-sgm:P">2. Generally, a bank must send a notice at least 30 calendar days before implementing any change in its availability policy. If the change results in faster availability of deposits—for example, if the bank changes its availability for nonlocal checks from the fifth business day after deposit to the fourth business day after deposit—the bank need not send advance notice. The bank must, however, send notice of the change no later than 30 calendar days after the change is implemented. A bank is not required to give a notice when there is a change in appendix B (reduction of schedules for certain nonlocal checks). </p>
<p style="-uslm-sgm:P">3. A bank that has provided its customers with a list of ATMs under <ref href="/us/cfr/t12/s229.16/b/5">§ 229.16(b)(5)</ref> shall provide its customers with an updated list of ATMs once a year if there are changes in the list of ATMs previously disclosed to the customers. </p>
<heading style="-uslm-sgm:HD2">XIII. Section 229.19 Miscellaneous </heading>
<heading style="-uslm-sgm:HD3">A. 229.19(a) When Funds Are Considered Deposited </heading>
<p style="-uslm-sgm:P">1. The time funds must be made available for withdrawal under this subpart is determined by the day the deposit is made. This paragraph provides rules to determine the day funds are considered deposited in various circumstances. </p>
<p style="-uslm-sgm:P">2. Staffed facilities and ATMs. Funds received at a staffed teller station or ATM are considered deposited when received by the teller or placed in the ATM. Funds received at a contractual branch are considered deposited when received by a teller at the contractual branch or deposited into a proprietary ATM of the contractual branch. (See also, Commentary to <ref href="/us/cfr/t12/s229.10/c">§ 229.10(c)</ref> on deposits made to an employee of the depositary bank.) Funds deposited to a deposit box in a bank lobby that is accessible to customers only during regular business hours generally are considered deposited when placed in the lobby box; a bank may, however, treat deposits to lobby boxes the same as deposits to night depositories (as provided in <ref href="/us/cfr/t12/s229.19/a/3">§ 229.19(a)(3)</ref>), provided a notice appears on the lobby box informing the customer when such funds will be considered deposited. </p>
<p style="-uslm-sgm:P">3. Mail. Funds mailed to the depositary bank are considered deposited on the banking day they are received by the depositary bank. The funds are received by the depositary bank at the time the mail is delivered to the bank, even if it is initially delivered to a mail room, rather than the check processing area. </p>
<p style="-uslm-sgm:P">4. Other facilities. </p>
<p style="-uslm-sgm:P">a. In addition to deposits at staffed facilities, at ATMs, and by mail, funds may be deposited at a facility such as a night depository or a lock box. A night depository is a receptacle for receipt of deposits, typically used by corporate depositors when the branch is closed. Funds deposited at a night depository are considered deposited on the banking day the deposit is removed, and the contents of the deposit are accessible to the depositary bank for processing. For example, some businesses deposit their funds in a locked bag at the night depository late in the evening, and return to the bank the following day to open the bag. Other depositors may have an agreement with their bank that the deposit bag must be opened under the dual control of the bank and the depositor. In these cases, the funds are considered deposited when the customer returns to the bank and opens the deposit bag. </p>
<p style="-uslm-sgm:P">b. A lock box is a post office box used by a corporation for the collection of bill payments or other check receipts. The depositary bank generally assumes the responsibility for collecting the mail from the lock box, processing the checks, and crediting the corporation for the amount of the deposit. Funds deposited through a lock box arrangement are considered deposited on the day the deposit is removed from the lock box and are accessible to the depositary bank for processing. </p>
<p style="-uslm-sgm:P">5. Certain off-premise ATMs. A special provision is made for certain off-premise ATMs that are not serviced daily. Funds deposited at such an ATM are considered deposited on the day they are removed from the ATM, if the ATM is not serviced more than two times each week. This provision is intended to address the practices of some banks of servicing certain remote ATMs infrequently. If a depositary bank applies this provision with respect to an ATM, a notice must be posted at the ATM informing depositors that funds deposited at the ATM may not be considered deposited until a future day, in accordance with <ref href="/us/cfr/t12/s229.18">§ 229.18</ref>. </p>
<p style="-uslm-sgm:P">6. Banking day of deposit. </p>
<p style="-uslm-sgm:P">a. This paragraph also provides that a deposit received on a day that the depositary bank is closed, or after the bank's cut-off hour, may be considered made on the next banking day. Generally, for purposes of the availability schedules of this subpart, a bank may establish a cut-off hour of 2 p.m. or later for receipt of deposits at its head office or branch offices. For receipt of deposits at ATMs, contractual branches, or other off-premise facilities, such as night depositories or lock boxes, the depositary bank may establish a cut-off hour of 12:00 noon or later (either local time of the branch or other location of the depositary bank at which the account is maintained or local time of the ATM, contractual branch, or other off-premise facility). The depositary bank must use the same timing method for establishing the cut-off hour for all ATMs, contractual branches, and other off-premise facilities used by its customers. The choice of cut-off <?page num="918"?>hour must be reflected in the bank's internal procedures, and the bank must inform its customers of the cut-off hour upon request. This earlier cut-off for ATM, contractual branch, or other off-premise deposits is intended to provide greater flexibility in the servicing of these facilities. </p>
<p style="-uslm-sgm:P">b. Different cut-off hours may be established for different types of deposits. For example, a bank may establish a 2 p.m. cut-off for the receipt of check deposits, but a later cut-off for the receipt of wire transfers. Different cut-off hours also may be established for deposits received at different locations. For example, a different cut-off may be established for ATM deposits than for over-the-counter deposits, or for different teller stations at the same branch. With the exception of the 12 noon cut-off for deposits at ATMs and off-premise facilities, no cut-off hour for receipt of deposits for purposes of this subpart can be established earlier than 2 p.m. </p>
<p style="-uslm-sgm:P">c. A bank is not required to remain open until 2 p.m. If a bank closes before 2 p.m., deposits received after the closing may be considered deposited on the next banking day. Further, as <ref href="/us/cfr/t12/s229.2/f">§ 229.2(f)</ref> defines the term banking day as the portion of a business day on which a bank is open to the public for substantially all of its banking functions, a day, or a portion of a day, is not necessarily a banking day merely because the bank is open for only limited functions, such as keeping drive-in or walk-up teller windows open, when the rest of the bank is closed to the public. For example, a banking office that usually provides a full range of banking services may close at 12 noon but leave a drive-in teller window open for the limited purpose of receiving deposits and making cash withdrawals. Under those circumstances, the bank is considered closed and may consider deposits received after 12 noon as having been received on the next banking day. The fact that a bank may reopen for substantially all of its banking functions after 2 p.m., or that it continues its back office operations throughout the day, would not affect this result. A bank may not, however, close individual teller stations and reopen them for next-day's business before 2 p.m. during a banking day. </p>
<heading style="-uslm-sgm:HD3">B. 229.19(b) Availability at Start of Business Day </heading>
<p style="-uslm-sgm:P">1. If funds must be made available for withdrawal on a business day, the funds must be available for withdrawal by the later of 9 a.m. or the time the depositary bank's teller facilities, including ATMs, are available for customer account withdrawals, except under the special rule for cash withdrawals set forth in <ref href="/us/cfr/t12/s229.12/d">§ 229.12(d)</ref>. Thus, if a bank has no ATMs and its branch facilities are available for customer transactions beginning at 10 a.m., funds must be available for customer withdrawal beginning at 10 a.m. If the bank has ATMs that are available 24 hours a day, rather than establishing 12:01 a.m. as the start of the business day, this paragraph sets 9 a.m. as the start of the day with respect to ATM withdrawals. The Board believes that this rule provides banks with sufficient time to update their accounting systems to reflect the available funds in customer accounts for that day. </p>
<p style="-uslm-sgm:P">2. The start of business is determined by the local time of the branch or other location of the depositary bank at which the account is maintained. For example, if funds in a customer's account at a west coast bank are first made available for withdrawal at the start of business on a given day, and the customer attempts to withdraw the funds at an east coast ATM, the depositary bank is not required to make the funds available until 9 a.m. west coast time (12 noon east coast time). </p>
<heading style="-uslm-sgm:HD3">C. 229.19(c) Effect on Policies of Depositary Bank </heading>
<p style="-uslm-sgm:P">1. This subpart establishes the maximum hold that may be placed on customer deposits. A depositary bank may provide availability to its customers in a shorter time than prescribed in this subpart. A depositary bank also may adopt different funds availability policies for different segments of its customer base, as long as each policy meets the schedules in the regulation. For example, a bank may differentiate between its corporate and consumer customers, or may adopt different policies for its consumer customers based on whether a customer has an overdraft line of credit associated with the account. </p>
<p style="-uslm-sgm:P">2. This regulation does not affect a depositary bank's right to accept or reject a check for deposit, to charge back the customer's account based on a returned check or notice of nonpayment, or to claim a refund for any credit provided to the customer. For example, even if a check is returned or a notice of nonpayment is received after the time by which funds must be made available for withdrawal in accordance with this regulation, the depositary bank may charge back the customer's account for the full amount of the check. (See <ref href="/us/cfr/t12/s229.33/d">§ 229.33(d)</ref> and Commentary.) </p>
<p style="-uslm-sgm:P">3. Nothing in the regulation requires a depositary bank to have facilities open for customers to make withdrawals at specified times or on specified days. For example, even though the special cash withdrawal rule set forth in <ref href="/us/cfr/t12/s229.12/d">§ 229.12(d)</ref> states that a bank must make up to $400 available for cash withdrawals no later than 5 p.m. on specific business days, if a bank does not participate in an ATM system and does not have any teller windows open at or after 5 p.m., the bank need not join an ATM system or keep <?page num="919"?>offices open. In this case, the bank complies with this rule if the funds that are required to be available for cash withdrawal at 5 p.m. on a particular day are available for withdrawal at the start of business on the following day. Similarly, if a depositary bank is closed for customer transactions, including ATMs, on a day funds must be made available for withdrawal, the regulation does not require the bank to open. </p>
<p style="-uslm-sgm:P">4. The special cash withdrawal rule in the EFA Act recognizes that the $400 that must be made available for cash withdrawal by 5 p.m. on the day specified in the schedule may exceed a bank's daily ATM cash withdrawal limit and explicitly provides that the EFA Act does not supersede a bank's policy in this regard. As a result, if a bank has a policy of limiting cash withdrawals from automated teller machines to $250 per day, the regulation would not require that the bank dispense $400 of the proceeds of the customer's deposit that must be made available for cash withdrawal on that day. </p>
<p style="-uslm-sgm:P">5. Even though the EFA Act clearly provides that the bank's ATM withdrawal limit is not superseded by the federal availability rules on the day funds must first be made available, the EFA Act does not specifically permit banks to limit cash withdrawals at ATMs on subsequent days when the entire amount of the deposit must be made available for withdrawal. The Board believes that the rationale behind the EFA Act's provision that a bank's ATM withdrawal limit is not superseded by the requirement that funds be made available for cash withdrawal applies on subsequent days. Nothing in the regulation prohibits a depositary bank from establishing ATM cash withdrawal limits that vary among customers of the bank, as long as the limit is not dependent on the length of time funds have been in the customer's account (provided that the permissible hold has expired). </p>
<p style="-uslm-sgm:P">6. Some small banks, particularly credit unions, due to lack of secure facilities, keep no cash on their premises and hence offer no cash withdrawal capability to their customers. Other banks limit the amount of cash on their premises due to bonding requirements or cost factors, and consequently reserve the right to limit the amount of cash each customer can withdraw over-the-counter on a given day. For example, some banks require advance notice for large cash withdrawals in order to limit the amount of cash needed to be maintained on hand at any time. </p>
<p style="-uslm-sgm:P">7. Nothing in the regulation is intended to prohibit a bank from limiting the amount of cash that may be withdrawn at a staffed teller station if the bank has a policy limiting the amount of cash that may be withdrawn, and if that policy is applied equally to all customers of the bank, is based on security, operating, or bonding requirements, and is not dependent on the length of time the funds have been in the customer's account (as long as the permissible hold has expired). The regulation, however, does not authorize such policies if they are otherwise prohibited by statutory, regulatory, or common law. </p>
<heading style="-uslm-sgm:HD3">D. 229.19(d) Use of Calculated Availability </heading>
<p style="-uslm-sgm:P">1. A depositary bank may provide availability to its nonconsumer accounts on a calculated availability basis. Under calculated availability, a specified percentage of funds from check deposits may be made available to the customer on the next business day, with the remaining percentage deferred until subsequent days. The determination of the percentage of deposited funds that will be made available each day is based on the customer's typical deposit mix as determined by a sample of the customer's deposits. Use of calculated availability is permitted only if, on average, the availability terms that result from the sample are equivalent to or more prompt than the requirements of this subpart. </p>
<heading style="-uslm-sgm:HD3">E. 229.19(e) Holds on Other Funds </heading>
<p style="-uslm-sgm:P">1. Section 607(d) of the EFA Act (<ref href="/us/usc/t12/s4006/d">12 U.S.C. 4006(d)</ref>) provides that once funds are available for withdrawal under the EFA Act, such funds shall not be frozen solely due to the subsequent deposit of additional checks that are not yet available for withdrawal. This provision of the EFA Act is designed to prevent evasion of the EFA Act's availability requirements. </p>
<p style="-uslm-sgm:P">2. This paragraph clarifies that if a customer deposits a check in an account (as defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref>), the bank may not place a hold on any of the customer's funds so that the funds that are held exceed the amount of the check deposited or the total amount of funds held are not made available for withdrawal within the times required in this subpart. For example, if a bank places a hold on funds in a customer's non transaction account, rather than a transaction account, for deposits made to the customer's transaction account, the bank may place such a hold only to the extent that the funds held do not exceed the amount of the deposit and the length of the hold does not exceed the time periods permitted by this regulation. </p>
<p style="-uslm-sgm:P">3. These restrictions also apply to holds placed on funds in a customer's account (as defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref>) if a customer cashes a check at a bank (other than a check drawn on that bank) over the counter. The regulation does not prohibit holds that may be placed on other funds of the customer for checks cashed over the counter, to the extent that the transaction does not involve a deposit to an account. A bank may not, however, place a hold on any account when an “on us” check is cashed over the counter. “On us” checks are considered finally paid <?page num="920"?>when cashed (see U.C.C. 4–215(a)(1)). When a customer cashes a check over the counter and the bank places a hold on an account of the customer, the bank must give whatever notice would have been required under <ref href="/us/cfr/t12/s229.13">§§ 229.13</ref> or 229.16 had the check been deposited in the account. </p>
<heading style="-uslm-sgm:HD3">F. 229.19(f) Employee Training and Compliance </heading>
<p style="-uslm-sgm:P">1. The EFA Act requires banks to take such actions as may be necessary to inform fully each employee that performs duties subject to the EFA Act of the requirements of the EFA Act, and to establish and maintain procedures reasonably designed to assure and monitor employee compliance with such requirements. </p>
<p style="-uslm-sgm:P">2. This paragraph requires a bank to establish procedures to ensure compliance with these requirements and provide these procedures to the employees responsible for carrying them out. </p>
<heading style="-uslm-sgm:HD3">G. 229.19(g) Effect of Merger Transaction </heading>
<p style="-uslm-sgm:P">1. After banks merge, there is often a period of adjustment before their operations are consolidated. This paragraph accommodates this adjustment period by allowing merged banks to be treated as separate banks for purposes of this subpart for a period of up to one year after consummation of the merger transaction, except that a customer of any bank that is a party to the transaction that has an established account with that bank may not be treated as a new account holder for any other party to the transaction for purposes of the new account exception of <ref href="/us/cfr/t12/s229.13/a">§ 229.13(a)</ref>, and a deposit in any branch of the merged bank is considered deposited in the bank for purposes of the availability schedules in accordance with <ref href="/us/cfr/t12/s229.19/a">§ 229.19(a)</ref>. </p>
<p style="-uslm-sgm:P">2. This rule affects the status of the combined entity in several areas. For example, this rule would affect when an ATM is a proprietary ATM (<ref href="/us/cfr/t12/s229.2/aa">§ 229.2(aa)</ref> and <ref href="/us/cfr/t12/s229.12/b">§ 229.12(b)</ref>) and when a check is considered drawn on a branch of the depositary bank (<ref href="/us/cfr/t12/s229.10/c/1/vi">§ 229.10(c)(1)(vi)</ref>). </p>
<p style="-uslm-sgm:P">3. Merger transaction is defined in <ref href="/us/cfr/t12/s229.2/t">§ 229.2(t)</ref>. </p>
<heading style="-uslm-sgm:HD2">XIV. Section 229.20 Relation to State Law </heading>
<heading style="-uslm-sgm:HD3">A. 229.20(a) In General </heading>
<p style="-uslm-sgm:P">1. Several states have enacted laws that govern when banks in those states must make funds available to their customers. The EFA Act provides that any state law in effect on <date date="1989-09-01">September 1, 1989</date>, that provides that funds be made available in a shorter period of time than provided in this regulation, will supersede the time periods in the EFA Act and the regulation. The Conference Report on the EFA Act clarifies this provision by stating that any state law enacted on or before <date date="1989-09-01">September 1, 1989</date>, may supersede federal law to the extent that the law relates to the time funds must be made available for withdrawal. H.R. Rep. No. 261, 100th Cong. 1st Sess. at 182 (1987). </p>
<p style="-uslm-sgm:P">2. Thus, if a state had wished to adopt a law governing funds availability, it had to have made that law effective on or before <date date="1989-09-01">September 1, 1989</date>. Laws adopted after that date do not supersede federal law, even if they provide for shorter availability periods than are provided under federal law. If a state that had a law governing funds availability in effect before <date date="1989-09-01">September 1, 1989</date>, amended its law after that date, the amendment would not supersede federal law, but an amendment deleting a state requirement would be effective. </p>
<p style="-uslm-sgm:P">3. If a state provides for a shorter hold for a certain category of checks than is provided for under federal law, that state requirement will supersede the federal provision. For example, most state laws base some hold periods on whether the check being deposited is drawn on an in-state or out-of-state bank. If a state contains more than one check processing region, the state's hold period for in-state checks may be shorter than the federal maximum hold period for nonlocal checks. Thus, the state schedule would supersede the federal schedule to the extent that it applies to in-state, nonlocal checks. </p>
<p style="-uslm-sgm:P">4. The EFA Act also provides that any state law that provides for availability in a shorter period of time than required by federal law is applicable to all federally insured institutions in that state, including federally chartered institutions. If a state law provides shorter availability only for deposits in accounts in certain categories of banks, such as commercial banks, the superseding state law continues to apply only to those categories of banks, rather than to all federally insured banks in the state. </p>
<heading style="-uslm-sgm:HD3">B. 229.20(b) Preemption of Inconsistent Law </heading>
<p style="-uslm-sgm:P">1. This paragraph reflects the statutory provision that other provisions of state law that are inconsistent with federal law are preempted. Preemption does not require a determination by the Board to be effective. </p>
<heading style="-uslm-sgm:HD3">C. 229.20(c) Standards for Preemption </heading>
<p style="-uslm-sgm:P">1. This section describes the standards the Board uses in making determinations on whether federal law will preempt state laws governing funds availability. A provision of state law is considered inconsistent with federal law if it permits a depositary bank to make funds available to a customer in a longer period of time than the maximum period permitted by the EFA Act and this regulation. For example, a state law that permits a hold of four business days or longer for local checks permits a hold that is longer <?page num="921"?>than that permitted under the EFA Act and this regulation, and therefore is inconsistent and preempted. State availability schedules that provide for availability in a shorter period of time than required under Regulation CC supersede the federal schedule. </p>
<p style="-uslm-sgm:P">2. Under a state law, some categories of deposits could be available for withdrawal sooner or later than the time required by this subpart, depending on the composition of the deposit. For example, the EFA Act and this regulation (<ref href="/us/cfr/t12/s229.10/c/1/vii">§ 229.10(c)(1)(vii)</ref>) require next-day availability for the first $100 of the aggregate deposit of local or nonlocal checks on any day, and a state law could require next-day availability for any check of $100 or less that is deposited. Under the EFA Act and this regulation, if either one $150 check or three $50 checks are deposited on a given day, $100 must be made available for withdrawal on the next business day, and $50 must be made available in accordance with the local or nonlocal schedule. Under the state law, however, the two deposits would be subject to different availability rules. In the first case, none of the proceeds of the deposit would be subject to next-day availability; in the second case, the entire proceeds of the deposit would be subject to next-day availability. In this example, because the state law would, in some situations, permit a hold longer than the maximum permitted by the EFA Act, this provision of state law is inconsistent and preempted in its entirety. </p>
<p style="-uslm-sgm:P">3. In addition to the differences between state and federal availability schedules, a number of state laws contain exceptions to the state availability schedules that are different from those provided under the EFA Act and this regulation. The state exceptions continue to apply only in those cases where the state schedule is shorter than or equal to the federal schedule, and then only up to the limit permitted by the Regulation CC schedule. Where a deposit is subject to a state exception under a state schedule that is not preempted by Regulation CC and is also subject to a federal exception, the hold on the deposit cannot exceed the hold permissible under the federal exception in accordance with Regulation CC. In such cases, only one exception notice is required, in accordance with <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref>. This notice need only include the applicable federal exception as the reason the exception was invoked. For those categories of checks for which the state schedule is preempted by the federal schedule, only the federal exceptions may be used. </p>
<p style="-uslm-sgm:P">4. State laws that provide maximum availability periods for categories of deposits that are not covered by the EFA Act would not be preempted. Thus, state funds availability laws that apply to funds in time and savings deposits are not affected by the EFA Act or this regulation. In addition, the availability schedules of several states apply to “items” deposited to an account. The term items may encompass deposits, such as nonnegotiable instruments, that are not subject to the Regulation CC availability schedules. Deposits that are not covered by Regulation CC continue to be subject to the state availability schedules. State laws that provide maximum availability periods for categories of institutions that are not covered by the EFA Act also would not be preempted. For example, a state law that governs money market mutual funds would not be affected by the EFA Act or this regulation. </p>
<p style="-uslm-sgm:P">5. Generally, state rules governing the disclosure or notice of availability policies applicable to accounts also are preempted, if they are different from the federal rules. Nevertheless, a state law requiring disclosure of funds availability policies that apply to deposits other than “accounts,” such as savings or time deposits, are not inconsistent with the EFA Act and this subpart. Banks in these states would have to follow the state disclosure rules for these deposits. </p>
<heading style="-uslm-sgm:HD3">D. 229.20(d) Preemption Determinations </heading>
<p style="-uslm-sgm:P">1. The Board may issue preemption determinations upon the request of an interested party in a state. The determinations will relate only to the provisions of Subparts A and B; generally the Board will not issue individual preemption determinations regarding the relation of state U.C.C. provisions to the requirements of Subpart C. </p>
<heading style="-uslm-sgm:HD3">E. 229.20(e) Procedures for Preemption Determinations </heading>
<p style="-uslm-sgm:P">1. This provision sets forth the information that must be included in a request by an interested party for a preemption determination by the Board. </p>
<heading style="-uslm-sgm:HD2">XV. Section 229.21 Civil Liability </heading>
<heading style="-uslm-sgm:HD3">A. 229.21(a) Civil Liability </heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the statutory penalties for failure to comply with the requirements of this subpart. These penalties apply to provisions of state law that supersede provisions of this regulation, such as requirements that funds deposited in accounts at banks be made available more promptly than required by this regulation, but they do not apply to other provisions of state law. (See Commentary to <ref href="/us/cfr/t12/s229.20">§ 229.20</ref>.) </p>
<heading style="-uslm-sgm:HD3">B. 229.21(b) Class Action Awards </heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the provision in the EFA Act concerning the factors that should be considered by the court in establishing the amount of a class action award. </p>
<heading style="-uslm-sgm:HD3">C. 229.21(c) Bona Fide Errors </heading>
<p style="-uslm-sgm:P">1. A bank is shielded from liability under this section for a violation of a requirement of this subpart if it can demonstrate, by a <?page num="922"?>preponderance of the evidence, that the violation resulted from a bona fide error and that it maintains procedures designed to avoid such errors. For example, a bank may make a bona fide error if it fails to give next-day availability on a check drawn on the Treasury because the bank's computer system malfunctions in a way that prevents the bank from updating its customer's account; or if it fails to identify whether a payable-through check is a local or nonlocal check despite procedures designed to make this determination accurately. </p>
<heading style="-uslm-sgm:HD3">D. 229.21(d) Jurisdiction </heading>
<p style="-uslm-sgm:P">1. The EFA Act confers subject matter jurisdiction on courts of competent jurisdiction and provides a time limit for civil actions for violations of this subpart. </p>
<heading style="-uslm-sgm:HD3">E. 229.21(e) Reliance on Board Rulings </heading>
<p style="-uslm-sgm:P">1. This provision shields banks from civil liability if they act in good faith in reliance on any rule, regulation, model form, notice, or clause (if the disclosure actually corresponds to the bank's availability policy), or interpretation of the Board, even if it were subsequently determined to be invalid. Banks may rely on this Commentary, which is issued as an official Board interpretation, as well as on the regulation itself. </p>
<heading style="-uslm-sgm:HD3">F. 229.21(f) Exclusions </heading>
<p style="-uslm-sgm:P">1. This provision clarifies that liability under this section does not apply to violations of the requirements of Subpart C of this regulation, or to actions for wrongful dishonor of a check by a paying bank's customer. </p>
<heading style="-uslm-sgm:HD3">G. 229.21(g) Record Retention </heading>
<p style="-uslm-sgm:P">1. Banks must keep records to show compliance with the requirements of this subpart for at least two years. This record retention period is extended in the case of civil actions and enforcement proceedings. Generally, a bank is not required to retain records showing that it actually has given disclosures or notices required by this subpart to each customer, but it must retain evidence demonstrating that its procedures reasonably ensure the customers' receipt of the required disclosures and notices. A bank must, however, retain a copy of each notice provided pursuant to its use of the reasonable cause exception under <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> as well as a brief description of the facts giving rise to the availability of that exception.
</p>
<heading style="-uslm-sgm:HD2">XVI. Section 229.30 Electronic Checks and Electronic Information</heading>
<heading style="-uslm-sgm:HD3">A. 229.30(a) Checks Under This Subpart</heading>
<p style="-uslm-sgm:P">1. A bank may agree to receive an electronic check or electronic returned check from another bank instead of a paper check or returned check. (See <ref href="/us/cfr/t12/s229.2/bbb">§ 229.2(bbb)</ref> and commentary thereto). Section 229.30(a) does not give a bank the right to send an electronic check or electronic returned check absent an agreement to do so with the receiving bank.</p>
<p style="-uslm-sgm:P">2. Electronic checks and electronic returned checks are subject to subpart C of this part as if they were checks or returned checks, unless otherwise provided in subpart C. For example, <ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref>, which requires a paying bank to provide a notice of nonpayment if the paying bank determines not to pay a check in the amount of $5,000 or more, also applies when a paying bank determines not to pay an electronic check in the amount of $5,000 or more. A depositary bank's obligation to pay for a returned check (<ref href="/us/cfr/t12/s229.33/e">§ 229.33(e)</ref>) also applies with respect to an electronic returned check.</p>
<p style="-uslm-sgm:P">Additionally, <ref href="/us/cfr/t12/s229.33/b">§§ 229.33(b)</ref> and 229.36(a) specify that the parties' agreements govern the receipt of electronic returned checks and electronic written notices of nonpayment, and electronic checks, respectively. Section 229.34(a) sets forth warranties that are given only with respect to electronic checks and electronic returned checks and section 229.34(f) sets forth an indemnity given only with respect to remote deposit capture. Warranties that apply to paper checks or paper returned checks also apply to electronic checks and electronic returned checks, including <ref href="/us/cfr/t12/s229.34/b">§ 229.34(b)</ref> (transfer and presentment warranties with respect to remotely created checks), <ref href="/us/cfr/t12/s229.34/c">§ 229.34(c)</ref> (settlement amount, encoding, and offset warranties), <ref href="/us/cfr/t12/s229.34/d">§ 229.34(d)</ref> (returned check warranties), and <ref href="/us/cfr/t12/s229.34/e">§ 229.34(e)</ref> (notice of nonpayment warranties). The parties may, by agreement, vary the effect of the provisions in subpart C of this part as they apply to electronic checks and electronic returned checks, except that as set forth in <ref href="/us/cfr/t12/s229.37">§ 229.37</ref>, no agreement can disclaim the responsibility of a bank for its own lack of good faith or failure to exercise ordinary care. (See <ref href="/us/cfr/t12/s229.37">§ 229.37</ref> and commentary thereto).</p>
<p style="-uslm-sgm:P">3. Certain provisions of subpart C relate solely to paper checks or paper returned checks, as specified, such as <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref> (acceptance of paper returned checks) and <ref href="/us/cfr/t12/s229.36/d">§ 229.36(d)</ref> (same-day settlement).</p>
<heading style="-uslm-sgm:HD3">B. 229.30(b) Writings</heading>
<p style="-uslm-sgm:P">1. Provisions in subpart C of this part require that a paying bank or returning bank send information in writing. For example, <ref href="/us/cfr/t12/s229.31/f">§ 229.31(f)</ref> requires that a notice in lieu be either a copy of the check or a written notice of nonpayment. A bank may send information required to be in writing in electronic form if the bank sending the information has an agreement with the bank receiving the information to do so.
<?page num="923"?></p>
<heading style="-uslm-sgm:HD2">XVII. Section 229.31 Paying Bank's Responsibility for Return of Checks and Notices of Nonpayment</heading>
<heading style="-uslm-sgm:HD3">A. 229.31(a) Return of Checks</heading>
<p style="-uslm-sgm:P">1. Routing of returned checks.</p>
<p style="-uslm-sgm:P">a. This subsection is subject to the requirements of expeditious return provided in <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref>.</p>
<p style="-uslm-sgm:P">b. The paying bank acts, in effect, as an agent or subagent of the depositary bank in selecting a means of return. Under <ref href="/us/cfr/t12/s229.31/a">§ 229.31(a)</ref>, a paying bank is authorized to route the returned check in a variety of ways:</p>
<p style="-uslm-sgm:P">i. It may send the returned check directly to the depositary bank by sending an electronic returned check directly to the depositary bank if the paying bank has an agreement with the depositary bank to do so, or by using a courier or other means of delivery, bypassing returning banks; or</p>
<p style="-uslm-sgm:P">ii. It may send the returned check or electronic returned check to any returning bank agreeing to handle the returned check or electronic returned check, regardless of whether or not the returning bank handled the check for forward collection.</p>
<p style="-uslm-sgm:P">c. If the paying bank elects to return the check directly to the depositary bank, it is not necessarily required to return the check to the branch of first deposit. A paper check may be returned to the depositary bank at any physical location permitted under <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref>.</p>
<p style="-uslm-sgm:P">2. a. In some cases, a paying bank will be unable to identify the depositary bank through the use of ordinary care and good faith. These cases are now rare as depositary banks generally apply their indorsements electronically. A paying bank, for example, would be unable to identify the depositary bank if the depositary bank's indorsement is neither in an addenda record nor within the image of the check that was presented electronically. A paying bank, however, would not be “unable” to identify the depositary bank merely because the depositary bank's indorsement is available within the image rather than attached as an addenda record.</p>
<p style="-uslm-sgm:P">b. In cases where the paying bank is unable to identify the depositary bank, the paying bank may send the returned check to a returning bank that agrees to handle the returned check. The returning bank may be better able to identify the depositary bank.</p>
<p style="-uslm-sgm:P">c. In the alternative, the paying bank may send the check back up the path used for forward collection of the check. The presenting bank and prior collecting banks normally will be able to trace the collection path of the check through the use of their internal records in conjunction with the indorsements on the returned check. In these limited cases, the presenting bank or a prior collecting bank is required to accept the returned check and send it to another prior collecting bank in the path used for forward collection or to the depositary bank. If the paying bank has an agreement to send electronic returned checks to a bank that handled the check for forward collection, the paying bank may send the electronic returned check to that bank.</p>
<p style="-uslm-sgm:P">d. A paying bank returning a check to a prior collecting bank because it is unable to identify the depositary bank must advise that bank that it is unable to identify the depositary bank. This advice must be conspicuous, such as a stamp on each check for which the depositary bank is unknown if such checks are commingled with other returned checks, or, if such checks are sent in a separate cash letter, by one notice on the cash letter. In the case of an electronic returned check, the advice requirement may be satisfied as agreed to by the parties. The advice will warn the bank that this check will require special research and handling in accordance with <ref href="/us/cfr/t12/s229.32/a/2">§ 229.32(a)(2)</ref>. The returned check may not be prepared as a qualified return.</p>
<p style="-uslm-sgm:P">e. A paying bank also may send a check to a prior collecting bank to make a claim against that bank under <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref> where the depositary bank is insolvent or in other cases as provided in <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>. Finally, a paying bank may make a claim against a prior collecting bank based on a breach of warranty under UCC 4–208.</p>
<p style="-uslm-sgm:P">3. Midnight deadline. Except for the extension permitted by <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref>, discussed below, this section does not relieve a paying bank from the requirement for timely return (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> midnight deadline) under UCC 4–301 and 4–302, which continue to apply. Under UCC 4–302, a paying bank is “accountable” for the amount of a demand item, other than a documentary draft, if it does not pay or return the item or send notice of dishonor by its midnight deadline. Under UCC 3–418(c) and 4–215(a), late return constitutes payment and would be final in favor of a holder in due course or a person who has in good faith changed his position in reliance on the payment. Thus, the UCC midnight deadline gives the paying bank an incentive to make a prompt return.</p>
<p style="-uslm-sgm:P">4. UCC provisions affected. This paragraph directly affects the following provisions of the UCC, and may affect other sections or provisions:</p>
<p style="-uslm-sgm:P">a. Section 4–301(d), in that instead of returning a check through a clearinghouse or to the presenting bank, a paying bank may send a returned check to the depositary bank or to a returning bank.</p>
<p style="-uslm-sgm:P">b. Section 4–301(a), in that settlement for returned checks is made under <ref href="/us/cfr/t12/s229.32/e">§ 229.32(e)</ref>, not by revocation of settlement.</p>
<heading style="-uslm-sgm:HD3">B. 229.31(b) Expeditious Return of Checks</heading>
<p style="-uslm-sgm:P">1. This section requires a paying bank (which, for purposes of subpart C, may include a payable-through and payable-at bank <?page num="924"?>(see <ref href="/us/cfr/t12/s229.2/z">§ 229.2(z)</ref>) that determines not to pay a check to return the check expeditiously. Section 229.31(d) sets forth exceptions to this general rule. If a paying bank is not subject to the requirement for expeditious return under <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref>, the paying bank, nonetheless, must return the check within its deadlines under the UCC, Regulation J (<ref href="/us/cfr/t12/p210">12 CFR part 210</ref>) or <ref href="/us/cfr/t12/s229.36/d/3">§§ 229.36(d)(3)</ref> and (f)(4), as extended by <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref>, for returning the item or sending notice.</p>
<heading style="-uslm-sgm:HD3">2. Two-Day Test</heading>
<p style="-uslm-sgm:P">a. A returned check, including the original check, substitute check, or electronic returned check, is returned expeditiously if a paying bank sends the returned check in a manner such that the returned check would normally be received by the depositary bank not later than 2 p.m. (local time of the depositary bank) on the second business day following the banking day on which the check was presented to the paying bank.</p>
<p style="-uslm-sgm:P">b. A paying bank may satisfy its expeditious return requirement by returning either an electronic returned check or a paper check. For example, a paying bank could meet the expeditious return test by sending an electronic returned check directly to the depositary bank, if the paying bank has an agreement with the depositary bank to do so, such that it normally would reach the depositary bank by the specified deadline, or sending an electronic returned check to a returning bank, if the paying bank has an agreement with the returning bank to do so, within the returning bank's timeframe for delivering electronic returned checks to the depositary bank within the return deadline. A paying bank that sends a returned check in paper form would typically need a highly expeditious means of delivery to meet the expeditious return test.</p>
<p style="-uslm-sgm:P">c. This test does not require actual receipt of the returned check by the depositary bank within the specified deadline. In determining whether an electronic returned check would normally reach a depositary bank within the specified deadline, a paying bank may rely on a returning bank's return deadlines and availability schedules for electronic returned checks and returned checks destined for the depositary bank. A paying bank may not rely on the availability schedules if the paying bank has reason to believe that these schedules do not reflect the actual time for return of an electronic returned check to the depositary bank to which the paying bank is returning the check. The paying bank is not responsible for unforeseeable delays in the return of the check, such as communication failures or transportation delays.</p>
<p style="-uslm-sgm:P">d. Where the second business day following presentment of the check to the paying bank is not a banking day for the depositary bank, the depositary bank might not process checks on that day. Consequently, if the last day of the time limit is not a banking day for the depositary bank, the check may be delivered to the depositary bank not later than 2 p.m. (local time of the depositary bank) on the depositary bank's next banking day and the return will still be considered expeditious.</p>
<p style="-uslm-sgm:P">e. Paying banks and returning banks are subject to the expeditious return rule, however, under section 229.33(a) a paying or returning bank may be liable to a depositary bank for failing to return a check in an expeditious manner only if the depositary bank has arrangements in place such that the paying or returning bank could return a returned check to the depositary bank electronically by commercially reasonable means. The depositary bank has the burden of proof for demonstrating that its arrangements are commercially reasonable.</p>
<heading style="-uslm-sgm:HD2">3. Examples</heading>
<p style="-uslm-sgm:P">a. The paying bank and depositary bank have a bilateral agreement under which the depositary bank agrees to receive electronic returned checks directly from the paying bank. If a check is presented to a paying bank on Monday, the paying bank should send the returned check such that an electronic returned check normally would be received by the depositary bank by 2 p.m. (local time of the depositary bank) on Wednesday. This result is the same if, instead of a bilateral agreement, the paying bank and depositary bank are members of the same clearinghouse and agree to exchange electronic returned checks under clearinghouse rules.</p>
<p style="-uslm-sgm:P">b. The depositary bank has an agreement to receive electronic returned checks from Returning Bank A but not from the paying bank. The paying bank, however, has an agreement with Returning Bank A to send electronic returned checks to Returning Bank A. If a check is presented to the paying bank on Monday, the paying bank should send the returned check such that the depositary bank normally would receive the returned check by 2 p.m. (local time of the depositary bank) on Wednesday. A paying bank may satisfy this requirement by sending either an electronic returned check or a paper returned check to Returning Bank A in a manner that permits Returning Bank A to send an electronic returned check to the depositary bank by 2 p.m. on Wednesday. The paying bank may also send a paper returned check to the depositary bank if a paper returned check would normally be received by the depositary bank by 2 p.m. on Wednesday.</p>
<p style="-uslm-sgm:P">c. The paying bank has an agreement to send electronic returned checks to Returning Bank A. The depositary bank has an agreement to receive electronic returned checks from Returning Bank B. The paying bank does not have an agreement to send electronic returned checks to Returning Bank B. <?page num="925"?>Returning Bank A, however, has an agreement to send electronic returned checks to Returning Bank B. If a check is presented to the paying bank on Monday, the paying bank should send the returned check such that the depositary bank normally would receive the returned check by 2 p.m. (local time of the depositary bank) on Wednesday.</p>
<heading style="-uslm-sgm:HD3">C. 229.31(c) Notice of Nonpayment</heading>
<heading style="-uslm-sgm:HD3">1. Requirement</heading>
<p style="-uslm-sgm:P">a. The paying bank must send a notice of nonpayment if it decides not to pay a check in the amount of $5,000 or more. Except in the case where the returned check or a notice in lieu of return serves as the notice of nonpayment, the notice of nonpayment carries no value, and the check or substitute check must be returned in addition to the notice of nonpayment. The paying bank must send the notice of nonpayment such that it would normally be received by the depositary bank not later than 2 p.m. (local time of the depositary bank) on the second business day following presentment. In determining whether the notice requirement is satisfied, the paying bank may rely on the availability schedules of a third party that provides the notice on behalf of the paying bank as the time that the notice is expected to be delivered to the depositary bank, unless the paying bank has reason to know the availability schedules are inaccurate.</p>
<p style="-uslm-sgm:P">b. A bank identified by routing number as the paying bank is considered the paying bank under this subpart and would be required to provide a notice of nonpayment even though that bank determined that the check was not drawn by a customer of that bank. (See commentary to the definition of paying bank in <ref href="/us/cfr/t12/s229.2/z">§ 229.2(z)</ref>). A bank designated as a payable-through or payable-at bank and to which the check is sent for payment or collection is responsible for the notice of nonpayment requirement. The payable-through or payable-at bank may contract with the payor with respect to its liability in discharging these responsibilities.</p>
<p style="-uslm-sgm:P">c. The paying bank should not send a notice of nonpayment until it has finally determined not to pay the check. Under <ref href="/us/cfr/t12/s229.34/e">§ 229.34(e)</ref>, by sending the notice the paying bank warrants that it has returned or will return the check. If a paying bank sends a notice and subsequently decides to pay the check, the paying bank may mitigate its liability on this warranty by notifying the depositary bank that the check has been paid.</p>
<p style="-uslm-sgm:P">d. The return of the check itself may serve as the required notice of nonpayment. In some cases, the returned check may be received by the depositary bank within the time requirements of <ref href="/us/cfr/t12/s229.31/c/1">§ 229.31(c)(1)</ref> and no notice other than the return of the check will be necessary. If the check is not received by the depositary bank within the time limits for notice, the return of the check may not satisfy the notice requirement. In determining whether the returned check will satisfy the notice requirement, the paying bank may rely on the availability schedules of returning banks as the time that the returned check is expected to be delivered to the depositary bank, unless the paying bank has reason to know the availability schedules are inaccurate.</p>
<p style="-uslm-sgm:P">e. The requirement for notice does not affect the requirements for return of the check under the UCC (or <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref>). A paying bank is not responsible for failure to give notice of nonpayment to a party that has breached a presentment warranty under UCC 4–208, notwithstanding that the paying bank may have returned the check. (See UCC 4–208 and 4–302).</p>
<heading style="-uslm-sgm:HD3">2. Content of Notices</heading>
<p style="-uslm-sgm:P">a. This paragraph provides that, to the extent the information is available to the paying bank, the notice must at a minimum contain the information contained in the check's MICR line when the check was received by the paying bank. The MICR line information includes the paying bank's routing number, the account number of the paying bank's customer, the check number, and auxiliary on-us fields for corporate checks, and may include the amount of the check.</p>
<p style="-uslm-sgm:P">b. Although it has no duty to do so, a paying bank that cannot identify the depositary bank from the check itself may wish to send the notice to the earliest collecting bank it can identify and indicate that the notice is not being sent to the depositary bank. The collecting bank may be able to identify the depositary bank and forward the notice, but is under no duty to do so. In addition, the collecting bank may actually be the depositary bank.</p>
<p style="-uslm-sgm:P">c. A bank must identify an item of information if the bank is uncertain as to that item's accuracy. A bank may make this identification in accordance with general industry practices, or by other reasonable means. For example, where the paying bank receives a handwritten check with a payee name that the paying bank cannot decipher using a good faith effort, the paying bank could include a “?” symbol in the payee's name field of the notice to indicate its uncertainty as to that particular element.</p>
<heading style="-uslm-sgm:HD3">D. 229.31(d) Exceptions to the Expeditious Return of Checks and Notice of Nonpayment</heading>
<heading style="-uslm-sgm:HD3">1. Depositary Banks Not Subject to Subpart B of This Part</heading>
<p style="-uslm-sgm:P">a. Subpart B of this part applies only to “checks” deposited in transaction “accounts.” A depositary bank with only time or savings accounts or credit card accounts need not comply with the availability requirements of subpart B of Regulation CC. <?page num="926"?>Thus, the expeditious return requirement of <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref> and the notice of nonpayment requirement of <ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref> do not apply to checks being returned to banks that do not hold accounts. The paying bank's midnight deadline in UCC 4–301 and 4–302 and <ref href="/us/cfr/t12/s210.12">§ 210.12</ref> of Regulation J (<ref href="/us/cfr/t12/s210.12">12 CFR 210.12</ref>), and the extension in <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref>, would continue to apply to these checks.</p>
<p style="-uslm-sgm:P">b. The expeditious return requirement and the notice of nonpayment requirement apply only to “checks” deposited in a bank that is a “depository institution” under the EFA Act. Federal Reserve Banks, Federal Home Loan Banks, private bankers, and possibly certain industrial banks are not “depository institutions” within the meaning of the EFA Act and therefore are not subject to the expedited-availability requirements of subpart B of this regulation. Thus, the expeditious return and notice of nonpayment requirements of this section would not apply to a paying bank returning a check that was deposited in one of these banks.</p>
<heading style="-uslm-sgm:HD3">2. Unidentifiable Depositary Banks</heading>
<p style="-uslm-sgm:P">a. A paying bank that sends a check to a bank that handled the check for forward collection because the paying bank is unable to identify the depositary bank is not subject to the requirement for expeditious return by the paying bank or to the requirement for notice of nonpayment. Although the lack of requirement for notice of nonpayment under this paragraph will create risks for the depositary bank, the inability to identify the depositary bank will generally be due to the depositary bank's, or a collecting bank's, failure to indorse as required by <ref href="/us/cfr/t12/s229.35/a">§ 229.35(a)</ref>. If the depositary bank failed to use the proper indorsement, it should bear the risks of less- than-expeditious return or not receiving notice of nonpayment in a timely manner. Similarly, where the inability to identify the depositary bank is due to indorsements or other information placed on the back of the check by the depositary bank's customer or other prior indorser, the depositary bank should bear the risk that it cannot charge a returned check back to that customer.</p>
<p style="-uslm-sgm:P">b. This paragraph does not relieve a paying bank from the liability for the lack of expeditious return or not providing notice of nonpayment in cases where the paying bank is itself responsible for the inability to identify the depositary bank, such as when the paying bank's customer has used a check with printing or other material on the back in the area reserved for the depositary bank's indorsement, and the depositary bank placed its indorsement on the original check making the indorsement unreadable. (See <ref href="/us/cfr/t12/s229.38/c">§ 229.38(c)</ref>).</p>
<p style="-uslm-sgm:P">c. A paying bank's return of a check to an unidentifiable depositary bank is subject to its midnight deadline under UCC 4–301, Regulation J (if the check is returned through a Federal Reserve Bank), and the extension provided in <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref>.</p>
<heading style="-uslm-sgm:HD3">E. 229.31(e) Identification of Returned Check</heading>
<p style="-uslm-sgm:P">1. The reason for the return must be clearly indicated. A check is identified as a returned check if the front of that check indicates the reason for return, even though it does not specifically state that the check is a returned check. A reason such as “Refer to Maker” may be appropriate in certain cases, such as when a drawer with a positive pay arrangement instructs the bank to return the check. By contrast, a reason such as “Refer to Maker” would be inappropriate in cases where a check is being returned due to the paying bank having already paid the item, where a check has been altered, or where a check is unauthorized. In such cases, the payee and not the drawer would generally have more information as to why the check is being returned.</p>
<p style="-uslm-sgm:P">2. If the returned check is a substitute check or electronic returned check, the reason for return information must be included such that it is retained on any subsequent substitute check. For substitute checks, this requirement could be met by placing the information (1) in the location on the front of the substitute check that is specified by ANS X9.100–140 or (2) within the image of the original check that appears on the front of the substitute check so that the information is retained on any subsequent substitute check. For electronic returned checks, this requirement could be met by including the reason for return in accordance with ANS X9.100–187. If the paying bank places the returned check in a carrier envelope, the carrier envelope should indicate that it is a returned check but need not repeat the reason for return stated on the check if it in fact appears on the check.</p>
<heading style="-uslm-sgm:HD3">F. 229.31(f) Notice in Lieu of Return</heading>
<p style="-uslm-sgm:P">1. A notice in lieu of return may be used by a bank handling a returned check that has been lost or destroyed, including when the original returned check has been charged back as lost or destroyed as provided in <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>. Notice in lieu of return is permitted only when a bank does not have and cannot obtain possession of the check (or must retain possession of the check for protest) and does not have sufficient information to create a substitute check. For example, a bank that does not have the original check may have an image of both sides of the check, but the image may be insufficient or may not be in the proper format such that the bank cannot create a substitute check or provide required substitute check warranties. In that case, the check would be unavailable for return. A bank using a notice in lieu of return gives a warranty under <?page num="927"?><ref href="/us/cfr/t12/s229.34/d/1/iv">§ 229.34(d)(1)(iv)</ref> that the check, in any form, has not been and will not be returned.</p>
<p style="-uslm-sgm:P">2. A notice in lieu of return must be in writing (either in paper form, or if agreed to by the parties electronic form), but not provided by telephone or other oral transmission. The requirement for a writing and the indication that the notice is a substitute for the returned check is necessary so that any returning bank and the depositary bank are informed that the notice carries value. A check that is lost or otherwise unavailable for return may be returned by sending a legible copy of both sides of the check or, if such a copy is not available to the paying bank, a written notice of nonpayment containing the information specified in <ref href="/us/cfr/t12/s229.31/c/2">§ 229.31(c)(2)</ref>. The copy or written notice must clearly indicate it is a notice in lieu of return. Notice by a legible facsimile of both sides of the check may satisfy the requirements for a notice in lieu of return.</p>
<p style="-uslm-sgm:P">The paying bank may send an electronic image of both sides of the check as a notice in lieu of return only if it has an agreement to do so with the receiving bank. (See <ref href="/us/cfr/t12/s229.30/b">§ 229.30(b)</ref>).</p>
<p style="-uslm-sgm:P">3. The requirement of this paragraph supersedes the requirement of UCC 4–301(a) as to the form and information required of a notice of dishonor or nonpayment.</p>
<p style="-uslm-sgm:P">4. The notice in lieu of return is subject to the provisions of this subpart relating to returned checks and is treated like a returned check for purposes of this subpart. Reference in the regulation and this commentary to a returned check includes a notice in lieu of return unless the context indicates otherwise.</p>
<p style="-uslm-sgm:P">5. If not all of the information required by <ref href="/us/cfr/t12/s229.31/c/2">§ 229.31(c)(2)</ref> is available, the paying bank may make a claim against any prior bank handling the check as provided in <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>.</p>
<heading style="-uslm-sgm:HD3">G. 229.31(g) Extension of Deadline</heading>
<p style="-uslm-sgm:P">1. This paragraph permits extension of the deadlines in the UCC, Regulation J (<ref href="/us/cfr/t12/p210">12 CFR part 210</ref>), and <ref href="/us/cfr/t12/s229.36/d/3">§ 229.36(d)(3)</ref> and (4) for returning a check for which the paying bank previously has settled (generally midnight of the banking day following the banking day on which the check is received by the paying bank) and for returning a check without settling for it (generally midnight of the banking day on which the check is received by the paying bank, or such other time provided by <ref href="/us/cfr/t12/s210.9">§ 210.9</ref> of Regulation J (<ref href="/us/cfr/t12/p210">12 CFR part 210</ref>), or <ref href="/us/cfr/t12/s229.36/d/3">§ 229.36(d)(3)</ref> or (4)), in two circumstances:</p>
<p style="-uslm-sgm:P">a. A paying bank may, by agreement, send an electronic returned check instead of a paper returned check or may have a courier that leaves after midnight (or after any other applicable deadline) to deliver its forward-collection checks. This paragraph removes the constraint of the midnight deadline for returned checks if the returned check reaches the depositary bank (or receiving bank, if the depositary bank is unidentifiable) on or before the depositary bank's (or receiving bank's) next banking day following the otherwise applicable deadline by the earlier of the close of that banking day or a cutoff hour of 2 p.m. (local time of the depositary bank or receiving bank) or later set by the depositary bank (or receiving bank) under UCC 4–108. This paragraph applies to the extension of all midnight deadlines except Saturday midnight deadlines (see the following paragraph).</p>
<p style="-uslm-sgm:P">b. A paying bank may observe a banking day, as defined in the applicable UCC, on a Saturday, which is not a business day and therefore not a banking day under Regulation CC. In such a case, the UCC deadline for returning checks received and settled for on Friday, or for returning checks received on Saturday without settling for them, might require the bank to return the checks by midnight Saturday. However, the bank may not have its back-office operations staff available on Saturday to prepare and send the electronic returned checks, and the returning bank or depositary bank that would be receiving this electronic information may not have staff available to process it until Sunday night or Monday morning. This paragraph extends the midnight deadline if the returned checks reach the returning bank by a cut-off hour (usually on Sunday night or Monday morning) that permits processing during its next processing cycle or reach the depositary bank (or receiving bank) by the cut-off hour on its next banking day following the Saturday midnight deadline. This paragraph applies exclusively to the extension of Saturday midnight deadlines.</p>
<p style="-uslm-sgm:P">2. The time limits that are extended in each case are the paying bank's midnight deadline for returning a check for which it has already settled and the paying bank's deadline for returning a check without settling for it in UCC 4–301 and 4–302, <ref href="/us/cfr/t12/s210.9">§§ 210.9</ref> and 210.12 of Regulation J (<ref href="/us/cfr/t12/s210.9">12 CFR 210.9</ref> and 210.12), and <ref href="/us/cfr/t12/s229.36/d/3">§ 229.36(d)(3)</ref> and (4).</p>
<p style="-uslm-sgm:P">3. If the paying bank has an agreement to do so with the receiving bank (such as through bilateral agreements, clearinghouse rules, or operating circular), the paying bank may satisfy its midnight or other return deadline by sending an electronic returned check prior to the expiration of the deadline. The time when the electronic returned check is considered to be received by the depositary bank is determined by the agreement. The paying bank satisfies its midnight or other return deadline by dispatching paper returned checks to another bank by courier, including a courier under contract with the paying bank, prior to expiration of the deadline.</p>
<p style="-uslm-sgm:P">4. This paragraph directly affects UCC 4–301 and 4–302 and <ref href="/us/cfr/t12/s210.9">§§ 210.9</ref> and 210.12 of Regulation J (<ref href="/us/cfr/t12/s210.9">12 CFR 210.9</ref> and 210.12) to the extent <?page num="928"?>that this paragraph applies by its terms, and may affect other provisions.</p>
<heading style="-uslm-sgm:HD3">H. 229.31(h) Payable Through and Payable at Checks</heading>
<p style="-uslm-sgm:P">1. For purposes of subpart C of this part, the regulation defines a payable-through or payable-at bank (which could be designated the collectible-through or collectible-at bank) as a paying bank. The requirements of subpart C are imposed on a payable-through or payable-at bank and are based on the time of receipt of the forward collection check by the payable-through or payable-at bank. This provision is intended to speed the return of checks and receipt of notices of nonpayment for checks that are payable through or at a bank to the depositary bank.</p>
<p style="-uslm-sgm:P">2. A check sent for payment or collection to a payable-through or payable-at bank is not considered to be drawn on that bank for purposes of the midnight deadline provision of UCC 4–301.</p>
<heading style="-uslm-sgm:HD3">I. 229.31(i) Reliance on Routing Number</heading>
<p style="-uslm-sgm:P">1. Although <ref href="/us/cfr/t12/s229.35">§ 229.35</ref> requires that the depositary bank indorsement contain its nine-digit routing number, it is possible that a returned check will bear the routing number of the depositary bank in fractional, nine-digit, or other form. This paragraph permits a paying bank to rely on the routing number of the depositary bank as it appears on the check (in the depositary bank's indorsement) or in the electronic check sent pursuant to an agreement when the check, or electronic check, is received by the paying bank.</p>
<p style="-uslm-sgm:P">2. If there are inconsistent routing numbers, the paying bank may rely on any routing number designating the depositary bank. The paying bank is not required to resolve the inconsistency prior to processing the check. The paying bank remains subject to the requirement to act in good faith and use ordinary care under <ref href="/us/cfr/t12/s229.38/a">§ 229.38(a)</ref>.</p>
<heading style="-uslm-sgm:HD2">XVIII. Section 229.32 Returning Bank's Responsibility for Returned Checks</heading>
<heading style="-uslm-sgm:HD3">A. 229.32(a) Return of Checks</heading>
<heading style="-uslm-sgm:HD3">1. Routing of Returned Check</heading>
<p style="-uslm-sgm:P">a. Under <ref href="/us/cfr/t12/s229.32/a">§ 229.32(a)</ref>, the returning bank is authorized to route the returned check in a variety of ways:</p>
<p style="-uslm-sgm:P">i. It may send the returned check directly to the depositary bank by sending an electronic returned check directly to the depositary bank if the returning bank has an agreement with the depositary bank to do so, or by using a courier or other means of delivery; or</p>
<p style="-uslm-sgm:P">ii. It may send the returned check or electronic returned check to any returning bank agreeing to handle the returned check regardless of whether or not the returning bank handled the check for forward collection.</p>
<p style="-uslm-sgm:P">b. If the returning bank elects to send the returned check directly to the depositary bank, it is not required to send the check to the branch of the depositary bank that first handled the check. A paper returned check may be sent to the depositary bank at any physical location permitted under <ref href="/us/cfr/t12/s229.33/b">§ 229.33(b)</ref>.</p>
<heading style="-uslm-sgm:HD3">2. Unidentifiable Depositary Bank</heading>
<p style="-uslm-sgm:P">a. Returning banks agreeing to handle checks for return to depositary banks under <ref href="/us/cfr/t12/s229.32/a">§ 229.32(a)</ref> are expected to be expert in identifying depositary bank indorsements. In the limited cases where the returning bank cannot identify the depositary bank, if the returning bank did not handle the check for forward collection, it may send the returned check to any collecting bank that handled the check for forward collection.</p>
<p style="-uslm-sgm:P">b. If, on the other hand, the returning bank itself handled the check for forward collection, it may send the returned check to a collecting bank that was prior to it in the forward-collection process, which will be better able to identify the depositary bank. If there are no prior collecting banks, the returning bank must research the collection of the check and identify the depositary bank.</p>
<p style="-uslm-sgm:P">c. The returning bank's return of a check under this paragraph is subject to the requirement to use ordinary care under UCC 4–202(b). (See definition of returning bank in <ref href="/us/cfr/t12/s229.2/cc">§ 229.2(cc)</ref>).</p>
<p style="-uslm-sgm:P">d. As in the case of a paying bank returning a check under <ref href="/us/cfr/t12/s229.31/a/2">§ 229.31(a)(2)</ref>, a returning bank returning a check under <ref href="/us/cfr/t12/s229.32/a/2">§ 229.32(a)(2)</ref> must advise the bank to which it sends the returned check that it is unable to identify the depositary bank. This advice must be conspicuous, such as a stamp on the check or a notice on the cash letter. The returned check may not be prepared as a qualified return. In the case of an electronic returned check, the advice requirement may be satisfied as agreed to by the parties.</p>
<p style="-uslm-sgm:P">3. A returning bank agrees to handle a returned check if it—</p>
<p style="-uslm-sgm:P">a. Publishes or distributes availability schedules for the return of returned checks and accepts the returned check for return;</p>
<p style="-uslm-sgm:P">b. Handles a returned check for return that it did not handle for forward collection;</p>
<p style="-uslm-sgm:P">c. Agrees with the paying bank or returning bank to handle electronic returned checks sent by that bank; or</p>
<p style="-uslm-sgm:P">d. Otherwise agrees to handle a returned check.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Cut-off hours.</inline> A returning bank may establish earlier cut-off hours for receipt of returned checks than for receipt of forward collection checks, but, unless the sending bank and returning bank agree otherwise, the cut-off hour for returned checks may not be earlier than 2 p.m. (local time of the returning bank). The returning bank also may <?page num="929"?>set different sorting requirements for returned checks than those applicable to other checks. Thus, a returning bank may allow itself more processing time for returns than for forward collection checks.</p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Qualified returned checks.</inline> A qualified returned check will be handled by subsequent returning banks more efficiently than a raw return. The qualified returned check must include the routing number of the depositary bank, the amount of the check, and a return identifier encoded on the check in magnetic ink. A check that is converted to a qualified returned check must be encoded in accordance with ANS X9.13 for original checks or ANS X9.100–140 for substitute checks. If the returning bank makes an encoding error in creating a qualified returned check, it may be liable under <ref href="/us/cfr/t12/s229.38">§ 229.38</ref> for losses caused by any negligence or under <ref href="/us/cfr/t12/s229.34/c/3">§ 229.34(c)(3)</ref> for breach of an encoding warranty.</p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Responsibilities of returning bank.</inline> In meeting the requirements of this section, the returning bank is responsible for its own actions, but not those of the paying bank, other returning banks, or the depositary bank. (See UCC 4–202(c) regarding the responsibility of collecting banks).</p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">UCC sections affected.</inline> Section 229.32 directly affects UCC Section 4–214(a) and may affect other sections or provisions. (See UCC 4–202(b)). Section 4–214(a) is affected in that settlement for returned checks is made under <ref href="/us/cfr/t12/s229.32/e">§ 229.32(e)</ref> and not by charge-back of provisional credit.</p>
<heading style="-uslm-sgm:HD3">B. 229.32(b) Expeditious Return of Checks</heading>
<p style="-uslm-sgm:P">1. The standards for return of checks established by this section are similar to those for paying banks in <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref>. This section requires a returning bank to return a returned check expeditiously, subject to the exceptions set forth in <ref href="/us/cfr/t12/s229.32/c">§ 229.32(c)</ref>. In effect, the returning bank is an agent or subagent of the paying bank and a subagent of the depositary bank for the purposes of returning the check.</p>
<p style="-uslm-sgm:P">2. A returning bank that agrees to handle a returned check (see commentary to <ref href="/us/cfr/t12/s229.32/a">§ 229.32(a)</ref>) is subject to the expeditious return requirement with respect to the returned check except as provided in <ref href="/us/cfr/t12/s229.32/c">§ 229.32(c)</ref>).</p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Two-day test.</inline> As in the case of a paying bank, a returning bank's return of a returned check is expeditious if it is sent in a manner such that the depositary bank would normally receive the returned check by 2 p.m. (local time of the depositary bank) of the second business day after the banking day on which the check was presented to the paying bank. Although a returning bank will not have firsthand knowledge of the day on which a check was presented to the paying bank, returning banks may, by agreement, allocate with paying banks liability for late return based on the delays caused by each. Paying banks and returning banks are subject to the expeditious return rule, however, under section 229.33(a) a paying or returning bank may be liable to a depositary bank for failing to return a check in an expeditious manner only if the depositary bank has arrangements in place such that the paying bank or returning bank could return a returned check to the depositary bank electronically by commercially reasonable means. The depositary bank has the burden of proof for demonstrating that its arrangements are commercially reasonable.</p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> Returning Bank A does not have an agreement to send electronic returned checks to the depositary bank but has an agreement to send electronic returned checks to Returning Bank B, which, in turn, has an agreement to send electronic returned checks to the depositary bank. If a check is presented to the paying bank on Monday, each returning bank would need to send the returned check in a manner such that the depositary bank normally would receive the returned check by 2 p.m. (local time of the depositary bank) on Wednesday.</p>
<heading style="-uslm-sgm:HD3">C. 229.32(c) Exceptions to the Expeditious Return of Checks</heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the circumstances under which a returning bank is not required to return the check to the depositary bank in accordance with <ref href="/us/cfr/t12/s229.32/b">§ 229.32(b)</ref>.</p>
<p style="-uslm-sgm:P">2. Depositary bank not subject to subpart B. This paragraph is similar to <ref href="/us/cfr/t12/s229.31/d/1">§ 229.31(d)(1)</ref> and relieves a returning bank of its obligation to make expeditious return to a depositary bank that does not hold “accounts” under subpart B of this regulation or is not a “depository institution” within the meaning of the EFA Act. (See commentary to <ref href="/us/cfr/t12/s229.31/d">§ 229.31(d)</ref>).</p>
<p style="-uslm-sgm:P">3. Unidentifiable depositary bank. A returning bank is not subject to the expeditious return requirements of <ref href="/us/cfr/t12/s229.32/b">§ 229.32(b)</ref> in handling a returned check for which the paying bank cannot identify the depositary bank.</p>
<p style="-uslm-sgm:P">4. Misrouted returned check. A returning bank is not subject to the expeditious return requirements of <ref href="/us/cfr/t12/s229.32/b">§ 229.32(b)</ref> in handling a misrouted returned check pursuant to <ref href="/us/cfr/t12/s229.33/f">§ 229.33(f)</ref>. A bank acting as a returning bank because it received a returned check on the basis that it was the depositary bank and sends the misrouted returned check to the correct depositary bank, directly or through subsequent returning banks, is similarly not subject to the expeditious return requirements of <ref href="/us/cfr/t12/s229.32/b">§ 229.32(b)</ref>. (See commentary to <ref href="/us/cfr/t12/s229.33/f">§ 229.33(f)</ref>).</p>
<heading style="-uslm-sgm:HD3">D. 229.32(d) Notice in Lieu of Return</heading>
<p style="-uslm-sgm:P">1. This paragraph is similar to <ref href="/us/cfr/t12/s229.31/f">§ 229.31(f)</ref> and authorizes a returning bank to originate a notice in lieu of return if the returned <?page num="930"?>check is unavailable for return. Notice in lieu of return is permitted only when a bank does not have and cannot obtain possession of the check (or when the bank must retain possession of the check for protest) and does not have sufficient information to create a substitute check. (See commentary to <ref href="/us/cfr/t12/s229.31/f">§ 229.31(f)</ref>).</p>
<heading style="-uslm-sgm:HD3">E. 229.32(e) Settlement</heading>
<p style="-uslm-sgm:P">1. Under the UCC, a paying bank settles with a presenting bank after the check is presented to the paying bank. The paying bank may recover the settlement when the paying bank returns the check to the presenting bank. Under this regulation, however, the paying bank may return the check directly to the depositary bank or through returning banks that did not handle the check for forward collection. On these more efficient return paths, the paying bank does not recover the settlement made to the presenting bank. Thus, this paragraph requires the returning bank to settle for a returned check (either with the paying bank or another returning bank) in the same way that it would settle for a similar check for forward collection. To achieve uniformity, this paragraph applies even if the returning bank handled the check for forward collection.</p>
<p style="-uslm-sgm:P">2. Any returning bank, including one that handled the check for forward collection, may provide availability for returned checks pursuant to an availability schedule as it does for forward collection checks. These settlements by returning banks, as well as settlements between banks made during the forward collection of a check, are considered final when made subject to any deferment of availability. (See <ref href="/us/cfr/t12/s229.36/c">§ 229.36(c)</ref> and commentary to <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>).</p>
<p style="-uslm-sgm:P">3. A returning bank may vary the settlement method it uses by agreement with paying banks or other returning banks. Special rules apply in the case of insolvency of banks. (See <ref href="/us/cfr/t12/s229.39">§ 229.39</ref>). If payment cannot be obtained from a depositary bank or returning bank because of its insolvency or otherwise, recovery can be had by returning banks, paying banks, and collecting banks from prior banks on this basis of the liability of prior banks under <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>.</p>
<p style="-uslm-sgm:P">4. This paragraph affects UCC 4–214(a) in that a paying bank or collecting bank does not ordinarily have a right to charge back against the bank from which it received the returned check, although it is entitled to settlement if it returns the returned check to that bank, and may affect other sections or provisions. Under <ref href="/us/cfr/t12/s229.36/c">§ 229.36(c)</ref>, a bank collecting a check remains liable to prior collecting banks and the depositary bank's customer under the UCC.</p>
<heading style="-uslm-sgm:HD3">F. 229.32(f) Charges</heading>
<p style="-uslm-sgm:P">1. This paragraph permits any returning bank, even one that handled the check for forward collection, to impose a fee on the paying bank or other returning bank for its service in handling a returned check. Where a claim is made under <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>, the bank on which the claim is made is not authorized by this paragraph to impose a charge for taking up a check. This paragraph preempts state laws to the extent that these laws prevent returning banks from charging fees for handling returned checks.</p>
<heading style="-uslm-sgm:HD3">G. 229.32(g) Reliance on Routing Number</heading>
<p style="-uslm-sgm:P">1. This paragraph is similar to <ref href="/us/cfr/t12/s229.31/i">§ 229.31(i)</ref> and permits a returning bank to rely on routing numbers appearing on a returned check such as routing numbers in the depositary bank's indorsement, or in the electronic returned check received by the returning bank pursuant to an agreement, or on qualified returned checks. (See commentary to <ref href="/us/cfr/t12/s229.31/i">§ 229.31(i)</ref>).</p>
<heading style="-uslm-sgm:HD2">XIX. Section 229.33 Depositary Bank's Responsibility for Returned Checks and Notices of Nonpayment</heading>
<heading style="-uslm-sgm:HD3">A. 229.33(a) Right To Assert Claim</heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth the circumstances under which a paying bank or returning bank may be liable to a depositary bank for failing to return a check in an expeditious manner in accordance with <ref href="/us/cfr/t12/s229.31/b">§§ 229.31(b)</ref> and 229.32(b) respectively.</p>
<p style="-uslm-sgm:P">2. This paragraph does not require a depositary bank to establish arrangements to accept returned checks electronically, either directly from the paying bank or indirectly from a returning bank. Most depositary banks, however, have arrangements in place to accept returned checks electronically. (See commentary to <ref href="/us/cfr/t12/s229.31/b">§§ 229.31(b)</ref> and 229.32(b) for examples of direct and indirect arrangements).</p>
<p style="-uslm-sgm:P">3. The depositary bank has the burden of proof for demonstrating that its arrangements for accepting returned checks electronically are commercially reasonable. The standard allows for case-by-case flexibility and can change over time to reflect market practices. The standard is intended to prevent a depositary bank from establishing electronic return arrangements that are very limited in scope or that provide unreasonable barriers to return such that, in practice, the depositary bank would accept only a small proportion of its returns electronically.</p>
<heading style="-uslm-sgm:HD3">B. 229.33(b) Acceptance of Electronic Returned Checks and Electronic Notices of Nonpayment</heading>
<p style="-uslm-sgm:P">1. A depositary bank may agree directly with a returning bank or a paying bank (or <?page num="931"?>through clearinghouse rules) to accept electronic returned checks. Likewise, a depositary bank may agree directly with a paying bank (or through clearinghouse rules) to accept electronic written notices of nonpayment. (See <ref href="/us/cfr/t12/s229.2/ggg">§§ 229.2(ggg)</ref>, 229.30(b), and 229.31(c) and commentary thereto). The depositary bank's acceptance of electronic returned checks and electronic written notices of nonpayment is governed by the depositary bank's agreement with the banks sending the electronic returned check or electronic written notice of nonpayment to the depositary bank (or through the applicable clearinghouse rules). The agreement normally would specify the electronic address or receipt point at which the depositary bank accepts returned checks and written notices of nonpayment electronically, as well as what constitutes receipt of the returned checks and written notices of nonpayment. The agreement also may specify whether electronic returned checks must be separated from electronic checks sent for forward collection.</p>
<heading style="-uslm-sgm:HD3">C. 229.33(c) Acceptance of Paper Returned Checks and Paper Notices of Nonpayment</heading>
<p style="-uslm-sgm:P">1. This paragraph states where the depositary bank is required to accept paper returned checks and paper notices of nonpayment during its banking day. (These locations differ from locations at which a depositary bank must accept oral notices or electronic notices. (See <ref href="/us/cfr/t12/s229.33/b">§ 229.33(b)</ref> and (d) and commentary thereto). This paragraph is derived from UCC 3–111, which specifies that presentment for payment may be made at the place specified in the instrument or, if there is none, at the place of business of the party to pay. In the case of returned checks, the depositary bank does not print the check and can only specify the place of “payment” of the returned check in its indorsement.</p>
<p style="-uslm-sgm:P">2. The paragraph specifies four locations at which the depositary bank must accept paper returned checks and paper notices of nonpayment:</p>
<p style="-uslm-sgm:P">a. The depositary bank must accept paper returned checks and paper notices of nonpayment at any location at which it requests presentment of forward collection paper checks, such as a processing center. A depositary bank does not request presentment of forward collection checks at a branch of the bank merely by paying checks presented over the counter.</p>
<p style="-uslm-sgm:P">b. i. If the depositary bank indorsement states the name and address of the depositary bank, it must accept paper returned checks and paper notices of nonpayment at the branch, head office, or other location, such as a processing center, indicated by the address. If the address is too general to identify a particular location, then the depositary bank must accept paper returned checks and paper notices of nonpayment at any branch or head office consistent with the address. If, for example, the address is “New York, New York,” each branch in New York City must accept paper returned checks and paper notices of nonpayment. Accordingly, a depositary bank may limit the locations at which it must accept paper returned checks and paper notices of nonpayment by specifying a branch or head office in its indorsement.</p>
<p style="-uslm-sgm:P">ii. If no address appears in the depositary bank's indorsement, the depositary bank must accept paper returned checks and paper notices of nonpayment at any branch or head office associated with the depositary bank's routing number. The offices associated with the routing number of a bank are found in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">American Bankers Association Key to Routing Numbers,</inline> published by an agent of the American Bankers Association, which lists a city and state address for each routing number.</p>
<p style="-uslm-sgm:P">iii. If no routing number or address appears in its indorsement, the depositary bank must accept a paper returned check at any branch or head office of the bank. Section 229.35 and applicable industry standards require that the indorsement contain a routing number, a name, and a location. Consequently paragraphs (c)(1)(ii)(B) and (C) of this section apply only where the depositary bank has failed to comply with the indorsement requirement.</p>
<p style="-uslm-sgm:P">3. For ease of processing, a depositary bank may require that returning banks or paying banks returning checks to it separate returned checks from forward collection checks being presented.</p>
<heading style="-uslm-sgm:HD3">D. 229.33(d) Acceptance Oral Notices of Nonpayment</heading>
<p style="-uslm-sgm:P">In the case of telephone notices, the depositary bank may not refuse to accept notices at the telephone numbers identified in this section, but may transfer calls or use a recording device.</p>
<heading style="-uslm-sgm:HD3">E. 229.33(e) Payment</heading>
<p style="-uslm-sgm:P">1. As discussed in the commentary to <ref href="/us/cfr/t12/s229.32/e">§ 229.32(e)</ref>, under this regulation a paying bank or returning bank does not obtain credit for a returned check by charge-back but by, in effect, “presenting” the returned check to the depositary bank. This paragraph imposes an obligation to “pay” a returned check that is similar to the obligation to pay a forward collection check by a paying bank, except that the depositary bank may not return a returned check for which it is the depositary bank. Also, certain means of payment, such as remittance drafts, may be used only by agreement.</p>
<p style="-uslm-sgm:P">2. The depositary bank must pay for a returned check by the close of the banking day on which it received the returned check. The day on which a returned check is received is determined pursuant to UCC 4–108, which <?page num="932"?>permits the bank to establish a cut-off hour, generally not earlier than 2 p.m. (local time of the depositary bank), and treat checks received after that hour as being received on the next banking day. If the depositary bank is unable to make payment to a returning bank or paying bank on the banking day that it receives the returned check, because the returning bank or paying bank is closed for a holiday or because the time when the depositary bank received the check is after the close of Fedwire, e.g., west coast banks with late cut-off hours, payment may be made on the next banking day of the bank receiving payment.</p>
<p style="-uslm-sgm:P">3. Payment must be made so that the funds are available for use by the bank returning the check to the depositary bank on the day the check is received by the depositary bank. For example, a depositary bank meets this requirement if it sends a wire transfer to the returning bank or paying bank on the day it receives the returned check, even if the returning bank or paying bank has closed for the day. A wire transfer should indicate the purpose of the payment.</p>
<p style="-uslm-sgm:P">4. The depositary bank may use a net settlement arrangement to settle for a returned check. Banks with net settlement agreements could net the appropriate credits and debits for returned checks with the accounting entries for forward collection checks if they so desired. If, for purposes of establishing additional controls or for other reasons, the banks involved desired a separate settlement for returned checks, a separate net settlement agreement could be established.</p>
<p style="-uslm-sgm:P">5. The bank sending the returned check to the depositary bank may agree to accept payment at a later date if, for example, it does not believe that the amount of the returned check or checks warrants the costs of same-day payment. Thus, a returning bank or paying bank may agree to accept payment through an ACH credit or debit transfer that settles the day after the returned check is received instead of a wire transfer that settles on the same day.</p>
<p style="-uslm-sgm:P">6. This paragraph and this subpart do not affect the depositary bank's right to recover a provisional settlement with its nonbank customer for a check that is returned. (See also <ref href="/us/cfr/t12/s229.19/c/2/ii">§§ 229.19(c)(2)(ii)</ref>, 229.33(h), and 229.35(b)).</p>
<heading style="-uslm-sgm:HD3">F. 229.33(f) Misrouted Returned Checks and Written Notices of Nonpayment</heading>
<p style="-uslm-sgm:P">1. This paragraph permits a bank receiving a check or written notice of nonpayment (either in paper form or electronic form) on the basis that it is the depositary bank to send the misrouted returned check or written notice of nonpayment to the correct depositary bank, if it can identify the correct depositary bank, either directly or through a returning bank agreeing to handle the check or written notice of nonpayment. When sending a returned check under this paragraph, the bank receiving the misrouted check is acting as a returning bank. Alternatively, the bank receiving the misrouted returned check or written notice of nonpayment must send the check or notice back to the bank from which it was received.</p>
<p style="-uslm-sgm:P">2. In sending a misrouted returned check, the bank to which the returned check was misrouted (the incorrect depositary bank) could receive settlement from the bank to which it sends the misrouted check under <ref href="/us/cfr/t12/s229.33/f">§ 229.33(f)</ref> (the correct depositary bank, a returning bank that agrees to handle it, or the bank from which the misrouted check was received). The correct depositary bank would be required to pay for the returned check under <ref href="/us/cfr/t12/s229.33/e">§ 229.33(e)</ref>, and any other bank to which the check is sent under this paragraph would be required to settle for the check as a returning bank under <ref href="/us/cfr/t12/s229.32/e">§ 229.32(e)</ref>. The bank to which the returned check was misrouted is required to act promptly, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> within its midnight deadline. This paragraph does not affect a bank's duties under <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>.</p>
<heading style="-uslm-sgm:HD3">G. 229.33(g) Charges</heading>
<p style="-uslm-sgm:P">1. This paragraph prohibits a depositary bank from charging the equivalent of a presentment fee for returned checks. A returning bank, however, may charge a fee for handling returned checks. If the returning bank receives a mixed cash letter of returned checks, which includes some checks for which the returning bank also is the depositary bank, the fee may be applied to all the returned checks in the cash letter. In the case of a sorted cash letter containing only returned checks for which the returning bank is the depositary bank, however, no fee may be charged.</p>
<heading style="-uslm-sgm:HD3">H. 229.33(h) Notification to Customer</heading>
<p style="-uslm-sgm:P">1. This paragraph requires a depositary bank to notify its customer of nonpayment upon receipt of a returned check or notice of nonpayment. Notice also must be given if a depositary bank receives a notice of recovery under <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref>. A bank that chooses to provide the notice required by <ref href="/us/cfr/t12/s229.33/h">§ 229.33(h)</ref> in writing may send the notice by email or facsimile if the bank sends the notice to the email address or facsimile number specified by the customer for that purpose. The notice to the customer required under this paragraph also may satisfy the notice requirement of <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> if the depositary bank invokes the reasonable-cause exception of <ref href="/us/cfr/t12/s229.13/e">§ 229.13(e)</ref> due to the receipt of a notice of nonpayment, provided the notice meets all the requirements of <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref>.
<?page num="933"?></p>
<heading style="-uslm-sgm:HD2">XX. Section 229.34 Warranties and Indemnities</heading>
<heading style="-uslm-sgm:HD3">A. Introduction</heading>
<p style="-uslm-sgm:P">1. Unless otherwise specified, warranties that apply to checks or returned checks also apply to electronic checks and electronic returned checks, including under paragraphs (b) (transfer and presentment warranties with respect to remotely created checks), (c) (settlement amount, encoding, and offset warranties), (d) (returned check warranties), and (e) (notice of nonpayment warranties). (See <ref href="/us/cfr/t12/s229.30/a">§ 229.30(a)</ref> and commentary thereto). Paragraph (f), however, sets forth remote deposit capture indemnities provided to banks that accept an original check for deposit for losses incurred by that depositary bank if the loss is due to the check having already been paid. Paragraph (a) sets forth warranties that are given only with respect to electronic checks and electronic returned checks. Paragraph (g) sets forth indemnities with respect to electronically created items.</p>
<heading style="-uslm-sgm:HD3">B. 229.34(a) Warranties With Respect to Electronic Checks and Electronic Returned Checks</heading>
<p style="-uslm-sgm:P">1. Paragraph (a) of <ref href="/us/cfr/t12/s229.34">§ 229.34</ref> sets forth the warranties that a bank makes when transferring or presenting an electronic check or electronic returned check and receiving settlement or other consideration for it. Electronic checks and electronic returned checks sent pursuant to an agreement with the receiving bank are treated as checks subject to subpart C. Therefore, the warranties in <ref href="/us/cfr/t12/s229.34/a">§ 229.34(a)</ref> are in addition to any warranties a bank makes under paragraphs (b), (c), (d), and (e) with respect to an electronic check or electronic returned check. For example, a bank that transfers and receives consideration for an electronic check that is derived from a remotely created check warrants that the remotely created check, from which the electronic check is derived, is authorized by the person on whose account the check is drawn.</p>
<p style="-uslm-sgm:P">2. The warranties in <ref href="/us/cfr/t12/s229.34/a/1">§ 229.34(a)(1)</ref> relate to a subsequent bank's ability to create a substitute check. This paragraph provides a bank that creates a substitute check from an electronic check or electronic returned check with a warranty claim against any prior bank that transferred the electronic check or electronic returned check. The warranties in this paragraph correspond to the warranties made by a bank that transfers, presents, or returns a substitute check (a paper or electronic representation of a substitute check) for which it receives consideration. (See <ref href="/us/cfr/t12/s229.52">§ 229.52</ref> and commentary thereto). A bank that transfers an electronic check or electronic returned check that is an electronic representation of a substitute check also makes the warranties and indemnities in <ref href="/us/cfr/t12/s229.52">§§ 229.52</ref> and 229.53.</p>
<p style="-uslm-sgm:P">3. By agreement, a sending and receiving bank may vary the warranties the sending bank makes to the receiving bank for electronic images of or electronic information related to checks, for example, to provide that the bank transferring the check does not warrant that the electronic image or information is sufficient for creating a substitute check. (See <ref href="/us/cfr/t12/s229.37/a">§ 229.37(a)</ref>). The variation by agreement, however, would not affect the rights of banks and persons that are not bound by the agreement.</p>
<heading style="-uslm-sgm:HD3">C. 229.34(b) Transfer and Presentment Warranties With Respect to a Remotely Created Check</heading>
<p style="-uslm-sgm:P">1. A bank that transfers or presents a remotely created check and receives a settlement or other consideration warrants that the person on whose account the check is drawn authorized the issuance of the check in the amount stated on the check and to the payee stated on the check. The warranties are given only by banks and only to subsequent banks in the collection chain. The warranties ultimately shift liability for the loss created by an unauthorized remotely created check to the depositary bank. The depositary bank cannot assert the transfer and presentment warranties against a depositor. However, a depositary bank may, by agreement, allocate liability for such an item to the depositor and also may have a claim under other laws against that person. The Federal Trade Commission's Telemarketing Sales Rule (<ref href="/us/cfr/t16/p310">16 CFR part 310</ref>) contains further regulatory provisions regarding remotely created checks.</p>
<p style="-uslm-sgm:P">2. The scope of the transfer and presentment warranties for remotely created checks differs from that of the corresponding UCC warranty provisions in two respects. The UCC warranties are given by any person, including a nonbank depositor, that transfers a remotely created check and not just to a bank, as is the case under <ref href="/us/cfr/t12/s229.34/b">§ 229.34(b)</ref>. In addition, the UCC warranties state that the person on whose account the item is drawn authorized the issuance of the item in the amount for which the item is drawn. The <ref href="/us/cfr/t12/s229.34/b">§ 229.34(b)</ref> warranties specifically cover the amount as well as the payee stated on the check. Neither the UCC warranties, nor the <ref href="/us/cfr/t12/s229.34/b">§ 229.34(b)</ref> warranties, apply to the date stated on the remotely created check.</p>
<p style="-uslm-sgm:P">3. A bank making the <ref href="/us/cfr/t12/s229.34/b">§ 229.34(b)</ref> warranties may defend a claim asserting violation of the warranties by proving that the customer of the paying bank is precluded by UCC 4–406 from making a claim against the paying bank. This may be the case, for example, if the customer failed to discover the unauthorized remotely created check in a timely manner.
<?page num="934"?></p>
<p style="-uslm-sgm:P">4. The transfer and presentment warranties for a remotely created check apply to a remotely created check that has been converted to an electronic check or reconverted to a substitute check.</p>
<heading style="-uslm-sgm:HD3">D. 229.34(c) Settlement Amount, Encoding, and Offset Warranties</heading>
<p style="-uslm-sgm:P">1. Paragraph (c)(1) provides that a bank that presents and receives settlement for checks warrants to the paying bank that the settlement it demands (e.g., as noted on the cash letter or in the electronic cash letter file) equals the total amount of the checks it presents. This paragraph gives the paying bank a warranty claim against the presenting bank for the amount of any excess settlement made on the basis of the amount demanded, plus expenses. If the amount demanded is understated, a paying bank discharges its settlement obligation under UCC 4–301 by paying the amount demanded, but remains liable for the amount by which the demand is understated; the presenting bank is nevertheless liable for expenses in resolving the adjustment.</p>
<p style="-uslm-sgm:P">2. When checks or returned checks are transferred to a collecting bank, returning bank, or depositary bank, the transferor bank is not required to demand settlement, as is required upon presentment to the paying bank. However, often the checks or returned checks will be accompanied by information (such as a cash letter listing or cash letter control record) that will indicate the total of the checks or returned checks. Paragraph (c)(2) provides that if the transferor bank includes information indicating the total amount of checks or returned checks transferred, it warrants that the information is correct (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> equals the actual total of the items).</p>
<p style="-uslm-sgm:P">3. Paragraph (c)(3) provides that a bank that presents or transfers a check or returned check warrants the accuracy of information encoded regarding the check after issue, and that exists at the time of presentment or transfer, to any bank that subsequently handles the check or returned check. Paragraph (c)(3) applies to all MICR-line encoding on a paper check, substitute check, or contained in an electronic check or electronic returned check. Under UCC 4–209(a), only the encoder (or the encoder and the depositary bank, if the encoder is a customer of the depositary bank) warrants the encoding accuracy, thus any claims on the warranty must be directed to the encoder. Paragraph (c)(3) expands on the UCC by providing that all banks that transfer or present a check or returned check make the encoding warranty. In addition, under the UCC, the encoder makes the warranty to subsequent collecting banks and the paying bank, while paragraph (c)(3) provides that the warranty is made to banks in the return chain as well.</p>
<p style="-uslm-sgm:P">4. A paying bank that settles for an overstated cash letter because of a misencoded check may make a warranty claim against the presenting bank under paragraph (c)(1) (which would require the paying bank to show that the check was part of the overstated cash letter) or an encoding warranty claim under paragraph (c)(3) against the presenting bank or any preceding bank that handled the misencoded check.</p>
<p style="-uslm-sgm:P">5. Paragraph (c)(4) provides that a paying bank or a depositary bank may set off excess settlement paid to another bank against settlement owed to that bank for checks presented or returned checks received (for which it is the depositary bank) subsequent to the excess settlement.</p>
<heading style="-uslm-sgm:HD3">E. 229.34(d) Returned Check Warranties</heading>
<p style="-uslm-sgm:P">1. This paragraph includes warranties that a returned check, including a notice in lieu of return or an electronic returned check, was returned by the paying bank, or in the case of a check payable by a bank and payable through another bank, the bank by which the check is payable, within the deadline under the UCC (subject to any claims or defenses under the UCC, such as breach of a presentment warranty) or <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref>; that the paying bank or returning bank is authorized to return the check; that the returned check has not been materially altered; and that, in the case of a notice in lieu of return, the check has not been and will not be returned for payment. (See commentary to <ref href="/us/cfr/t12/s229.31/f">§ 229.31(f)</ref>). The warranty does not include a warranty that the bank complied with the expeditious return requirements of <ref href="/us/cfr/t12/s229.31/b">§§ 229.31(b)</ref> and 229.32(b). These warranties do not apply to checks drawn on the United States Treasury, to U.S. Postal Service money orders, or to checks drawn on a state or a unit of general local government that are not payable through or at a bank. (See <ref href="/us/cfr/t12/s229.42">§ 229.42</ref>).</p>
<heading style="-uslm-sgm:HD3">F. 229.34(e) Notice of Nonpayment Warranties</heading>
<p style="-uslm-sgm:P">1. This paragraph sets forth warranties for notices of nonpayment. This warranty does not include a warranty that the notice is accurate and timely under <ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref>. The requirements of <ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref> that are not covered by the warranty are subject to the liability provisions of <ref href="/us/cfr/t12/s229.38">§ 229.38</ref>. These warranties are designed to protect depositary banks that rely on notices of nonpayment. This paragraph imposes liability on a paying bank that gives notice of nonpayment and then subsequently does not return the check. (See commentary to <ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref>).</p>
<heading style="-uslm-sgm:HD3">G. 229.34(f) Remote Deposit Capture Indemnity</heading>
<p style="-uslm-sgm:P">1. This indemnity provides for a depositary bank's potential liability when it permits a <?page num="935"?>customer to deposit checks by remote deposit capture (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> to truncate checks and deposit an electronic image of the original check instead of the original check). Because the depositary bank's customer retains the original check, that customer might, intentionally or mistakenly, deposit the original check in another depositary bank. The depositary bank that accepts the original check, in turn, may make funds available to the customer before it learns that the check is being returned unpaid and, in some cases, may be unable to recover the funds from its customer. Section 229.34(f) provides the depositary bank that accepts the original check for deposit with a claim against the depositary bank that did not receive the original check because it permitted its customer to truncate it, received settlement or other consideration for the check, and did not receive a return of the check unpaid. This claim exists only if the check is returned to the depositary bank that accepted the original check due to the fact that the check had already been paid.</p>
<heading style="-uslm-sgm:HD2">2. Examples</heading>
<p style="-uslm-sgm:P">a. Depositary Bank A offers its customers a remote deposit capture service that permits customers to take pictures of the front and back of their checks and send the image to the bank for deposit. Depositary Bank A accepts an image of the check from its customer and sends an electronic check for collection to Paying Bank. Paying Bank, in turn, pays the check. Depositary Bank A receives settlement for the check. The same customer who sent Depositary Bank A the electronic image of the check then deposits the original check in Depositary Bank B. There is no restrictive indorsement on the check. Depositary Bank B sends the original check (or a substitute check or electronic check) for collection and makes funds from the deposited check available to its customer. The customer withdraws the funds. Paying Bank returns the check to Depositary Bank B indicating that the check already had been paid. Depositary Bank B may be unable to charge back funds from its customer's account. Depositary Bank B may make an indemnity claim against Depositary Bank A for the amount of the funds Depositary Bank B is unable to recover from its customer.</p>
<p style="-uslm-sgm:P">b. The facts are the same as above with respect to Depositary Bank A and B; however, the original check deposited in Depositary Bank B bears a restrictive indorsement “for mobile deposit at Depositary Bank A only” and the customer's account number at Depositary Bank A. Depositary Bank B may not make an indemnity claim against Depositary Bank A because Depositary Bank B accepted the original check bearing a restrictive indorsement inconsistent with the means of deposit.</p>
<p style="-uslm-sgm:P">c. The facts are the same as above with respect to Depositary Bank A; however, Depositary Bank B also offers a remote deposit capture service to its customer. The customer uses Depositary Bank B's remote deposit capture service to send an electronic image of the front and back of the check, after sending the same image to Depositary Bank A. The customer deposits the original check into Depositary Bank C without a restrictive indorsement. Paying Bank pays the check based on the image presented by Depositary Bank A, and Depositary Bank A receives settlement for the check without the check being returned unpaid to it. Paying Bank returns the checks presented by Depositary Bank B and Depositary Bank C. Neither Depositary Bank B nor Depositary Bank C can recover the funds from the deposited check from the customer. Depositary Bank B does not have an indemnity claim against Depositary Bank A because Depositary Bank B did not receive the original check for deposit. Depositary Bank C, however, would be able to bring an indemnity claim against Depositary Bank A.</p>
<p style="-uslm-sgm:P">3. A depositary bank may, by agreement, allocate liability for loss incurred from subsequent deposit of the original check to its customer that sent the electronic check related to the original check to the depositary bank.</p>
<heading style="-uslm-sgm:HD3">H. 229.34(g) Indemnities With Respect to Electronically-Created Items</heading>
<p style="-uslm-sgm:P">1. As a practical matter a bank receiving an electronic image generally cannot distinguish an image that is derived from a paper check from an electronically-created item. Nonetheless, the bank receiving the electronically-created item often handles the electronically-created image as if it were derived from a paper check.</p>
<p style="-uslm-sgm:P">2. Paragraph (g) of <ref href="/us/cfr/t12/s229.34">§ 229.34</ref> sets forth the indemnities that a bank provides when transferring or presenting an electronically-created item and receiving settlement or other consideration for it. The indemnities set forth in <ref href="/us/cfr/t12/s229.34/g">§ 229.34(g)</ref> are provided only by banks and only to subsequent banks in the collection chain. The indemnities ultimately shift liability for losses to the depositary bank due to the fact the electronically created item is not derived from a paper check, was unauthorized, or was transferred or presented for payment more than once. (See <ref href="/us/cfr/t12/s229.34/i">§ 229.34(i)</ref> and commentary thereto). The depositary bank cannot assert the indemnities set forth in <ref href="/us/cfr/t12/s229.34/g">§ 229.34(g)</ref> against a depositor. However, a depositary bank may, by agreement, allocate liability for such an item to the depositor and also may have a claim under other laws against that person.</p>
<p style="-uslm-sgm:P">2. The paying bank's losses in paragraph (g)(1) of this section include losses arising <?page num="936"?>from Regulation E non-compliance caused by the receipt of an electronically-created item.</p>
<p style="-uslm-sgm:P">3. Under paragraphs (g)(2) and (3), indemnified banks have a claim for damages pursuant to <ref href="/us/cfr/t12/s229.34/i">§ 229.34(i)</ref> regardless of whether the damages would have occurred if the item transferred had been derived from a paper check.</p>
<heading style="-uslm-sgm:HD2">3. Examples</heading>
<p style="-uslm-sgm:P">a. A paying bank pays an electronically-created item, which the paying bank's customer subsequently claims is unauthorized. The paying bank may incur liability on the item due to the fact the item is electronically created and not derived from a paper check. For example, the paying bank may have no means of disputing the customer's claim without examining the physical check, which does not exist. The indemnity in <ref href="/us/cfr/t12/s229.34/g">§ 229.34(g)</ref> enables the paying bank to recover from the presenting bank or any prior transferor bank for the amount of its loss, as permitted under <ref href="/us/cfr/t12/s229.34/i">§ 229.34(i)</ref>, due to receiving the electronically-created item.</p>
<p style="-uslm-sgm:P">b. A bank receives an electronic image of and electronic information related to an electronically-created item and, in turn, produces a paper item that is indistinguishable from a substitute check. The paper item is not a substitute check because the item is not derived from an original, paper check. That bank may incur a loss because it cannot produce the legal equivalent of a check (See <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> and commentary thereto). The indemnity in <ref href="/us/cfr/t12/s229.34/g">§ 229.34(g)</ref> enables a bank that received the electronically-created item to recover from the bank sending the check for the amount of the loss permitted under <ref href="/us/cfr/t12/s229.34/i">§ 229.34(i)</ref>.</p>
<p style="-uslm-sgm:P">c. A paying bank is not required by <ref href="/us/cfr/t12/s229.31/b">§ 229.31(b)</ref> to return an electronically-created item expeditiously. The depositary bank incurs a loss because it receives the return of the electronically-created item unexpeditiously and is unable to recover funds previously made available to its customer. The depositary bank is not an indemnified party under <ref href="/us/cfr/t12/s229.34/g">§ 229.34(g)</ref> and therefore cannot recover its loss pursuant to that indemnity.</p>
<heading style="-uslm-sgm:HD3">I. 229.34(h) Damages</heading>
<p style="-uslm-sgm:P">1. This paragraph adopts for the warranties in <ref href="/us/cfr/t12/s229.34/a">§ 229.34(a)</ref>, (b), (c), (d), and (e) the damages provided in UCC 4–207(c) and 4A–506(b). (See definition of interest compensation in <ref href="/us/cfr/t12/s229.2/oo">§ 229.2(oo)</ref>).</p>
<heading style="-uslm-sgm:HD3">J. 229.34(i) Indemnity Amounts</heading>
<p style="-uslm-sgm:P">1. This paragraph adopts for the amount of the indemnities provided for in <ref href="/us/cfr/t12/s229.34/f/2">§ 229.34(f)(2)</ref> and (g) an amount comparable to the damages provided in <ref href="/us/cfr/t12/s229.53/b/1/ii">§ 229.53(b)(1)(ii)</ref> of subpart D of this regulation.</p>
<p style="-uslm-sgm:P">2. The amount of an indemnity would be reduced in proportion to the amount of any loss attributable to the indemnified person's negligence or bad faith. This comparative-negligence standard is intended to allocate liability in the same manner as the comparative negligence provision of <ref href="/us/cfr/t12/s229.38/c">§ 229.38(c)</ref>.</p>
<p style="-uslm-sgm:P">3. An indemnified bank may be able to make an indemnity claim against more than one indemnifying depositary bank. However, an indemnified bank may not recover in the aggregate across all indemnifying banks more than the amount described in this paragraph. Therefore, an indemnified bank that recovers the amount of its the loss from one indemnifying depositary bank under this paragraph no longer has a loss that it can collect from a different indemnifying depositary bank.</p>
<heading style="-uslm-sgm:HD3">K. 229.34(j) Tender of Defense</heading>
<p style="-uslm-sgm:P">1. This paragraph adopts for this regulation the vouching-in provisions of UCC 3–119.</p>
<heading style="-uslm-sgm:HD3">L. 229.34(k) Notice of Claim</heading>
<p style="-uslm-sgm:P">1. This paragraph adopts the notice provisions of UCC sections 4–207(d) and 4–208(e) and applies them to this section's indemnities and warranties. The time limit set forth in this paragraph applies to notices of claims for warranty breaches and for indemnities. As provided in <ref href="/us/cfr/t12/s229.38/g">§ 229.38(g)</ref>, all actions under this section must be brought within one year after the date of the occurrence of the violation involved.</p>
<heading style="-uslm-sgm:HD2">XXI. Section 229.35 Indorsements</heading>
<heading style="-uslm-sgm:HD3">A. 229.35(a) Indorsement Standards</heading>
<p style="-uslm-sgm:P">1. This section requires banks to use a standard form of indorsement when indorsing checks during the forward collection and return process. It is designed to facilitate the identification of the depositary bank and the prompt return of checks. The indorsement standard a bank must use depends on the type of check being indorsed. Paper checks must be indorsed in accordance with ANS X9.100–111. Substitute checks must be indorsed in accordance with ANS X9.100–140. Electronic checks must be indorsed in accordance ANS X9.100–187. The Board, however, may by rule or order determine that different standards apply.</p>
<p style="-uslm-sgm:P">2. The parties sending and receiving a check may agree that different indorsement standards will apply to such checks. For example, although ANS X9.100–187 is an industry standard for banks' exchange of electronic checks, the parties may agree to send and receive electronic checks that conform to a different standard.</p>
<p style="-uslm-sgm:P">3. Banks generally apply indorsements to a paper check in one of two ways: (1) In accordance with ANS X9.100–111, banks print or “spray” indorsements onto a paper check <?page num="937"?>when the check is processed through the banks' automated check sorters (regardless of whether the checks are original checks or substitute checks), and (2) in accordance with ANS X9.100–140, reconverting banks print or “overlay” previously applied electronic indorsements and their own indorsements and identifications onto a substitute check at the time that the substitute check is created. If a subsequent substitute check is created in the course of collection or return, that substitute check will contain, in its image of the back of the previous substitute check, reproductions of indorsements that were sprayed or overlaid onto the previous item.</p>
<p style="-uslm-sgm:P">4. A bank might use check-processing equipment that captures an image of a check prior to spraying an indorsement onto that item. If the bank truncates that item, it should ensure that it also applies an indorsement to the item electronically. A reconverting bank satisfies its obligation to preserve all previously applied indorsements by overlaying a bank's indorsement that previously was applied electronically onto a substitute check that the reconverting bank creates. (See commentary to <ref href="/us/cfr/t12/s229.51/b">§ 229.51(b)</ref>).</p>
<p style="-uslm-sgm:P">5. A depositary bank may want to include an address in its indorsement in order to limit the number of locations at which it must receive paper returned checks and paper notices of nonpayment. Banks should note, however, that <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref> requires a depositary bank to receive paper returned checks at the location(s) at which it receives paper forward-collection checks, as well as the other locations enumerated in <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref>. (See <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref> and commentary thereto).</p>
<p style="-uslm-sgm:P">6. Under the UCC, a specific guarantee of prior indorsement is not necessary. (See UCC 4–207(a) and 4–208(a)). Use of guarantee language in indorsements of paper checks, such as “P.E.G.” (“prior endorsements guaranteed”), may result in reducing the type size used in bank indorsements, thereby making them more difficult to read. Use of this language may make it more difficult for other banks to identify the depositary bank.</p>
<p style="-uslm-sgm:P">7. If the bank maintaining the account into which a check is deposited agrees with another bank (a correspondent, ATM operator, or lock box operator) to have the other bank accept returns and notices of nonpayment for the bank of account, the indorsement placed on the check as the depositary bank indorsement may be the indorsement of the bank that acts as correspondent, ATM operator, or lock box operator as provided in paragraph (d) of <ref href="/us/cfr/t12/s229.35">§ 229.35</ref>.</p>
<p style="-uslm-sgm:P">8. In general, paper checks will be handled more efficiently if depositary banks place their indorsement so that the nine-digit routing number is not obscured by pre-existing matter on the back of the check. Indorsing parties other than banks, e.g., corporations, will benefit from the faster return of checks if they protect the identifiability and legibility of the depositary bank indorsement by staying clear of the area on the back of the paper check reserved for the depositary bank indorsement.</p>
<p style="-uslm-sgm:P">9. A paying bank is not required to indorse the check; however, if a paying bank does indorse a check that is returned, it should follow the indorsement standards for collecting banks and returning banks. Collecting banks and returning banks are required to indorse the check for tracing purposes. With respect to the identification of a paying bank that is also a reconverting bank, see commentary to <ref href="/us/cfr/t12/s229.51/b/2">§ 229.51(b)(2)</ref>.</p>
<heading style="-uslm-sgm:HD3">B. 229.35(b) Liability of Bank Handling Check</heading>
<p style="-uslm-sgm:P">1. When a check is sent for forward collection, the collection process results in a chain of indorsements extending from the depositary bank through any subsequent collecting banks to the paying bank. This paragraph extends the indorsement chain through the paying bank to the returning banks, and would permit each bank to recover from any prior indorser if the claimant bank does not receive payment for the check from a subsequent bank in the collection or return chain. For example, if a returning bank returned a check to an insolvent depositary bank, and did not receive the full amount of the check from the failed bank, the returning bank could obtain the unrecovered amount of the check from any bank prior to it in the collection and return chain including the paying bank. Because each bank in the collection and return chain could recover from a prior bank, any loss would fall on the first intermediary collecting bank that received the check from the depositary bank. To avoid circuity of actions, the returning bank could recover directly from the first collecting bank. Under the UCC, the first collecting bank might ultimately recover from the depositary bank's customer or from the other parties on the check.</p>
<p style="-uslm-sgm:P">2. Where a check is returned through the same banks used for the forward collection of the check, priority during the forward collection process controls over priority in the return process for the purpose of determining prior and subsequent banks under this regulation.</p>
<p style="-uslm-sgm:P">3. Where a returning bank is insolvent and fails to pay the paying bank or a prior returning bank for a returned check, <ref href="/us/cfr/t12/s229.39/a">§ 229.39(a)</ref> requires the receiver of the failed bank to return the check to the bank that transferred the check to the failed bank. That bank then either could continue the return to the depositary bank or recover based on this paragraph. Where the paying bank is insolvent, and fails to pay the collecting bank, the collecting bank also could recover from a prior collecting bank under this paragraph, and the bank from which it recovered could in turn recover from its prior collecting bank <?page num="938"?>until the loss settled on the depositary bank (which could recover from its customer).</p>
<p style="-uslm-sgm:P">4. A bank is not required to make a claim against an insolvent bank before exercising its right to recovery under this paragraph. Recovery may be made by charge-back or by other means. This right of recovery also is permitted even where nonpayment of the check is the result of the claiming bank's negligence such as failure to make expeditious return, but the claiming bank remains liable for its negligence under <ref href="/us/cfr/t12/s229.38">§ 229.38</ref>.</p>
<p style="-uslm-sgm:P">5. This liability to a bank that subsequently handles the check and does not receive payment for the check is imposed on a bank handling a check for collection or return regardless of whether the bank's indorsement appears on the check. Notice must be sent under this paragraph to a prior bank from which recovery is sought reasonably promptly after a bank learns that it did not receive payment from another bank, and learns the identity of the prior bank. Written notice reasonably identifying the check and the basis for recovery is sufficient if the check is not available. Receipt of notice by the bank against which the claim is made is not a precondition to recovery by charge-back or other means; however, a bank may be liable for negligence for failure to provide timely notice. A paying bank or returning bank also may recover from a prior collecting bank as provided in <ref href="/us/cfr/t12/s229.31/a">§§ 229.31(a)</ref> and 229.32(b) (in those cases where the paying bank is unable to identify the depositary bank). This paragraph does not affect a paying bank's accountability for a check under UCC 4–215(a) and 4–302. Nor does this paragraph affect a collecting bank's accountability under UCC 4–214 and 4–215(d). A collecting bank becomes accountable upon receipt of final settlement as provided in the foregoing UCC sections. Final settlement in <ref href="/us/cfr/t12/s229.32/e">§§ 229.32(e)</ref>, 229.33(e), and 229.36(c) is intended to be consistent with final settlement in the UCC (e.g., UCC 4–213, 4–214, and 4–215). (See also <ref href="/us/cfr/t12/s229.2/cc">§ 229.2(cc)</ref> (definition of returning bank) and commentary thereto).</p>
<p style="-uslm-sgm:P">6. This paragraph also provides that a bank may have the rights of a holder based on the handling of a check for collection or return. A bank may become a holder or a holder in due course regardless of whether prior banks have complied with the indorsement standard in <ref href="/us/cfr/t12/s229.35/a">§ 229.35(a)</ref>.</p>
<p style="-uslm-sgm:P">7. This paragraph affects the following provisions of the UCC, and may affect other provisions depending on circumstance:</p>
<p style="-uslm-sgm:P">a. Section 4–214(a), in that the right to recovery is not based on provisional settlement, and recovery may be had from any prior bank. Section 4–214(a) would continue to permit a depositary bank to recover a provisional settlement from its customer. (See <ref href="/us/cfr/t12/s229.33/h">§ 229.33(h)</ref>).</p>
<p style="-uslm-sgm:P">b. Section 3–415 and related provisions (such as section 3–503), in that such provisions would not apply as between banks, or as between the depositary bank and its customer.</p>
<heading style="-uslm-sgm:HD3">C. 229.35(c) Indorsement by Bank</heading>
<p style="-uslm-sgm:P">1. This section protects the rights of a customer depositing a check in a bank without requiring the words “pay any bank,” as required by the UCC (See UCC 4–201(b)). Use of this language in a depositary bank's indorsement will make it more difficult for other banks to identify the depositary bank. The applicable industry standard prohibits such material in subsequent collecting bank indorsements. The existence of a bank indorsement provides notice of the restrictive indorsement without any additional words.</p>
<heading style="-uslm-sgm:HD3">D. 229.35(d) Indorsement for Depositary Bank</heading>
<p style="-uslm-sgm:P">1. This section permits a depositary bank to arrange with another bank to indorse checks. This practice may occur when a correspondent indorses for a respondent, or when the bank servicing an ATM or lock box indorses for the bank maintaining the account in which the check is deposited—<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> the depositary bank. If the indorsing bank applies the depositary bank's indorsement, checks will be returned to the depositary bank. An indorsing bank may by agreement with the depositary bank apply its own indorsement as the depositary bank indorsement. In that case, the actual depositary bank's own indorsement on the check (if any) should avoid the location reserved for the depositary bank. The actual depositary bank remains responsible for the availability and other requirements of subpart B, but the bank indorsing as depositary bank is considered the depositary bank for purposes of subpart C (e.g., for purposes of determining the right to assert a claim under <ref href="/us/cfr/t12/s229.33/a">§ 229.33(a)</ref> for failure to return a check expeditiously and accepting paper checks under <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref>). The check will be returned, and notice of nonpayment will be given, to the bank indorsing as depositary bank.</p>
<p style="-uslm-sgm:P">2. Because the depositary bank for subpart B purposes will desire prompt notice of nonpayment, its arrangement with the indorsing bank should provide for prompt notice of nonpayment. The bank indorsing as depositary bank may require the depositary bank to agree to take up the check if the check is not paid even if the depositary bank's indorsement does not appear on the check and it did not handle the check. The arrangement between the banks may constitute an agreement varying the effect of provisions of subpart C under <ref href="/us/cfr/t12/s229.37">§ 229.37</ref>.
<?page num="939"?></p>
<heading style="-uslm-sgm:HD2">XXII. Section 229.36 Presentment and Issuance of Checks</heading>
<heading style="-uslm-sgm:HD3">A. 229.36(a) Receipt of Electronic Checks</heading>
<p style="-uslm-sgm:P">1. A paying bank may agree to accept presentment of electronic checks. (See <ref href="/us/cfr/t12/s229.2/ggg">§ 229.2(ggg)</ref> and commentary thereto). The paying bank's acceptance of such electronic checks is governed by the paying bank's agreement with the bank sending the electronic check to the paying bank. The terms of these agreements are determined by the parties and may include, for example, the electronic address or electronic receipt point at which the paying bank agrees to accept electronic checks, as well as when presentment occurs. The agreement also may specify whether electronic checks sent for forward collection must be separated from electronic returned checks.</p>
<heading style="-uslm-sgm:HD3">B. 229.36(b) Receipt of Paper Checks</heading>
<p style="-uslm-sgm:P">1. The paragraph specifies four locations at which the paying bank must accept presentment of paper checks. Where the check is payable through a bank and the check is sent to that bank, the payable-through bank is the paying bank for purposes of this subpart, regardless of whether the paying bank must present the check to another bank or to a nonbank payor for payment.</p>
<p style="-uslm-sgm:P">a. Delivery of paper checks may be made, and presentment is considered to occur, at a location (including a processing center) requested by the paying bank. This provision adopts the common law rule that the processing center acts as the agent of the paying bank to accept presentment and to begin the time for processing of the check. (See also UCC 4–204(c)). If a bank designates different locations for the presentment of forward collection paper checks bearing different routing numbers, for purposes of this paragraph it requests presentment of paper checks bearing a particular routing number only at the location designated for receipt of forward collection paper checks bearing that routing number.</p>
<p style="-uslm-sgm:P">b. If the check specifies the name and address of a branch or head office, or other location (such as a processing center), the paper check may be delivered to that office or other location. If the address is too general to identify a particular office, delivery may be made at any office consistent with the address. For example, if the address is “San Francisco, California,” each office in San Francisco must accept presentment of paper checks. The designation of an address on the check generally is in the control of the paying bank.</p>
<p style="-uslm-sgm:P">c. i. Delivery of a paper check may be made at an office of the bank associated with the routing number on the check. In the case of a substitute check, delivery may be made at an office of the bank associated with the routing number in the electronic check from which it was derived. The office associated with the routing number of a bank is found in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">American Bankers Association Key to Routing Numbers,</inline> published by an agent of the American Bankers Association, which lists a city and state address for each routing number. Paper checks generally are handled by collecting banks on the basis of the nine-digit routing number contained in the MICR line (or on the basis of the fractional form routing number if the MICR line is obliterated) on the check, rather than the printed name or address. The definition of a paying bank in <ref href="/us/cfr/t12/s229.2/z">§ 229.2(z)</ref> includes a bank designated by routing number, whether or not there is a name on the check, and whether or not any name is consistent with the routing number. Where a check is payable by one bank, but payable through another, the routing number is that of the payable-through bank, not that of the payor bank. In these cases, the payor bank has selected the payable-through bank as the point through which presentment of paper checks is to be made.</p>
<p style="-uslm-sgm:P">ii. There is no requirement in the regulation that the name and address on the check agree with the address associated with the routing number on the check. A bank generally may control the use of its routing number, just as it does the use of its name. The address associated with the routing number may be a processing center.</p>
<p style="-uslm-sgm:P">iii. In some cases, a paying bank may have several offices in the city associated with the routing number. In such case, it would not be reasonable or efficient to require the presenting bank to sort paper checks by more specific branch addresses that might be printed on the checks, and to deliver paper checks to each branch. A collecting bank normally would deliver all paper checks to one location. In cases where paper checks are delivered to a branch other than the branch on which they may be drawn, computer and courier communication among branches should permit the paying bank to determine quickly whether to pay the check.</p>
<p style="-uslm-sgm:P">d. If the paper check specifies the name of the paying bank but no address, the bank must accept delivery at any office. Where delivery is made by a person other than a bank, or where the routing number is not readable, delivery will be made based on the name and address of the paying bank on the check. If there is no address, delivery may be made at any office of the paying bank. This provision is consistent with UCC 3–111, which states that presentment for payment may be made at the place specified in the instrument, or, if there is none, at the place of business of the party to pay.</p>
<p style="-uslm-sgm:P">2. This paragraph may affect UCC 3–111 to the extent that the UCC requires presentment to occur at a place specified in the instrument.
<?page num="940"?></p>
<heading style="-uslm-sgm:HD3">C. 229.36(c) Liability of Bank During Forward Collection</heading>
<p style="-uslm-sgm:P">1. This paragraph makes settlement between banks during forward collection final when made, subject to any deferment of credit, just as settlements between banks during the return of checks are final. In addition, this paragraph clarifies that this change does not affect the liability scheme under UCC 4–201 during forward collection of a check. That UCC section provides that, unless a contrary intent clearly appears, a bank is an agent or subagent of the owner of a check, but that Article 4 of the UCC applies even though a bank may have purchased an item and is the owner of it. This paragraph preserves the liability of a collecting bank to prior collecting banks and the depositary bank's customer for negligence during the forward collection of a check under the UCC, even though this paragraph provides that settlement between banks during forward collection is final rather than provisional. Settlement by a paying bank is not considered to be final payment for the purposes of UCC 4–215(a)(2) or (3), because a paying bank has the right to recover settlement from a returning bank or depositary bank to which it returns a check under this subpart. Other provisions of the UCC not superseded by this subpart, such as section 4–202, also continue to apply to the forward collection of a check and may apply to the return of a check. (See definition of returning bank in <ref href="/us/cfr/t12/s229.2/cc">§ 229.2(cc)</ref>).</p>
<heading style="-uslm-sgm:HD3">D. 229.36(d) Same-Day Settlement</heading>
<p style="-uslm-sgm:P">1. This paragraph governs settlement for presentment of paper checks. Settlement for presentment of electronic checks is governed by the agreement of the parties. (See <ref href="/us/cfr/t12/s229.36/a">§ 229.36(a)</ref> and commentary thereto). This paragraph provides that, under certain conditions, a paying bank must settle with a presenting bank for a paper check on the same day the paper check is presented in order to avail itself of the ability to return the paper check on its next banking day under UCC 4–301 and 4–302. This paragraph does not apply to paper checks presented for immediate payment over the counter. Settling for a paper check under this paragraph does not constitute final payment of the paper check under the UCC. This paragraph does not supersede or limit the rules governing collection and return of paper checks through Federal Reserve Banks that are contained in subpart A of Regulation J (<ref href="/us/cfr/t12/p210">12 CFR part 210</ref>).</p>
<heading style="-uslm-sgm:HD3">2. Presentment Requirements</heading>
<heading style="-uslm-sgm:HD3">a. Location and Time</heading>
<p style="-uslm-sgm:P">i. For presented paper checks to qualify for mandatory same-day settlement, information accompanying the paper checks must indicate that presentment is being made under this paragraph—e.g., “these checks are being presented for same-day settlement”—and must include a demand for payment of the total amount of the checks together with appropriate payment instructions in order to enable the paying bank to discharge its settlement responsibilities under this paragraph. In addition, the paper check or checks must be presented at a location designated by the paying bank for receipt of paper checks for same-day settlement by 8 a.m. local time of that location. The designated presentment location must be a location at which the paying bank would be considered to have received a paper check under <ref href="/us/cfr/t12/s229.36/b">§ 229.36(b)</ref>. The paying bank may not designate a location solely for presentment of paper checks subject to settlement under this paragraph; by designating a location for the purposes of <ref href="/us/cfr/t12/s229.36/d">§ 229.36(d)</ref>, the paying bank agrees to accept paper checks at that location for the purposes of <ref href="/us/cfr/t12/s229.36/b">§ 229.36(b)</ref>.</p>
<p style="-uslm-sgm:P">ii. If the paying bank does not designate a presentment location, it must accept presentment of paper check for same-day settlement at any location identified in <ref href="/us/cfr/t12/s229.36/b">§ 229.36(b)</ref>, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">i.e.,</inline> at an address of the bank associated with the routing number on the check, at any branch or head office if the bank is identified on the check by name without address, or at a branch, head office, or other location consistent with the name and address of the bank on the check if the bank is identified on the check by name and address. A paying bank and a presenting bank may agree that paper checks will be accepted for same-day settlement at an alternative location or that the cut-off time for same-day settlement be earlier or later than 8 a.m. local time of the presentment location.</p>
<p style="-uslm-sgm:P">iii. In the case of a paper check payable through a bank but payable by another bank, this paragraph does not authorize direct presentment to the bank by which the paper check is payable. The requirements of same-day settlement under this paragraph would apply to a payable-through or payable-at bank to which the paper check is sent for payment or collection.</p>
<p style="-uslm-sgm:P">b. Reasonable delivery requirements. A paper check is considered presented when it is delivered to and payment is demanded at a location specified in paragraph (d)(1). Ordinarily, a presenting bank will find it necessary to contact the paying bank to determine the appropriate presentment location and any delivery instructions. Further, because presentment might not take place during the paying bank's banking day, a paying bank may establish reasonable delivery requirements to safeguard the paper checks presented, such as use of a night depository. If a presenting bank fails to follow reasonable delivery requirements established by the paying bank, it runs the risk that it will <?page num="941"?>not have presented the paper checks. However, if no reasonable delivery requirements are established or if the paying bank does not make provisions for accepting delivery of checks during its non-business hours, leaving the paper checks at the presentment location constitutes effective presentment.</p>
<p style="-uslm-sgm:P">c. Sorting of checks. A paying bank may require that paper checks presented to it for same-day settlement be sorted separately from other forward collection paper checks it receives as a collecting bank or paper returned checks it receives as a returning bank or depositary bank. For example, if a bank provides correspondent check collection services and receives unsorted paper checks from a respondent bank that include paper checks for which it is the paying bank and that would otherwise meet the requirements for same-day settlement under this section, the collecting bank need not make settlement in accordance with paragraph (d)(3). If the collecting bank receives sorted paper checks from its respondent bank, consisting only of paper checks for which the collecting bank is the paying bank and that meet the requirements for same-day settlement under this paragraph, the collecting bank may not charge a fee for handling those paper checks and must make settlement in accordance with this paragraph.</p>
<heading style="-uslm-sgm:HD3">3. Settlement</heading>
<p style="-uslm-sgm:P">a. If a bank presents a paper check in accordance with the time and location requirements for presentment under paragraph (d)(1), the paying bank either must settle for the paper check on the business day it receives the paper check without charging a presentment fee or return the paper check prior to the time for settlement. (This return deadline is subject to extension under <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref>.) The settlement must be in the form of a credit to an account designated by the presenting bank at a Federal Reserve Bank (e.g., a Fedwire transfer), unless the presenting bank agrees with the paying bank to accept settlement in another form (e.g., credit to an account of the presenting bank at the paying bank or debit to an account of the paying bank at the presenting bank). The settlement must occur by the close of Fedwire on the business day the paper check is received by the paying bank. Under the provisions of <ref href="/us/cfr/t12/s229.34/c">§ 229.34(c)</ref>, a settlement owed to a presenting bank may be set off by adjustments for previous settlements with the presenting bank. (See also <ref href="/us/cfr/t12/s229.39/d">§ 229.39(d)</ref>).</p>
<p style="-uslm-sgm:P">b. Paper checks that are presented after the 8 a.m. (local time of the location at which the paper checks are presented) presentment deadline for same-day settlement and before the paying bank's cut-off hour are treated as if they were presented under other applicable law and settled for or returned accordingly. However, for purposes of settlement only, the presenting bank may require the paying bank to treat such paper checks as presented for same-day settlement on the next business day in lieu of accepting settlement by cash or other means on the business day the paper checks are presented to the paying bank. Paper checks presented after the paying bank's cut-off hour or on non-business days, but otherwise in accordance with this paragraph, are considered presented for same-day settlement on the next business day.</p>
<heading style="-uslm-sgm:HD3">4. Closed Paying Bank</heading>
<p style="-uslm-sgm:P">a. There may be certain business days that are not banking days for the paying bank. Some paying banks may continue to settle for paper checks presented on these days (e.g., by opening their back office operations). In other cases, a paying bank may be unable to settle for paper checks presented on a day it is closed. If the paying bank closes on a business day and paper checks are presented to the paying bank in accordance with paragraph (d)(1), the paying bank is accountable for the paper checks unless it settles for or returns the paper checks by the close of Fedwire on its next banking day. In addition, paper checks presented on a business day on which the paying bank is closed are considered received on the paying bank's next banking day for purposes of the UCC midnight deadline (UCC 4–301 and 4–302) and this regulation's expeditious return and notice of nonpayment provisions.</p>
<p style="-uslm-sgm:P">b. If the paying bank is closed on a business day voluntarily, the paying bank must pay interest compensation, as defined in <ref href="/us/cfr/t12/s229.2/oo">§ 229.2(oo)</ref>, to the presenting bank for the value of the float associated with the paper check from the day of the voluntary closing until the day of settlement. Interest compensation is not required in the case of an involuntary closing on a business day, such as a closing required by state law. In addition, if the paying bank is closed on a business day due to emergency conditions, settlement delays and interest compensation may be excused under <ref href="/us/cfr/t12/s229.38/e">§ 229.38(e)</ref> or UCC 4–109(b).</p>
<p style="-uslm-sgm:P">5. Good faith. Under <ref href="/us/cfr/t12/s229.38/a">§ 229.38(a)</ref>, both the presenting bank and paying bank are held to a standard of good faith, defined in <ref href="/us/cfr/t12/s229.2/nn">§ 229.2(nn)</ref> to mean honesty in fact and the observance of reasonable commercial standards of fair dealing. For example, designating a presentment location or changing presentment locations for the primary purpose of discouraging banks from presenting paper checks for same-day settlement might not be considered good faith on the part of the paying bank. Similarly, presenting a large volume of paper checks without prior notice could be viewed as not meeting reasonable commercial standards of fair dealing and therefore may not constitute presentment in good faith. In addition, if banks, in the general <?page num="942"?>course of business, regularly agree to certain practices related to same-day settlement, it might not be considered consistent with reasonable commercial standards of fair dealing, and therefore might not be considered good faith, for a bank to refuse to agree to those practices if agreeing would not cause it harm.</p>
<p style="-uslm-sgm:P">6. UCC sections affected. This paragraph directly affects the following provisions of the UCC and may affect other sections or provisions:</p>
<p style="-uslm-sgm:P">a. Section 4–204(b)(1), in that a presenting bank may not send a paper check for same-day settlement directly to the paying bank, if the paying bank designates a different location in accordance with paragraph (d)(1).</p>
<p style="-uslm-sgm:P">b. Section 4–213(a), in that the medium of settlement for paper checks presented under this paragraph is limited to a credit to an account at a Federal Reserve Bank and that, for paper checks presented after the deadline for same-day settlement and before the paying bank's cut-off hour, the presenting bank may require settlement on the next business day in accordance with this paragraph rather than accept settlement on the business day of presentment by cash.</p>
<p style="-uslm-sgm:P">c. Section 4–301(a), in that, to preserve the ability to exercise deferred posting, the time limit specified in that section for settlement or return by a paying bank on the banking day a paper check is received is superseded by the requirement to settle for paper checks presented under this paragraph by the close of Fedwire.</p>
<p style="-uslm-sgm:P">d. Section 4–302(a), in that, to avoid accountability, the time limit specified in that section for settlement or return by a paying bank on the banking day a paper check is received is superseded by the requirement to settle for paper checks presented under this paragraph by the close of Fedwire.</p>
<heading style="-uslm-sgm:HD2">XXIII. Section 229.37 Variations by Agreement</heading>
<p style="-uslm-sgm:P">A. This section is similar to UCC 4–103, and permits consistent treatment of agreements varying Article 4 or Subpart C, given the substantial interrelationship of the two documents. To achieve consistency, the official comment to UCC 4–103(a) (which in turn follows UCC 1–201(3)) should be followed in construing this section. For example, as stated in Official Comment 2 to UCC 4–103, owners of items and other interested parties are not affected by agreements under this section unless they are parties to the agreement or are bound by adoption, ratification, estoppel, or the like. In particular, agreements varying this subpart that delay the return of a check beyond the times required by this subpart may result in liability under <ref href="/us/cfr/t12/s229.38">§ 229.38</ref> to entities not party to the agreement.</p>
<p style="-uslm-sgm:P">B. The Board has not followed UCC 4–103(b), which permits Federal Reserve regulations and operating letters, clearinghouse rules, and the like to apply to parties that have not specifically assented. Nevertheless, this section does not affect the status of such agreements under the UCC.</p>
<p style="-uslm-sgm:P">C. The following are examples of situations where variation by agreement is permissible, subject to the limitations of this section:</p>
<p style="-uslm-sgm:P">1. A depositary bank may authorize another bank to apply the other bank's indorsement to a check as the depositary bank. (See <ref href="/us/cfr/t12/s229.35/d">§ 229.35(d)</ref>).</p>
<p style="-uslm-sgm:P">2. A depositary bank may authorize returning banks to commingle paper qualified returned checks with paper forward collection checks. (See <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref>).</p>
<p style="-uslm-sgm:P">3. A depositary bank may limit its liability to its customer in connection with the late return of a deposited check where the lateness is caused by markings on the check by the depositary bank's customer or prior indorser in the area of the depositary bank indorsement. (See <ref href="/us/cfr/t12/s229.38/d">§ 229.38(d)</ref>).</p>
<p style="-uslm-sgm:P">4. A paying bank may require its customer to assume the paying bank's liability for delayed or missent checks where the delay or missending is caused by markings placed on the check by the paying bank's customer that obscured a properly placed indorsement of the depositary bank. (See <ref href="/us/cfr/t12/s229.38/d">§ 229.38(d)</ref>).</p>
<p style="-uslm-sgm:P">5. A collecting bank or paying bank may agree to accept forward collection checks without the indorsement of a prior intermediary collecting bank. (See <ref href="/us/cfr/t12/s229.35/a">§ 229.35(a)</ref>).</p>
<p style="-uslm-sgm:P">6. A bank may agree to accept returned checks without the indorsement of a prior bank. (See <ref href="/us/cfr/t12/s229.35/a">§ 229.35(a)</ref>).</p>
<p style="-uslm-sgm:P">7. A presenting bank may agree with a paying bank to present paper checks for same-day settlement by a deadline earlier or later than 8 a.m. (See <ref href="/us/cfr/t12/s229.36/d/1/ii">§ 229.36(d)(1)(ii)</ref>).</p>
<p style="-uslm-sgm:P">8. A presenting bank and a paying bank may agree that presentment takes place when the paying bank receives an electronic transmission of information describing the check rather than upon delivery of the physical check. (See <ref href="/us/cfr/t12/s229.36/b">§ 229.36(b)</ref>).</p>
<p style="-uslm-sgm:P">9. A depositary bank may agree with a paying bank or returning bank to accept an image or other notice in lieu of a returned check even when the check is available for return under this part. Except to the extent that other parties interested in the check assent to or are bound by the variation of the notice-in-lieu provisions of this part, a depositary bank entering into such an agreement may be responsible under this part or other applicable law to other interested parties for any losses caused by the acceptance of an image or notice in lieu of a returned check. (See <ref href="/us/cfr/t12/s229.31/f">§§ 229.31(f)</ref> and 229.38(a)).</p>
<p style="-uslm-sgm:P">D. The Board expects to review the types of variation by agreement that develop under this section and will consider whether it is necessary to limit certain variations.
<?page num="943"?></p>
<heading style="-uslm-sgm:HD2">XXIV. Section 229.38 Liability</heading>
<heading style="-uslm-sgm:HD3">A. 229.38(a) Standard of Care; Liability; Measure of Damages</heading>
<p style="-uslm-sgm:P">1. The standard of care established by this section applies to any bank covered by the requirements of subpart C of the regulation. Thus, the standard of care applies to a paying bank under <ref href="/us/cfr/t12/s229.31">§§ 229.31</ref>, to a returning bank under <ref href="/us/cfr/t12/s229.32">§ 229.32</ref>, to a depositary bank under <ref href="/us/cfr/t12/s229.33">§§ 229.33</ref>, to a bank erroneously receiving a returned check or written notice of nonpayment as depositary bank under <ref href="/us/cfr/t12/s229.33/f">§ 229.33(f)</ref>, and to a bank indorsing a check under <ref href="/us/cfr/t12/s229.35">§ 229.35</ref>. The standard of care is similar to the standard imposed by UCC 1–203 and 4–103(a) and includes a duty to act in good faith, as defined in <ref href="/us/cfr/t12/s229.2/nn">§ 229.2(nn)</ref> of this regulation.</p>
<p style="-uslm-sgm:P">2. A bank not meeting this standard of care is liable to the depositary bank, the depositary bank's customer, the owner of the check, or another party to the check. The depositary bank's customer is usually a depositor of a check in the depositary bank (but see <ref href="/us/cfr/t12/s229.35/d">§ 229.35(d)</ref>). The measure of damages provided in this section (loss incurred up to amount of check, less amount of loss party would have incurred even if bank had exercised ordinary care) is based on UCC 4–103(e) (amount of the item reduced by an amount that could not have been realized by the exercise of ordinary care), as limited by 4–202(c) (bank is liable only for its own negligence and not for actions of subsequent banks in chain of collection). This subpart does not absolve a collecting bank of liability to prior collecting banks under UCC 4–201.</p>
<p style="-uslm-sgm:P">3. Under this measure of damages, a depositary bank or other person must show that the damage incurred results from the negligence proved. For example, the depositary bank may not simply claim that its customer will not accept a charge-back of a returned check, but must prove that it could not charge back when it received the returned check and could have charged back if no negligence had occurred, and must first attempt to collect from its customer. (See <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Marcoux</inline> v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Van Wyk,</inline> 572 F.2d 651 (8th Cir. 1978); <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Appliance Buyers Credit Corp.</inline> v. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Prospect Nat'l Bank,</inline> 708 F.2d 290 (7th Cir. 1983)). Generally, a paying or returning bank's liability would not be reduced because the depositary bank did not place a hold on its customer's deposit before it learned of nonpayment of the check.</p>
<p style="-uslm-sgm:P">4. This paragraph also states that it does not affect a paying bank's liability to its customer. Under UCC 4–402, for example, a paying bank is liable to its customer for wrongful dishonor, which is different from failure to exercise ordinary care and has a different measure of damages.</p>
<heading style="-uslm-sgm:HD3">B. 229.38(b) Paying Bank's Failure To Make Timely Return</heading>
<p style="-uslm-sgm:P">1. Section 229.31(b) imposes requirements on the paying bank for expeditious return of a check and leaves in place the UCC deadlines (as they may be modified by <ref href="/us/cfr/t12/s229.31/g">§ 229.31(g)</ref>), which may allow return at a different time. This paragraph clarifies that the paying bank could be liable for failure to meet either standard, but not for failure to meet both. The regulation intends to preserve the paying bank's accountability for missing its midnight or other deadline under the UCC (e.g., sections 4–215 and 4–302), provisions that are not incorporated in this regulation, but may be useful in establishing the time of final payment by the paying bank.</p>
<heading style="-uslm-sgm:HD3">C. 229.38(c) Comparative Negligence</heading>
<p style="-uslm-sgm:P">1. This paragraph establishes a “pure” comparative negligence standard for liability under subpart C of this regulation. This comparative negligence rule may have particular application where a paying bank or returning bank delays in returning a check because of difficulty in identifying the depositary bank, where the depositary bank has failed to exercise ordinary care in applying its indorsement.</p>
<heading style="-uslm-sgm:HD3">D. 229.38(d) Responsibility for Certain Aspects of Checks</heading>
<p style="-uslm-sgm:P">1. ANS X9.100–140 provides that an image of an original check must be reduced in size when placed on the first substitute check associated with that original check. (The image thereafter would be constant in size on any subsequent substitute check that might be created.) Because of this size reduction, the location of an indorsement, particularly a depositary bank indorsement, applied to an original paper check likely will change when the first reconverting bank creates a substitute check that contains that indorsement within the image of the original paper check. If the indorsement was applied to the original paper check in accordance with ANS X9.100–111's location requirements for indorsements applied to existing paper checks, and if the size reduction of the image causes the placement of the indorsement to no longer be consistent with ANS X9.100–111's requirements, then the reconverting bank bears the liability for any loss that results from the shift in the placement of the indorsement. Such a loss could result either because the original indorsement applied in accordance with ANS X9.100–111 is rendered illegible by a subsequent indorsement that a reconverting bank later applies to the substitute check in accordance with ANS X9.100–140, or because a subsequent bank receiving a substitute check cannot apply its indorsement to the substitute check legibly in accordance with ANS X9.100–111 as a result of the shift in the previous indorsement.
<?page num="944"?></p>
<p style="-uslm-sgm:P">2. Responsibility under paragraph (d)(1) is treated as negligence for comparative negligence purposes, and the contribution to damages under paragraph (d)(1) is treated in the same way as the degree of negligence under paragraph (c) of this section.
</p>
<heading style="-uslm-sgm:HD3" role="reserved">E through H [Reserved]</heading>
<heading style="-uslm-sgm:HD3">I. 229.38(i) Presumption of Alteration</heading>
<p style="-uslm-sgm:P">1. This paragraph applies to disputes between banks where one bank has sent an electronic check or a substitute check for collection to the other bank. The presumption of alteration does not apply to a dispute between banks where one bank sent the original check to the other bank, even if that check is subsequently truncated and destroyed. The presumption of alteration applies with respect to claims that the original check or to the electronic check or substitute check was altered or contained an unauthorized signature.</p>
<p style="-uslm-sgm:P">2. The presumption of alteration applies when the original check is unavailable for review by the banks in context of the dispute. If the original check is produced, through discovery or other means, and is made available for examination by all the parties, the presumption no longer applies.</p>
<p style="-uslm-sgm:P">3. This paragraph does not alter the transfer and presentment warranties under the UCC that allocate liability among the parties to a check transaction with respect to an item that has been altered or that was issued with an unauthorized signature of the drawer. The UCC or other applicable check law continues to apply with respect to other rights, duties, and obligations related to altered or unauthorized checks. In addition, the presumption does not apply if it is contrary to another Federal statute or regulation, such as the U.S. Treasury's rules regarding U.S. Treasury checks. The presumption of alteration may be varied by agreement to the extent permitted under <ref href="/us/cfr/t12/s229.37">§ 229.37</ref>.</p>
<p style="-uslm-sgm:P">4. As stated in <ref href="/us/cfr/t12/s229.2">§ 229.2</ref>, terms that are not defined in that section have the meanings set forth in the Uniform Commercial Code. “Alteration” is defined in UCC 3–407 and includes both (i) an unauthorized change in a check that purports to modify in any respect the obligation of a party, and (ii) an unauthorized addition of words or numbers or other change to an incomplete check relating to the obligation of a party. Alterations could include, for example, an unauthorized change to a payee name or a change to the date on a post-dated check that purports to make the check currently payable. “Unauthorized signature” is defined in UCC 1–201 and further discussed in UCC 3–403. An unauthorized signature could include a forgery as well as a signature made without actual or apparent authority.
</p>
<heading style="-uslm-sgm:HD2">XXV. Section 229.39 Insolvency of Bank</heading>
<heading style="-uslm-sgm:HD3">A. Introduction</heading>
<p style="-uslm-sgm:P">1. These provisions cover situations where a bank becomes insolvent during collection or return of a check. Paragraphs (a), (b), and (d) of <ref href="/us/cfr/t12/s229.39">§ 229.39</ref> are derived from UCC 4–216. They are intended to apply to all banks. Like UCC 4–216, paragraphs (a), (b), and (d) of <ref href="/us/cfr/t12/s229.39">§ 229.39</ref> are intended to establish the point in the collection process at which collection or return of a check should be either stopped or continued when a particular bank suspends payments. Section 229.39(a) sets forth the circumstances under which the receiver must stop collection or return and, instead, send the check back to the bank or customer that transferred the check. Section 229.39(b) sets forth the circumstances under which the collection or return of the check should continue. Paragraphs (a) and (b) of <ref href="/us/cfr/t12/s229.39">§ 229.39</ref> are not intended to confer upon banks preferential positions in the event of bank failures over general depositors or any other creditor of the failed bank. (See UCC 4–216, cmt. 1).</p>
<heading style="-uslm-sgm:HD3">B. 229.39(a) Duty of Receiver To Return Unpaid Checks</heading>
<p style="-uslm-sgm:P">1. This paragraph requires a receiver of a closed bank to return a check to the prior bank if the paying bank or the receiver did not pay for the check. This permits the prior bank, as holder, to pursue its claims against the closed bank or prior indorsers on the check.</p>
<heading style="-uslm-sgm:HD3">C. 229.39(b) Claims Against Banks for Checks Not Returned by the Receiver</heading>
<p style="-uslm-sgm:P">1. This section sets forth the claims available to banks in situations in which a receiver does not return a check under <ref href="/us/cfr/t12/s229.39/a">§ 229.39(a)</ref>. In those situations, the prior bank would not be a holder of the check and would be unable to pursue claims as a holder.</p>
<p style="-uslm-sgm:P">2. Paragraph (b)(1) of <ref href="/us/cfr/t12/s229.39">§ 229.39</ref> gives a bank a claim against a closed paying bank that finally pays a check without settling for it or a closed depositary bank that becomes obligated to pay a returned check without settling for it. If the bank with a claim under this paragraph recovers from a prior bank or other party to the check, the prior bank or other party to the check is subrogated to the claim.</p>
<p style="-uslm-sgm:P">3. Paragraph (b)(2) of <ref href="/us/cfr/t12/s229.39">§ 229.39</ref> gives a bank a claim against a closed collecting bank, paying bank, or returning bank that receives settlement for but does not make settlement for a check. (See commentary to <ref href="/us/cfr/t12/s229.35/b">§ 229.35(b)</ref> for discussion of prior and subsequent banks). As in the case of <ref href="/us/cfr/t12/s229.39/b/1">§ 229.39(b)(1)</ref>, if the bank with a claim under this paragraph recovers from a prior bank or other party to the check, the prior bank or other party to the check is subrogated to the claim.
<?page num="945"?></p>
<heading style="-uslm-sgm:HD3">D. 229.39(c) Preferred Claim Against Presenting Bank for Breach of Warranty</heading>
<p style="-uslm-sgm:P">1. This paragraph gives a paying bank a preferred claim against a closed presenting bank in the event that the presenting bank breaches an amount or encoding warranty as provided in <ref href="/us/cfr/t12/s229.34/c/1">§ 229.34(c)(1)</ref> or (3) and does not reimburse the paying bank for adjustments for a settlement made by the paying bank in excess of the value of the checks presented. This preferred claim is intended to have the effect of a perfected security interest and is intended to put the paying bank in the position of a secured creditor for purposes of the receivership provisions of the Federal Deposit Insurance Act and similar provisions of state law.</p>
<heading style="-uslm-sgm:HD3">E. 229.39(d) Finality of Settlement</heading>
<p style="-uslm-sgm:P">1. This paragraph provides that insolvency does not interfere with the finality of a settlement, such as a settlement by a paying bank that becomes final by expiration of the midnight deadline.</p>
<heading style="-uslm-sgm:HD2">XXVI. Section 229.40 Effect on Merger Transaction</heading>
<p style="-uslm-sgm:P">A. When banks merge, there is normally a period of adjustment before their operations are consolidated. To allow for this adjustment period, the regulation provides that the merged banks may be treated as separate banks for a period of up to one year after the consummation of the transaction. The term merger transaction is defined in <ref href="/us/cfr/t12/s229.2/t">§ 229.2(t)</ref>. This rule affects the status of the combined entity in a number of areas in this subpart, such as the following:</p>
<p style="-uslm-sgm:P">1. The paying bank's responsibility for notice of nonpayment (<ref href="/us/cfr/t12/s229.31/c">§ 229.31(c)</ref>).</p>
<p style="-uslm-sgm:P">2. Where the depositary bank must accept returned checks (<ref href="/us/cfr/t12/s229.33/b">§ 229.33(b)</ref> and (c)).</p>
<p style="-uslm-sgm:P">3. Where the depositary bank must accept notice of nonpayment (<ref href="/us/cfr/t12/s229.33/b">§ 229.33(b)</ref> and (c)).</p>
<p style="-uslm-sgm:P">4. Where a paying bank must accept presentment of paper checks (<ref href="/us/cfr/t12/s229.36/b">§ 229.36(b)</ref>).
</p>
<heading style="-uslm-sgm:HD2">XXVII. Section 229.41 Relation to State Law</heading>
<p style="-uslm-sgm:P">A. This section specifies that state law relating to the collection of checks is preempted only to the extent that it is inconsistent with this regulation. Thus, this regulation is not a complete replacement for state laws relating to the collection or return of checks.</p>
<heading style="-uslm-sgm:HD2">XXVIII. Section 229.42 Exclusions</heading>
<p style="-uslm-sgm:P">A. Checks drawn on the United States Treasury, U.S. Postal Service money orders, and checks drawn on states and units of general local government that are presented directly to the state or unit of general local government and that are not payable through or at a bank are excluded from the coverage of the expeditious-return, notice-of-nonpayment, and same-day settlement requirements of subpart C of this part. Other provisions of this subpart continue to apply to the checks. This exclusion does not apply to checks drawn by the U.S. government on banks.
</p>
<heading style="-uslm-sgm:HD2">XXIX. Section 229.43 Checks Payable in Guam, American Samoa, and the Northern Mariana Islands</heading>
<heading style="-uslm-sgm:HD3">A. 229.43(a) Definitions</heading>
<p style="-uslm-sgm:P">1. For purposes of subparts B and C of this part, bank offices in Guam, American Samoa, and the Northern Mariana Islands (which Regulation CC defines as Pacific island banks) do not meet the definition of bank in <ref href="/us/cfr/t12/s229.2/e">§ 229.2(e)</ref> because they are not located in the United States. Some checks drawn on Pacific island banks (defined as Pacific island checks) bear U.S. routing numbers and are collected and returned by banks in the same manner as checks payable in the U.S.</p>
<heading style="-uslm-sgm:HD3">B. 229.43(b) Rules Applicable to Pacific Island Checks</heading>
<p style="-uslm-sgm:P">1. When a bank handles a Pacific island check as if it were a check as defined in <ref href="/us/cfr/t12/s229.2/k">§ 229.2(k)</ref>, or an electronic image and electronic information derived from a demand draft as defined in <ref href="/us/cfr/t12/s229.43/a/2">§ 229.43(a)(2)</ref>, the bank is subject to certain provisions of subpart C of this part, as provided in this section. Because a Pacific island bank is not a bank as defined in <ref href="/us/cfr/t12/s229.2/e">§ 229.2(e)</ref> for purposes of subpart C, it is not a paying bank as defined in <ref href="/us/cfr/t12/s229.2/z">§ 229.2(z)</ref> for purposes of subpart C (unless otherwise noted in this section). Pacific island banks are not subject to the provisions of subparts B and C, but may be subject to the provisions of subpart D of this part to the extent they create substitute checks. (See <ref href="/us/cfr/t12/s229.2/ff">§ 229.2(ff)</ref> defining “State”).</p>
<p style="-uslm-sgm:P">2. A bank may agree to handle a Pacific island check as a returned check under <ref href="/us/cfr/t12/s229.32">§ 229.32</ref> and may convert the returned Pacific island check to a qualified returned check. The returning bank may receive the Pacific island check directly from a Pacific island bank or from another returning bank. As a Pacific island bank is not a paying bank for purposes of subpart C of this part, <ref href="/us/cfr/t12/s229.32/e">§ 229.32(e)</ref> does not apply to a returning bank settling with the Pacific island bank.</p>
<p style="-uslm-sgm:P">3. A depositary bank that handles a Pacific island check is not subject to the provisions of subpart B of Regulation CC, including the availability, notice, and interest accrual requirements, with respect to that check. If, however, a bank accepts a Pacific island check for deposit (or otherwise accepts the check as transferee) and collects the Pacific island check in the same manner as other checks, the bank generally is subject to the provisions of <ref href="/us/cfr/t12/s229.33">§ 229.33</ref>, except for <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref> <?page num="946"?>with respect to its application to paper notices of nonpayment, <ref href="/us/cfr/t12/s229.33/d">§ 229.33(d)</ref> (acceptance of oral notices of nonpayment), and <ref href="/us/cfr/t12/s229.33/h">§ 229.33(h)</ref> (notification to customer of returned check). If the depositary bank receives the returned Pacific island check directly from the Pacific island bank, the provisions of <ref href="/us/cfr/t12/s229.33/e">§ 229.33(e)</ref> (regarding time and manner of settlement for returned checks) do not apply, because the Pacific island bank is not a paying bank for purposes of subpart C of this part. In the event the Pacific island check is returned by a returning bank, however, the provisions of <ref href="/us/cfr/t12/s229.33/e">§ 229.33(e)</ref> apply. The depositary bank is not subject to the provisions in <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref> with respect to paper notices of nonpayment for Pacific island checks, but is subject to <ref href="/us/cfr/t12/s229.33/c">§ 229.33(c)</ref> with respect to paper returned checks that are Pacific island checks.</p>
<p style="-uslm-sgm:P">4. Banks that handle Pacific island checks in the same manner as other checks are subject to the indorsement provisions of <ref href="/us/cfr/t12/s229.35">§ 229.35</ref>. Section 229.35(c) eliminates the need for the restrictive indorsement “pay any bank.” For purposes of <ref href="/us/cfr/t12/s229.35/c">§ 229.35(c)</ref>, the Pacific island bank is deemed to be a bank.</p>
<p style="-uslm-sgm:P">5. Pacific island checks will often be intermingled with other checks in a single cash letter. Therefore, a bank that handles Pacific island checks in the same manner as other checks is subject to the transfer warranty provision in <ref href="/us/cfr/t12/s229.34/c/2">§ 229.34(c)(2)</ref> regarding accurate cash letter totals and the encoding warranty in <ref href="/us/cfr/t12/s229.34/c/3">§ 229.34(c)(3)</ref>. A bank that acts as a returning bank for a Pacific island check is not subject to the returned check warranties in <ref href="/us/cfr/t12/s229.34/d">§ 229.34(d)</ref>. Similarly, because the Pacific island bank is not a “bank” or a “paying bank” for purposes of subpart C of this part, the notice of nonpayment warranties in <ref href="/us/cfr/t12/s229.34/e">§ 229.34(e)</ref>, and the presentment warranties in <ref href="/us/cfr/t12/s229.34/c/1">§ 229.34(c)(1)</ref> and (c)(4) do not apply. For the same reason, the provisions of <ref href="/us/cfr/t12/s229.36">§ 229.36</ref> governing paying bank responsibilities such as place of receipt and same-day settlement do not apply to checks presented to a Pacific island bank, and the liability provisions applicable to paying banks in <ref href="/us/cfr/t12/s229.38">§ 229.38</ref> do not apply to Pacific island banks. Section 229.36(c), regarding finality of settlement between banks during forward collection, applies to banks that handle Pacific island checks in the same manner as other checks, as do the liability provisions of <ref href="/us/cfr/t12/s229.38">§ 229.38</ref>, to the extent the banks are subject to the requirements of Regulation CC as provided in this section, and <ref href="/us/cfr/t12/s229.37">§§ 229.37</ref> and 229.39 through 229.42.
</p>
<heading style="-uslm-sgm:HD2">XXX. <ref href="/us/cfr/t12/s229.51">§ 229.51</ref> General provisions governing substitute checks </heading>
<heading style="-uslm-sgm:HD3">A. <ref href="/us/cfr/t12/s229.51/a">§ 229.51(a)</ref> Legal Equivalence</heading>
<p style="-uslm-sgm:P">1. Section 229.51(a) states that a substitute check for which a bank has provided the substitute check warranties is the legal equivalent of the original check for all purposes and all persons if it meets the accuracy and legend requirements. Where the law (or a contract) requires production of the original check, production of a legally equivalent substitute check would satisfy that requirement. A person that receives a substitute check cannot be assessed costs associated with the creation of the substitute check, absent agreement to the contrary. </p>
<heading style="-uslm-sgm:HD3">Examples.</heading>
<p style="-uslm-sgm:P">a. A presenting bank presents a substitute check that meets the legal equivalence requirements to a paying bank. The paying bank cannot refuse presentment of the substitute check on the basis that it is a substitute check, because the substitute check is the legal equivalent of the original check.</p>
<p style="-uslm-sgm:P">b. A depositor's account agreement with a bank provides that the depositor is entitled to receive original cancelled checks back with his or her periodic account statement. The bank may honor that agreement by providing original checks, substitute checks, or a combination thereof. However, a bank may not honor such an agreement by providing something other than an original check or a substitute check.</p>
<p style="-uslm-sgm:P">c. A mortgage company argues that a consumer missed a monthly mortgage payment that the consumer believes she made. A legally equivalent substitute check concerning that mortgage payment could be used in the same manner as the original check to prove the payment.</p>
<p style="-uslm-sgm:P">2. A person other than a bank that creates a substitute check could transfer, present, or return that check only by agreement unless and until a bank provided the substitute check warranties.</p>
<p style="-uslm-sgm:P">3. To be the legal equivalent of the original check, a substitute check must accurately represent all the information on the front and back of the check as of the time the original check was truncated. An accurate representation of information that was illegible on the original check would satisfy this requirement. The payment instructions placed on the check by, or as authorized by, the drawer, such as the amount of the check, the payee, and the drawer's signature, must be accurately represented, because that information is an essential element of a negotiable instrument. Other information that must be accurately represented includes (1) the information identifying the drawer and the paying bank that is preprinted on the check, including the MICR line; and (2) other information placed on the check prior to the time an image of the check is captured, such as any required identification written on the front of the check and any indorsements applied to the back of the check. A substitute check need not capture other characteristics of the check, such as watermarks, microprinting, or other physical security features that cannot survive the imaging process or <?page num="947"?>decorative images, in order to meet the accuracy requirement. Conversely, some security features that are latent on the original check might become visible as a result of the check imaging process. For example, the original check might have a faint representation of the word “void” that will appear more clearly on a photocopied or electronic image of the check. Provided the inclusion of the clearer version of the word on the image used to create a substitute check did not obscure the required information listed above, a substitute check that contained such information could be the legal equivalent of an original check under <ref href="/us/cfr/t12/s229.51/a">§ 229.51(a)</ref>. However, if a person suffered a loss due to receipt of such a substitute check instead of the original check, that person could have an indemnity claim under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> and, in the case of a consumer, an expedited recredit claim under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref>.</p>
<p style="-uslm-sgm:P">4. To be the legal equivalent of the original check, a substitute check must bear the legal equivalence legend described in <ref href="/us/cfr/t12/s229.51/a/2">§ 229.51(a)(2)</ref>. A bank may not vary the language of the legal equivalence legend and must place the legend on the substitute check as specified by generally applicable industry standards for substitute checks contained in ANS X9.100–140.</p>
<p style="-uslm-sgm:P">5. In some cases, the original check used to create a substitute check could be forged or otherwise fraudulent. A substitute check created from a fraudulent original check would have the same status under Regulation CC and the U.C.C. as the original fraudulent check. For example, a substitute check of a fraudulent original check would not be properly payable under U.C.C. 4–401 and would be subject to the transfer and presentment warranties in U.C.C. 4–207 and 4–208.
</p>
<heading style="-uslm-sgm:HD3">B. 229.51(b) Reconverting Bank Duties</heading>
<p style="-uslm-sgm:P">1. In accordance with ANS X9.100–140, a reconverting bank must indorse (or, if it is a paying bank with respect to the check or a bank that rejected a check submitted for deposit, identify itself on) the back of a substitute check in a manner that preserves all indorsements applied, whether physically or electronically, by persons that previously handled the check in any form for forward collection or return. Indorsements applied physically to the original check before an image of the check was captured would be preserved through the image of the back of the original check that a substitute check must contain. If a bank sprays an indorsement onto a paper check <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">after</inline> it captures an image of the check, it should ensure that it applies an indorsement to the item electronically, if it transfers the check as an electronic check or electronic returned check. (See paragraph 4 of commentary to section 229.35(a)). A reconverting bank satisfies its obligation to preserve all previously applied indorsements by physically applying (overlaying) electronic indorsements onto a substitute check that the reconverting bank creates. A reconverting bank is not responsible for obtaining indorsements that persons that previously handled the check in any form should have applied but did not apply.</p>
<p style="-uslm-sgm:P">2. A reconverting bank must identify itself and the truncating bank by applying its routing number and the routing number of the truncating bank to the front of a substitute check in accordance with ANS X9.100–140.</p>
<p style="-uslm-sgm:P">3. If the reconverting bank is the paying bank or a bank that rejected a check submitted for deposit, it also must identify itself by applying its routing number to the back of the check. A reconverting bank also must preserve on the back of the substitute check, in accordance with ANS X9.100–140, the identifications of any previous reconverting banks. The reconverting-bank and truncating-bank routing numbers on the front of a substitute check and, if the reconverting bank is the paying bank or a bank that rejected a check submitted for deposit, the reconverting bank's routing number on the back of a substitute check are for identification only and are not indorsements or acceptances.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A bank's customer, which is a nonbank business, receives checks for payment and by agreement deposits substitute checks instead of the original checks with its depositary bank. The depositary bank is the reconverting bank with respect to the substitute checks and the truncating bank with respect to the original checks. In accordance with ANS X9.100–140, the bank must therefore be identified on the front of the substitute checks as a reconverting bank and as the truncating bank, and on the back of the substitute checks as the depositary bank and a reconverting bank.</p>
<p style="-uslm-sgm:P">4. The location of an indorsement applied to a paper check in accordance with ANS X9.100–111 may shift if that check is truncated and later reconverted to a substitute check. If an indorsement applied to an original check in accordance with ANS X9.100–111 is overwritten by a subsequent indorsement applied to a substitute check in accordance with industry standards, then one or both of those indorsements could be rendered illegible. As explained in <ref href="/us/cfr/t12/s229.38/c">§ 229.38(c)</ref> and the commentary thereto, a reconverting bank is liable for losses associated with indorsements that are rendered illegible as a result of check substitution.
</p>
<heading style="-uslm-sgm:HD3">C. 229.51(c) Applicable Law</heading>
<p style="-uslm-sgm:P">1. A substitute check that meets the requirements for legal equivalence set forth in this section is subject to any provision of federal or state law that applies to original checks, except to the extent such provision <?page num="948"?>is inconsistent with the Check 21 Act or subpart D. A legally equivalent substitute check is subject to all laws that are not preempted by the Check 21 Act in the same manner and to the same extent as is an original check. Thus, any person could satisfy a law that requires production of an original check by producing a substitute check that is derived from the relevant original check and that meets the legal equivalence requirements of <ref href="/us/cfr/t12/s229.51/a">§ 229.51(a)</ref>.</p>
<p style="-uslm-sgm:P">2. A law is not inconsistent with the Check 21 Act or subpart D merely because it allows for the recovery of a greater amount of damages. </p>
<heading style="-uslm-sgm:HD3">Example.</heading>
<p style="-uslm-sgm:P">A drawer that suffers a loss with respect to a substitute check that was improperly charged to its account and for which the drawer has an indemnity claim but not a warranty claim would be limited under the Check 21 Act to recovery of the amount of the substitute check plus interest and expenses. However, if the drawer also suffered damages that were proximately caused because the bank wrongfully dishonored subsequently presented checks as a result of the improper substitute check charge, the drawer could recover those losses under U.C.C. 4–402.
</p>
<heading style="-uslm-sgm:HD2">XXXI. Section 229.52 Substitute Check Warranties</heading>
<heading style="-uslm-sgm:HD3">A. 229.52(a) Warranty Content and Provision</heading>
<p style="-uslm-sgm:P">1. The responsibility for providing the substitute-check warranties begins with the reconverting bank. In the case of a substitute check created by a bank, the reconverting bank starts the flow of warranties when it transfers, presents, or returns a substitute check for which it receives consideration or when it rejects a check submitted for deposit and returns to its customer a substitute check. A bank that receives a substitute check created by a nonbank starts the flow of warranties when it transfers, presents, or returns for consideration either the substitute check it received or an electronic or paper representation of that substitute check.</p>
<p style="-uslm-sgm:P">2. To ensure that warranty protections flow all the way through to the ultimate recipient of a substitute check or paper or electronic representation thereof, any subsequent bank that transfers, presents, or returns for consideration either the substitute check or a paper or electronic representation of the substitute check is responsible to subsequent transferees for the warranties. Any warranty recipient could bring a claim for a breach of a substitute-check warranty if it received either the actual substitute check or a paper or electronic representation of a substitute check.</p>
<p style="-uslm-sgm:P">3. The substitute-check warranties and indemnity are not given under sections 229.52 and 229.53 by a bank that truncates the original check and by agreement transfers an electronic check to a subsequent bank for consideration. However, the warranties in <ref href="/us/cfr/t12/s229.34/a">§ 229.34(a)</ref> would apply to the transfer of an electronic check, and those warranties may be varied by agreement between the parties. A bank that is a truncating bank under <ref href="/us/cfr/t12/s229.2/eee/2">§ 229.2(eee)(2)</ref> because it accepts a deposit of a check electronically might be subject to a claim by another depositary bank that accepts the original check for deposit. (See <ref href="/us/cfr/t12/s229.34/f">§ 229.34(f)</ref> and commentary thereto).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A bank that receives an electronic check and uses it to create substitute checks is the reconverting bank and, when it transfers, presents, or returns that substitute check, becomes the first warrantor with respect to the substitute check warranties. That bank, however, may have similar warranty claims with respect to the electronic check under <ref href="/us/cfr/t12/s229.34/a">§ 229.34(a)</ref> against the bank that transferred the electronic check.</p>
<p style="-uslm-sgm:P">4. A bank need not affirmatively make the warranties because they attach automatically when a bank transfers, presents, or returns the substitute check (or a representation thereof) for which it receives consideration. Because a substitute check transferred, presented, or returned for consideration is warranted to be the legal equivalent of the original check and thereby subject to existing laws as if it were the original check, all UCC and other Regulation CC warranties that apply to the original check also apply to the substitute check.</p>
<p style="-uslm-sgm:P">5. The legal-equivalence warranty by definition must be linked to a particular substitute check. When an original check is truncated, the check may move from electronic form to substitute-check form and then back again, such that there would be multiple substitute checks associated with one original check. When a check changes form multiple times in the collection or return process, the first reconverting bank and subsequent banks that transfer, present, or return the first substitute check (or a paper or electronic representation of the first substitute check) warrant the legal equivalence of only the first substitute check. If a bank receives an electronic representation of a substitute check and uses that representation to create a second substitute check, the second reconverting bank and subsequent transferees of the second substitute check (or a representation thereof) warrant the legal equivalence of both the first and second substitute checks. A reconverting bank would not be liable for a warranty breach under section 229.52 if the legal-equivalence defect is the fault of a subsequent bank that handled the substitute check, either as a substitute check or in other paper or electronic form.
<?page num="949"?></p>
<p style="-uslm-sgm:P">6. The warranty in <ref href="/us/cfr/t12/s229.52/a/1/ii">§ 229.52(a)(1)(ii)</ref>, which addresses multiple payment requests for the same check, is not linked to a particular substitute check but rather is given by each bank handling the substitute check, an electronic representation of a substitute check, or a subsequent substitute check created from an electronic representation of a substitute check. All banks that transfer, present, or return a substitute check (or a paper or electronic representation thereof) therefore provide the warranty regardless of whether the ultimate demand for double payment is based on the original check, the substitute check, or some other electronic or paper representation of the substitute or original check, and regardless of the order in which the duplicative payment requests occur. This warranty is given by the banks that transfer, present, or return a substitute check even if the demand for duplicative payment results from a fraudulent substitute check about which the warranting bank had no knowledge. (See also <ref href="/us/cfr/t12/s229.34/a/1/ii">§ 229.34(a)(1)(ii)</ref>).</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A nonbank depositor truncates a check and in lieu of the check sends an electronic check to both Bank A and Bank B. Bank A and Bank B each use the check information that it received electronically to create a substitute check, which it presents to Bank C for payment. Bank A and Bank B are both reconverting banks and each made the substitute-check warranties when it presented a substitute check to and received payment from Bank C. Bank C could pursue a warranty claim for the loss it suffered as a result of the duplicative payment against either Bank A or Bank B.</p>
<p style="-uslm-sgm:P">7. A bank that rejects a check submitted for deposit and, instead of the original check, provides its customer with a substitute check makes the warranties in <ref href="/us/cfr/t12/s229.52/a/1">§ 229.52(a)(1)</ref>. As noted in the commentary to <ref href="/us/cfr/t12/s229.2/ccc">§ 229.2(ccc)</ref>, the Check 21 Act contemplates that nonbank persons that receive substitute checks (or representations thereof) from a bank will receive warranties and indemnities with respect to the checks. A reconverting bank that provides a substitute check to its depositor after it has rejected the check submitted for deposit may not have received consideration for the substitute check. In order to prevent banks from being able to transfer a check the bank truncated and then reconverted without providing substitute check warranties, the regulation provides that a bank that rejects a check submitted for deposit but provides its customer with a substitute check (or a paper or electronic representation of a substitute check) makes the warranties set forth in <ref href="/us/cfr/t12/s229.52/a/1">§ 229.52(a)(1)</ref> regardless of whether the bank received consideration.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Example.</inline> A bank's customer submits a check for deposit at an ATM that captures an image of the check and sends the image electronically to the bank. After reviewing the item, the bank rejects the item submitted for deposit. Instead of providing the original check to its customer, the bank provides a substitute check to its customer. This bank is the reconverting bank with respect to the substitute check and makes the warranties described in <ref href="/us/cfr/t12/s229.52/a/1">§ 229.52(a)(1)</ref> regardless of whether the bank previously extended credit to its customer. (See commentary to <ref href="/us/cfr/t12/s229.2/ccc">§ 229.2(ccc)</ref>).</p>
<heading style="-uslm-sgm:HD3">B. 229.52(b) Warranty Recipients</heading>
<p style="-uslm-sgm:P">1. A reconverting bank makes the warranties to the person to which it transfers, presents, or returns the substitute check for consideration and to any subsequent recipient that receives either the substitute check or a paper or electronic representation derived from the substitute check. These subsequent recipients could include a subsequent collecting or returning bank, the depositary bank, the drawer, the drawee, the payee, the depositor, and any indorser. The paying bank would be included as a warranty recipient, for example because it would be the drawee of a check or a transferee of a check that is payable through it.</p>
<p style="-uslm-sgm:P">2. The warranties flow with the substitute check to persons that receive a substitute check or a paper or electronic representation of a substitute check. The warranties do not flow to a person that receives only the original check or a representation of an original check that was not derived from a substitute check. However, a person that initially handled only the original check could become a warranty recipient if that person later receives a returned substitute check or a paper or electronic representation of a substitute check that was derived from that original check. (See <ref href="/us/cfr/t12/s229.34/f">§ 229.34(f)</ref> regarding claims by a depositary bank that accepts deposit of an original check).</p>
<p style="-uslm-sgm:P">3. A reconverting bank also makes the warranties to a person to whom the bank transfers a substitute check that the bank has rejected for deposit regardless of whether the bank received consideration.
</p>
<heading style="-uslm-sgm:HD2">XXXII. <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> Substitute Check Indemnity
</heading>
<heading style="-uslm-sgm:HD3">A. 229.53(a) Scope of Indemnity</heading>
<p style="-uslm-sgm:P">1. Each bank that for consideration transfers, presents, or returns a substitute check or a paper or electronic representation of a substitute check is responsible for providing the substitute-check indemnity.</p>
<p style="-uslm-sgm:P">2. The indemnity covers losses due to any subsequent recipient's receipt of the substitute check instead of the original check. The indemnity therefore covers the loss caused by receipt of the substitute check as well as the loss that a bank incurs because it pays an indemnity to another person. A bank that pays an indemnity would in turn have an indemnity claim regardless of whether it <?page num="950"?>received the substitute check or a paper or electronic representation of the substitute check. The indemnity would not apply to a person that handled only the original check or a paper or electronic image of the original check that was not derived from a substitute check.</p>
<p style="-uslm-sgm:P">3. A reconverting bank also provides the substitute check indemnity to a person to whom the bank transfers a substitute check (or a paper or electronic representation of a substitute check) derived from a check that the bank has rejected for deposit regardless of whether the bank providing the indemnity has received consideration.
</p>
<heading style="-uslm-sgm:HD3">B. 229.53(b) Indemnity Amount</heading>
<p style="-uslm-sgm:P">1. If a recipient of a substitute check is making an indemnity claim because a bank has breached one of the substitute-check warranties, the recipient can recover any losses proximately caused by that warranty breach.</p>
<heading style="-uslm-sgm:HD2">Examples</heading>
<p style="-uslm-sgm:P">a. A drawer discovers that its account has been charged for two different substitute checks that were provided to the drawer and that were associated with the same original check. As a result of this duplicative charge, the paying bank dishonored several subsequently presented checks that it otherwise would have paid and charged the drawer returned-check fees. The payees of the returned checks also charged the drawer returned-check fees. The drawer would have a warranty claim against any of the warranting banks, including its bank, for breach of the warranty described in <ref href="/us/cfr/t12/s229.52/a/1/ii">§ 229.52(a)(1)(ii)</ref>. The drawer also could assert an indemnity claim. Because there is only one original check for any payment transaction, if the collecting bank and presenting bank had collected the original check instead of using a substitute check the bank would have been asked to make only one payment. The drawer could assert its warranty and indemnity claims against the paying bank, because that is the bank with which the drawer has a customer relationship and the drawer has received an indemnity from that bank. The drawer could recover from the indemnifying bank the amount of the erroneous charge, as well as the amount of the returned-check fees charged by both the paying bank and the payees of the returned checks. If the drawer's account were an interest-bearing account, the drawer also could recover any interest lost on the erroneously debited amount and the erroneous returned-check fees. The drawer also could recover its expenditures for representation in connection with the claim. Finally, the drawer could recover any other losses that were proximately caused by the warranty breach.</p>
<p style="-uslm-sgm:P">b. In the example above, the paying bank that received the duplicate substitute checks also would have a warranty claim against the previous transferor(s) of those substitute checks and could seek an indemnity from that bank (or either of those banks). The indemnifying bank would be responsible for compensating the paying bank for all the losses proximately caused by the warranty breach, including representation expenses and other costs incurred by the paying bank in settling the drawer's claim.
</p>
<p style="-uslm-sgm:P">2. If the recipient of the substitute check does not have a substitute check warranty claim with respect to the substitute check, the amount of the loss the recipient may recover under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> is limited to the amount of the substitute check, plus interest and expenses. However, the indemnified person might be entitled to additional damages under some other provision of law. </p>
<heading style="-uslm-sgm:HD3">Examples.</heading>
<p style="-uslm-sgm:P">a. A drawer received a substitute check that met all the legal equivalence requirements and for which the drawer was only charged once, but the drawer believed that the underlying original check was a forgery. If the drawer suffered a loss because it could not prove the forgery based on the substitute check, for example because proving the forgery required analysis of pen pressure that could be determined only from the original check, the drawer would have an indemnity claim. However, the drawer would not have a substitute check warranty claim because the substitute check was the legal equivalent of the original check and no person was asked to pay the substitute check more than once. In that case, the amount of the drawer's indemnity under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> would be limited to the amount of the substitute check, plus interest and expenses. However, the drawer could attempt to recover additional losses, if any, under other law.</p>
<p style="-uslm-sgm:P">b. As described more fully in the commentary to <ref href="/us/cfr/t12/s229.53/a">§ 229.53(a)</ref> regarding the scope of the indemnity, a paying bank could have an indemnity claim if it paid a legally equivalent substitute check that was created from a fraudulent cashier's check that the paying bank's fraud detection procedures would have caught and that the bank would have returned by its midnight deadline had it received the original check. However, if the substitute check was not subject to a warranty claim (because it met the legal equivalence requirements and there was only one payment request) the paying bank's indemnity would be limited to the amount of the substitute check plus interest and expenses.
</p>
<p style="-uslm-sgm:P">3. The amount of an indemnity would be reduced in proportion to the amount of any loss attributable to the indemnified person's negligence or bad faith. This comparative-negligence standard is intended to allocate <?page num="951"?>liability in the same manner as the comparative-negligence provision of section 229.38(c).
</p>
<p style="-uslm-sgm:P">4. An indemnifying bank may limit the losses for which it is responsible under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> by producing the original check or a sufficient copy. However, production of the original check or a sufficient copy does not absolve the indemnifying bank from liability claims relating to a warranty the bank has provided under <ref href="/us/cfr/t12/s229.52">§ 229.52</ref> or any other law, including but not limited to subpart C of this part or the U.C.C.
</p>
<heading style="-uslm-sgm:HD3">C. 229.53(c) Subrogation of Rights</heading>
<p style="-uslm-sgm:P">1. A bank that pays an indemnity claim is subrogated to the rights of the person it indemnified, to the extent of the indemnity it provided, so that it may attempt to recover that amount from another person based on an indemnity, warranty, or other claim. The person that the bank indemnified must comply with reasonable requests from the indemnifying bank for assistance with respect to the subrogated claim. </p>
<heading style="-uslm-sgm:HD3">Example.</heading>
<p style="-uslm-sgm:P">A paying bank indemnifies a drawer for a substitute check that the drawer alleged was a forgery that would have been detected had the original check instead been presented. The bank that provided the indemnity could pursue its own indemnity claim against the bank that presented the substitute check, could attempt to recover from the forger, or could pursue any claim that it might have under other law. The bank also could request from the drawer any information that the drawer might possess regarding the possible identity of the forger. </p>
<heading style="-uslm-sgm:HD2">XXXIII. <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> Expedited Recredit for Consumers </heading>
<heading style="-uslm-sgm:HD3">A. 229.54(a) Circumstances Giving Rise to a Claim</heading>
<p style="-uslm-sgm:P">1. A consumer may make a claim for expedited recredit under this section only for a substitute check that he or she has received and for which the bank charged his or her deposit account. As a result, checks used to access loans, such as credit card checks or home equity line of credit checks, that are reconverted to substitute checks would not give rise to an expedited recredit claim, unless such a check was returned unpaid and the bank charged the consumer's deposit account for the amount of the returned check. In addition, a consumer who received only a statement that contained images of multiple substitute checks per page would not be entitled to make an expedited recredit claim, although he or she could seek redress under other provisions of law, such as <ref href="/us/cfr/t12/s229.52">§ 229.52</ref> or U.C.C. 4–401. However, a consumer who originally received only a statement containing images of multiple substitute checks per page but later received a substitute check, such as in response to a request for a copy of a check shown in the statement, could bring a claim if the other expedited recredit criteria were met. Although a consumer must at some point have received a substitute check to make an expedited recredit claim, the consumer need not be in possession of the substitute check at the time he or she submits the claim.
</p>
<p style="-uslm-sgm:P">2. A consumer must in good faith assert that the bank improperly charged the consumer's account for the substitute check or that the consumer has a warranty claim for the substitute check (or both). The warranty in question could be a substitute-check warranty described in section 229.52 or any other warranty that a bank provides with respect to a check under other law. A consumer could, for example, have a warranty claim under section 229.34(a) or (d), which contain returned-check warranties that are made to the owner of the check.
</p>
<p style="-uslm-sgm:P">3. A consumer's recovery under the expedited recredit section is limited to the amount of his or her loss, up to the amount of the substitute check subject to the claim, plus interest if the consumer's account is an interest-bearing account. The consumer's loss could include fees that resulted from the allegedly incorrect charge, such as bounced check fees that were imposed because the improper charge caused the bank to dishonor subsequently presented checks that it otherwise would have honored. A consumer who suffers a total loss greater than the amount of the substitute check plus interest could attempt to recover the remainder of that loss by bringing warranty, indemnity, or other claim under this subpart or other applicable law. </p>
<heading style="-uslm-sgm:HD3">Examples.</heading>
<p style="-uslm-sgm:P">a. A consumer who received a substitute check believed that he or she wrote the check for $150, but the bank charged his or her account for $1,500. The amount on the substitute check the consumer received is illegible. If the substitute check contained a blurry image of what was a legible original check, the consumer could have a claim for a breach of the legal equivalence warranty in addition to an improper charge claim. Because the amount of the check cannot be determined from the substitute check provided to the consumer, the consumer, if acting in good faith, could assert that the production of the original check or a better copy of the original check is necessary to determine the validity of the claim. The consumer in this case could attempt to recover his or her losses by using the expedited recredit procedure. The consumer's losses recoverable under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> could include the $1,350 he or she believed was incorrectly charged plus any improperly charged fees associated with <?page num="952"?>that charge, up to $150 (plus foregone interest on the amount of the consumer's loss if the account was an interest-bearing account). The consumer could recover any additional losses, if any, under other law, such as U.C.C. 4–401 and 4–402.</p>
<p style="-uslm-sgm:P">b. A consumer received a substitute check for which his or her account was charged and believed that the original check from which the substitute was derived was a forgery. The forgery was good enough that analysis of the original check was necessary to verify whether the signature is that of the consumer. Under those circumstances, the consumer, if acting in good faith, could assert that the charge was improper, that he or she therefore had incurred a loss in the amount of the check (plus foregone interest if the account was an interest-bearing account), and that he or she needed the original check to determine the validity of the forgery claim. By contrast, if the signature on the substitute check obviously was forged (for example, if the forger signed a name other than that of the account holder) and there was no other defect with the substitute check, the consumer would not need the original check or a sufficient copy to determine the fact of the forgery and thus would not be able to make an expedited recredit claim under this section. However, the consumer would have a claim under U.C.C. 4–401 if the item was not properly payable.</p>
<heading style="-uslm-sgm:HD3">B. 229.54(b) Procedures for Making Claims</heading>
<p style="-uslm-sgm:P">1. The consumer must submit his or her expedited recredit claim to the bank within 40 calendar days of the later of the day on which the bank mailed or delivered, by a means agreed to by the consumer, (1) the periodic account statement containing information concerning the transaction giving rise to the claim, or (2) the substitute check giving rise to the claim. The mailing or delivery of a substitute check could be in connection with a regular account statement, in response to a consumer's specific request for a copy of a check, or in connection with the return of a substitute check to the payee.</p>
<p style="-uslm-sgm:P">2. Section 229.54(b) contemplates more than one possible means of delivering an account statement or a substitute check to the consumer. The time period for making a claim thus could be triggered by the mailed, in-person, or electronic delivery of an account statement or by the mailed or in-person delivery of a substitute check. In-person delivery would include, for example, making an account statement or substitute check available at the bank for the consumer's retrieval under an arrangement agreed to by the consumer. In the case of a mailed statement or substitute check, the 40-day period should be calculated from the postmark on the envelope. In the case of in-person delivery, the 40-day period should be calculated from the earlier of the calendar day on which delivery occurred or the bank first made the statement or substitute check available for the consumer's retrieval.</p>
<p style="-uslm-sgm:P">3. A bank must extend the consumer's time for submitting a claim for a reasonable period if the consumer is prevented from submitting his or her claim within 40 days because of extenuating circumstances. Extenuating circumstances could include, for example, the extended travel or illness of the consumer.</p>
<p style="-uslm-sgm:P">4. For purposes of determining the timeliness of a consumer's actions, a consumer's claim is considered received on the banking day on which the consumer's bank receives a complete claim in person or by telephone or on the banking day on which the consumer's bank receives a letter or e-mail containing a complete claim. (But see paragraphs 9–11 of this section for a discussion of time periods related to oral claims that the bank requires to be put in writing.)</p>
<p style="-uslm-sgm:P">5. A consumer who makes an untimely claim would not be entitled to recover his or her losses using the expedited recredit procedure. However, he or she still could have rights under other law, such as a warranty or indemnity claim under subpart D, a claim for an improper charge to his or her account under U.C.C. 4–401, or a claim for wrongful dishonor under U.C.C. 4–402.</p>
<p style="-uslm-sgm:P">6. A consumer's claim must include the reason why the consumer believes that his or her account was charged improperly or why he or she has a warranty claim. A charge could be improper, for example, if the bank charged the consumer's account for an amount different than the consumer believes he or she authorized or charged the consumer more than once for the same check, or if the check in question was a forgery or otherwise fraudulent.</p>
<p style="-uslm-sgm:P">7. A consumer also must provide a reason why production of the original check or a sufficient copy is necessary to determine the validity of the claim identified by the consumer. For example, if the consumer believed that the bank charged his or her account for the wrong amount, the original check might be necessary to prove this claim if the amount of the substitute check were illegible. Similarly, if the consumer believed that his or her signature had been forged, the original check might be necessary to confirm the forgery if, for example, pen pressure or similar analysis were necessary to determine the genuineness of the signature.</p>
<p style="-uslm-sgm:P">8. The information that the consumer is required to provide under <ref href="/us/cfr/t12/s229.54/b/2/iv">§ 229.54(b)(2)(iv)</ref> to facilitate the bank's investigation of the claim could include, for example, a copy of the allegedly defective substitute check or information related to that check, such as the number, amount, and payee.</p>
<p style="-uslm-sgm:P">9. A bank may accept an expedited recredit claim in any form but could in its discretion <?page num="953"?>require the consumer to submit the claim in writing. A bank that requires a recredit claim to be in writing must inform the consumer of that requirement and provide a location to which such a written claim should be sent. If the consumer attempts to make a claim orally, the bank must inform the consumer at that time of the written notice requirement. A bank that receives a timely oral claim and then requires the consumer to submit the claim in writing may require the consumer to submit the written claim within 10 business days of the bank's receipt of the timely oral claim. If the consumer's oral claim was timely and the consumer's written claim was received within the 10-day period for submitting the claim in writing, the consumer would satisfy the requirement of <ref href="/us/cfr/t12/s229.54/b/1">§ 229.54(b)(1)</ref> to submit his or her claim within 40 days, even if the bank received the written claim after that 40-day period.</p>
<p style="-uslm-sgm:P">10. A bank may permit but may not require a consumer to submit a written claim electronically.</p>
<p style="-uslm-sgm:P">11. If a bank requires a consumer to submit a claim in writing, the bank may compute time periods for the bank's action on the claim from the date that the bank received the written claim. Thus, if a consumer called the bank to make an expedited recredit claim and the bank required the consumer to submit the claim in writing, the time at which the bank must take action on the claim would be determined based on the date on which the bank received the written claim, not the date on which the consumer made the oral claim.</p>
<p style="-uslm-sgm:P">12. Regardless of whether the consumer's communication with the bank is oral or written, a consumer complaint that does not contain all the elements described in <ref href="/us/cfr/t12/s229.54/b">§ 229.54(b)</ref> is not a claim for purposes of <ref href="/us/cfr/t12/s229.54">§ 229.54</ref>. If the consumer attempts to submit a claim but does not provide all the required information, then the bank has a duty to inform the consumer that the complaint does not constitute a claim under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> and identify what information is missing. </p>
<heading style="-uslm-sgm:HD3">C. 229.54(c) Action on Claims</heading>
<p style="-uslm-sgm:P">1. If the bank has not determined whether or not the consumer's claim is valid by the end of the 10th business day after the banking day on which the consumer submitted the claim, the bank must by that time recredit the consumer's account for the amount of the consumer's loss, up to the lesser of the amount of the substitute check or $2,500, plus interest if the account is an interest-bearing account. A bank must provide the recredit pending investigation for each substitute check for which the consumer submitted a claim, even if the consumer submitted multiple substitute check claims in the same communication.</p>
<p style="-uslm-sgm:P">2. A bank that provides a recredit to the consumer, either provisionally or after determining that the consumer's claim is valid, may reverse the amount of the recredit if the bank later determines that the claim in fact was not valid. A bank that reverses a recredit also may reverse the amount of any interest that it has paid on the previously recredited amount. A bank's time for reversing a recredit may be limited by a statute of limitations.</p>
<heading style="-uslm-sgm:HD3">D. 229.54(d) Availability of Recredit</heading>
<p style="-uslm-sgm:P">1. The availability of a recredit provided by a bank under <ref href="/us/cfr/t12/s229.54/c">§ 229.54(c)</ref> is governed solely by <ref href="/us/cfr/t12/s229.54/d">§ 229.54(d)</ref> and therefore is not subject to the availability provisions of subpart B. A bank generally must make a recredit available for withdrawal no later than the start of the business day after the banking day on which the bank provided the recredit. However, a bank may delay the availability of up to the first $2,500 that it provisionally recredits to a consumer account under <ref href="/us/cfr/t12/s229.54/c/3/i">§ 229.54(c)(3)(i)</ref> if (1) the account is a new account, (2) without regard to the substitute check giving rise to the recredit claim, the account has been repeatedly overdrawn during the six month period ending on the date the bank received the claim, or (3) the bank has reasonable cause to believe that the claim is fraudulent. These first two exceptions are meant to operate in the same manner as the corresponding new account and repeated overdraft exceptions in subpart B, as described in <ref href="/us/cfr/t12/s229.13/a">§ 229.13(a)</ref> and (d) and the commentary thereto regarding application of the exceptions. When a recredit amount for which a bank delays availability contains an interest component, that component also is subject to the delay because it is part of the amount recredited under <ref href="/us/cfr/t12/s229.54/c/3/i">§ 229.54(c)(3)(i)</ref>. However, interest continues to accrue during the hold period.</p>
<p style="-uslm-sgm:P">2. Section 229.54(d)(2) describes the maximum period of time that a bank may delay availability of a recredit provided under <ref href="/us/cfr/t12/s229.54/c">§ 229.54(c)</ref>. The bank may delay availability under one of the three listed exceptions until the business day after the banking day on which the bank determines that the consumer's claim is valid or the 45th calendar day after the banking day on which the bank received the consumer's claim, whichever is earlier. The only portion of the recredit that is subject to delay under <ref href="/us/cfr/t12/s229.54/d/2">§ 229.54(d)(2)</ref> is the amount that the bank recredits under <ref href="/us/cfr/t12/s229.54/c/3/i">§ 229.54(c)(3)(i)</ref> (including the interest component, if any) pending its investigation of a claim. </p>
<heading style="-uslm-sgm:HD3">E. 229.54(e) Notices Relating to Consumer Expedited Recredit Claims</heading>
<p style="-uslm-sgm:P">1. A bank must notify a consumer of its action regarding a recredit claim no later than the business day after the banking day that the bank makes a recredit, determines a claim is not valid, or reverses a recredit, as <?page num="954"?>appropriate. As provided in <ref href="/us/cfr/t12/s229.58">§ 229.58</ref>, a bank may provide any notice required by this section by U.S. mail or by any other means through which the consumer has agreed to receive account information.</p>
<p style="-uslm-sgm:P">2. A bank that denies the consumer's recredit claim must demonstrate to the consumer that the substitute check was properly charged or that the warranty claim was not valid, such as by explaining the reason that the substitute check charge was proper or the consumer's warranty claim was not valid. For example, if a consumer has claimed that the bank charged its account for an improper amount, the bank denying that claim must explain why it determined that the charged amount was proper.</p>
<p style="-uslm-sgm:P">3. A bank denying a recredit claim also must provide the original check or a sufficient copy, unless the bank is providing the claim denial notice electronically and the consumer has agreed to receive that type of information electronically. In that case, <ref href="/us/cfr/t12/s229.58">§ 229.58</ref> allows the bank instead to provide an image of the original check or an image of the sufficient copy that the bank would have sent to the consumer had the bank provided the notice by mail.</p>
<p style="-uslm-sgm:P">4. A bank that relies on information or documents in addition to the original check or sufficient copy when denying a consumer expedited recredit claim also must either provide such information or documents to the consumer or inform the consumer that he or she may request copies of such information or documents. This requirement does not apply to a bank that relies only on the original check or a sufficient copy to make its determination.</p>
<p style="-uslm-sgm:P">5. Models C–22 through C–25 in appendix C contain model language for each of three notices described in <ref href="/us/cfr/t12/s229.54/e">§ 229.54(e)</ref>. A bank may, but is not required to, use the language listed in the appendix. The Check 21 Act does not provide banks that use these models with a safe harbor. However, the Board has published these models to aid banks' efforts to comply with <ref href="/us/cfr/t12/s229.54/e">§ 229.54(e)</ref>. </p>
<heading style="-uslm-sgm:HD3">F. 229.54(f) Recredit Does Not Abrogate Other Liabilities</heading>
<p style="-uslm-sgm:P">1. The amount that a consumer may recover under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> is limited to the lesser of the amount of his or her loss or the amount of the substitute check, plus interest on that amount if his or her account earns interest. However, a consumer's total loss associated with the substitute check could exceed that amount, and the consumer could be entitled to additional damages under other law. For example, if a consumer's loss exceeded the amount of the substitute check plus interest and he or she had both a warranty and an indemnity claim with respect to the substitute check, he or she would be entitled to additional damages under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> of this subpart. Similarly, if a consumer was charged bounced check fees as a result of an improperly charged substitute check and could not recover all of those fees because of the <ref href="/us/cfr/t12/s229.54">§ 229.54</ref>'s limitation on recovery, he or she could attempt to recover additional amounts under U.C.C. 4–402. </p>
<heading style="-uslm-sgm:HD2">XXXIV. <ref href="/us/cfr/t12/s229.55">§ 229.55</ref> Expedited Recredit Procedures for Banks </heading>
<heading style="-uslm-sgm:HD3">A. 229.55(a) Circumstances Giving Rise to a Claim</heading>
<p style="-uslm-sgm:P">1. This section allows a bank to make an expedited recredit claim under two sets of circumstances: first, because it is obligated to provide a recredit, either to the consumer or to another bank that is obligated to provide a recredit in connection with the consumer's claim; and second, because the bank detected a problem with the substitute check that, if uncaught, could have given rise to a consumer claim.</p>
<p style="-uslm-sgm:P">2. The loss giving rise to an interbank recredit claim could be the recredit that the claimant bank provided directly to its consumer customer under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> or a loss incurred because the claimant bank was required to indemnify another bank that provided an expedited recredit to either a consumer or a bank.</p>
<heading style="-uslm-sgm:HD3">Examples.</heading>
<p style="-uslm-sgm:P">a. A paying bank charged a consumer's account based on a substitute check that contained a blurry image of a legible original check, and the consumer whose account was charged made an expedited recredit claim against the paying bank because the consumer suffered a loss and needed the original check or a sufficient copy to determine the validity of his or her claim. The paying bank would have a warranty claim against the presenting bank that transferred the defective substitute check to it and against any previous transferring bank(s) that handled that substitute check or another paper or electronic representation of the check. The paying bank therefore would meet each of the requirements necessary to bring an interbank expedited recredit claim.</p>
<p style="-uslm-sgm:P">b. Continuing with the example in paragraph a, if the presenting bank determined that the paying bank's claim was valid and provided a recredit, the presenting bank would have suffered a loss in the amount of the recredit it provided and could, in turn, make an expedited recredit claim against the bank that transferred the defective substitute check to it. </p>
<heading style="-uslm-sgm:HD3">B. 229.55(b) Procedures for Making Claims</heading>
<p style="-uslm-sgm:P">1. An interbank recredit claim under this section must be brought within 120 calendar days of the transaction giving rise to the claim. For purposes of computing this period, the transaction giving rise to the claim <?page num="955"?>is the claimant bank's settlement for the substitute check in question.</p>
<p style="-uslm-sgm:P">2. When estimating the amount of its loss, <ref href="/us/cfr/t12/s229.55/b/2/ii">§ 229.55(b)(2)(ii)</ref> states that the claimant bank should include “interest if applicable.” The quoted phrase refers to any interest that the claimant bank or a bank that the claimant bank indemnified paid to a consumer who has an interest-bearing account in connection with an expedited recredit under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref>.</p>
<p style="-uslm-sgm:P">3. The information that the claimant bank is required to provide under <ref href="/us/cfr/t12/s229.55/b/2/iv">§ 229.55(b)(2)(iv)</ref> to facilitate investigation of the claim could include, for example, a copy of any written claim that a consumer submitted under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> or any written record the bank may have of a claim the consumer submitted orally. The information also could include a copy of the defective substitute check or information relating to that check, such as the number, amount, and payee of the check. However, a claimant bank that provides a copy of the substitute check must take reasonable steps to ensure that the copy is not mistaken for a legal equivalent of the original check or handled for forward collection or return.</p>
<p style="-uslm-sgm:P">4. The indemnifying bank's right to require a claimant bank to submit a claim in writing and the computation of time from the date of the written submission parallel the corresponding provision in the consumer recredit section (<ref href="/us/cfr/t12/s229.54/b/3">§ 229.54(b)(3)</ref>). However, the indemnifying bank also may require the claimant bank to submit a copy of the written or electronic claim submitted by the consumer under that section, if any. </p>
<heading style="-uslm-sgm:HD3">C. 229.55(c) Action on Claims</heading>
<p style="-uslm-sgm:P">1. An indemnifying bank that responds to an interbank expedited recredit claim by providing the original check or a sufficient copy of the original check need not demonstrate why that claim or the underlying consumer expedited recredit claim is or is not valid. </p>
<heading style="-uslm-sgm:HD2">XXXV. <ref href="/us/cfr/t12/s229.56">§ 229.56</ref> Liability </heading>
<heading style="-uslm-sgm:HD3">A. 229.56(a) Measure of Damages</heading>
<p style="-uslm-sgm:P">1. In general, a person's recovery under this section is limited to the amount of the loss up to the amount of the substitute check that is the subject of the claim, plus interest and expenses (including costs and reasonable attorney's fees and other expenses of representation) related to that substitute check. However, a person that is entitled to an indemnity under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> because of a breach of a substitute check warranty also may recover under <ref href="/us/cfr/t12/s229.53">§ 229.53</ref> any losses proximately caused by the warranty breach, including interest, costs, wrongfully-charged fees imposed as a result of the warranty breach, reasonable attorney's fees, and other expenses of representation.</p>
<p style="-uslm-sgm:P">2. A reconverting bank also may be liable under <ref href="/us/cfr/t12/s229.38">§ 229.38</ref> for damages associated with the illegibility of indorsements applied to substitute checks if that illegibility results because the reduction of the original check image and its placement on the substitute check shifted a previously-applied indorsement that, when applied, complied with appendix D. For more detailed discussion of this topic, see <ref href="/us/cfr/t12/s229.38">§ 229.38</ref> and the accompanying commentary. </p>
<heading style="-uslm-sgm:HD3">B. 229.56(b) Timeliness of Action</heading>
<p style="-uslm-sgm:P">1. A bank's delay beyond the time limits prescribed or permitted by any provision of subpart D is excused if the delay is caused by certain circumstances beyond the bank's control. This parallels the standard of U.C.C. 4–109(b). </p>
<heading style="-uslm-sgm:HD3">C. 229.56(c) Jurisdiction</heading>
<p style="-uslm-sgm:P">1. The Check 21 Act confers subject matter jurisdiction on courts of competent jurisdiction and provides a time limit for civil actions for violations of subpart D. </p>
<heading style="-uslm-sgm:HD3">D. 229.56(d) Notice of Claims</heading>
<p style="-uslm-sgm:P">1. This paragraph is designed to adopt the notice of claim provisions of U.C.C. 4–207(d) and 4–208(e), with an added provision that a timely <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> expedited recredit claim satisfies the generally-applicable notice requirement. The time limit described in this paragraph applies only to notices of warranty and indemnity claims. As provided in <ref href="/us/cfr/t12/s229.56/c">§ 229.56(c)</ref>, all actions under <ref href="/us/cfr/t12/s229.56">§ 229.56</ref> must be brought within one year of the date that the cause of action accrues.</p>
<heading style="-uslm-sgm:HD2">XXXVI. Consumer Awareness </heading>
<heading style="-uslm-sgm:HD3">A. 229.57(a) General Disclosure Requirement and Content</heading>
<p style="-uslm-sgm:P">1. A bank must provide the disclosure required by <ref href="/us/cfr/t12/s229.57">§ 229.57</ref> under two circumstances. First, each bank must provide the disclosure to each of its consumer customers who receives paid checks with his or her account statement. This requirement does not apply if the bank provides with the account statement something other than paid original checks, paid substitute checks, or a combination thereof. For example, this requirement would not apply if a bank provided with the account statement only a document that contained multiple check images per page. Second, a bank also must provide the disclosure when it (a) provides a substitute check to a consumer in response to that consumer's request for a check or check copy or (b) returns a substitute check to a consumer depositor. A bank must provide the disclosure each time it provides a substitute check to a consumer on an occasional basis, regardless of whether the bank previously provided the disclosure to that consumer.
<?page num="956"?></p>
<p style="-uslm-sgm:P">2. A bank may, but is not required to, use the model disclosure in appendix C–5A to satisfy the disclosure content requirements of this section. A bank that uses the model language is deemed to comply with the disclosure content requirement(s) for which it uses the model language, provided the information in the disclosure accurately describes the bank's policies and practices. A bank also may include in its disclosure additional information relating to substitute checks that is not required by this section.</p>
<p style="-uslm-sgm:P">3. A bank may, by agreement or at the consumer's request, provide the disclosure required by this section in a language other than English, provided that the bank makes a complete English notice available at the consumer's request. </p>
<heading style="-uslm-sgm:HD3">B. 229.57(b) Distribution</heading>
<p style="-uslm-sgm:P">1. A consumer may request a check or a copy of a check on an occasional basis, such as to prove that he or she made a particular payment. A bank that responds to the consumer's request by providing a substitute check must provide the required disclosure at the time of the consumer's request if feasible. Otherwise, the bank must provide the disclosure no later than the time at which the bank provides a substitute check in response to the consumer's request. It would not be feasible for a bank to provide notice to the consumer at the time of the request if, for example, the bank did not know at the time of the request whether it would provide a substitute check in response to that request, regardless of the form of the consumer's request. It also would not be feasible for a bank to provide notice at the time of the request if the consumer's request was mailed to the bank or made by telephone, even if the bank knew when it received the request that it would provide a substitute check in response. A bank's provision to the consumer of something other a substitute check, such as a photocopy of a check or a statement containing images of multiple substitute checks per page, does not trigger the notice requirement.</p>
<p style="-uslm-sgm:P">2. A consumer who does not routinely receive paid checks might receive a returned substitute check. For example, a consumer deposits an original check that is payable to him or her into his or her deposit account. The paying bank returns the check unpaid and the depositary bank returns the check to the depositor in the form of a substitute check. A depositary bank that provides a returned substitute check to a consumer depositor must provide the substitute check disclosure at that time. </p>
<heading style="-uslm-sgm:HD2">XXXVII. Variation by Agreement</heading>
<p style="-uslm-sgm:P">Section 229.60 provides that banks involved in an interbank expedited recredit claim under <ref href="/us/cfr/t12/s229.55">§ 229.55</ref> may vary the terms of that section by agreement, but otherwise no person may vary the terms of subpart D by agreement. A bank's decision to provide more generous protections for consumers than this subpart requires, such as by providing consumers additional time to submit expedited claims under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> under non-exigent circumstances, would not be a variation prohibited by <ref href="/us/cfr/t12/s229.60">§ 229.60</ref>.</p>
<heading style="-uslm-sgm:HD2">XXXVIII. Appendix C—Model Availability Policy Disclosures, Clauses, and Notices; and Model Substitute Check Policy Disclosure and Notices </heading>
<heading style="-uslm-sgm:HD3">A. Introduction</heading>
<p style="-uslm-sgm:P">1. Appendix C contains model disclosure, clauses, and notices that may be used by banks to meet their disclosure and notice responsibilities under the regulation. Banks using the models (except models C–22 through C–25) properly will be deemed in compliance with the regulation's disclosure requirements.</p>
<p style="-uslm-sgm:P">2. Information that must be inserted by a bank using the models is italicized within parentheses in the text of the models. Optional information is enclosed in brackets. </p>
<p style="-uslm-sgm:P">3. Banks may make certain changes to the format or content of the models, including deleting material that is inapplicable, without losing the EFA Act's protection from liability for banks that use the models properly. For example, if a bank does not have a cut-off hour prior to it's closing time, or if a bank does not take advantage of the <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions, it may delete the references to those provisions. Changes to the models may not be so extensive as to affect the substance, clarity, or meaningful sequence of the models. Acceptable changes include, for example: </p>
<p style="-uslm-sgm:P">a. Using “customer” and “bank” instead of pronouns. </p>
<p style="-uslm-sgm:P">b. Changing the typeface or size. </p>
<p style="-uslm-sgm:P">c. Incorporating certain state law “plain English” requirements. </p>
<p style="-uslm-sgm:P">4. Shorter time periods for availability may always be substituted for time periods used in the models. </p>
<p style="-uslm-sgm:P">5. Banks may also add related information. For example, a bank may indicate that although funds have been made available to a customer and the customer has withdrawn them, the customer is still responsible for problems with the deposit, such as checks that were deposited being returned unpaid. Or a bank could include a telephone number to be used if a customer has an inquiry regarding a deposit. </p>
<p style="-uslm-sgm:P">6. Banks are cautioned against using the models without reviewing their own policies and practices, as well as state and federal laws regarding the time periods for availability of specific types of checks. A bank using the models will be in compliance with the EFA Act and the regulation only if the <?page num="957"?>bank's disclosures correspond to its availability policy. </p>
<p style="-uslm-sgm:P">7. Banks that have used earlier versions of the models (such as those models that gave Social Security benefits and payroll payments as examples of preauthorized credits available the day after deposit, or that did not address the cash withdrawal limitation) are protected from civil liability under <ref href="/us/cfr/t12/s229.21/e">§ 229.21(e)</ref>. Banks are encouraged, however, to use current versions of the models when reordering or reprinting supplies. </p>
<heading style="-uslm-sgm:HD3">B. Model Availability Policy and Substitute Check Policy Disclosures, Models C–1 through C–5A</heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models C–1 through C–5 generally.</inline>
</p>
<p style="-uslm-sgm:P">a. Models C–1 through C–5A are models for the availability policy disclosures described in <ref href="/us/cfr/t12/s229.16">§ 229.16</ref> and substitute check policy disclosure described in <ref href="/us/cfr/t12/s229.57">§ 229.57</ref>. The models accommodate a variety of availability policies, ranging from next-day availability to holds to statutory limits on all deposits. Model C–3 reflects the additional disclosures discussed in <ref href="/us/cfr/t12/s229.16">§§ 229.16</ref> (b) and (c) for banks that have a policy of extending availability times on a case-by-case basis. </p>
<p style="-uslm-sgm:P">b. As already noted, there are several places in the models where information must be inserted. This information includes the bank's cut-off times, limitations relating to next-day availability, and the first four digits of routing numbers for local banks. In disclosing when funds will be available for withdrawal, the bank must insert the ordinal number (such as first, second, etc.) of the business day after deposit that the funds will become available. </p>
<p style="-uslm-sgm:P">c. Models C–1 through C–5A generally do not reflect any optional provisions of the regulation, or those that apply only to certain banks. Instead, disclosures for these provisions are included in Models C–6 through C–11A. A bank using one of the model availability policy disclosures should also consider whether it must incorporate one or more of Models C–6 through C–11A. </p>
<p style="-uslm-sgm:P">d. While <ref href="/us/cfr/t12/s229.10/b">§ 229.10(b)</ref> requires next-day availability for electronic payments, Treasury regulations (<ref href="/us/cfr/t31/p210">31 CFR part 210</ref>) and ACH association rules require that preauthorized credits (”direct deposits”) be made available on the day the bank receives the funds. Models C–1 through C–5 reflect these rules. Wire transfers, however, are not governed by Treasury or ACH rules, but banks generally make funds from wire transfers available on the day received or on the business day following receipt. Banks should ensure that their disclosures reflect the availability given in most cases for wire transfers. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–1 Next-day availability.</inline> A bank may use this model when its policy is to make funds from all deposits available on the first business day after a deposit is made. This model may also be used by banks that provide immediate availability by substituting the word “immediately” in place of “on the first business day after the day we receive your deposit.” </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–2 Next-day availability and <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions.</inline> A bank may use this model when its policy is to make funds from all deposits available to its customers on the first business day after the deposit is made, and to reserve the right to invoke the new account and other exceptions in <ref href="/us/cfr/t12/s229.13">§ 229.13</ref>. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–3 Next-day availability, case-by-case holds to statutory limits, and <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions.</inline> A bank may use this model when its policy, in most cases, is to make funds from all types of deposits available the day after the deposit is made, but to delay availability on some deposits on a case-by-case basis up to the maximum time periods allowed under the regulation. A bank using this model also reserves the right to invoke the exceptions listed in <ref href="/us/cfr/t12/s229.13">§ 229.13</ref>. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–4 Holds to statutory limits on all deposits.</inline> A bank may use this model when its policy is to impose delays to the full extent allowed under <ref href="/us/cfr/t12/s229.12">§ 229.12</ref> and to reserve the right to invoke the <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check. Model C–4 uses a chart to show the bank's availability policy for local and nonlocal checks and Model C–5 uses a narrative description. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–5 Holds to statutory limits on all deposits.</inline> A bank may use this model when its policy is to impose delays to the full extent allowed under <ref href="/us/cfr/t12/s229.12">§ 229.12</ref> and to reserve the right to invoke the <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exceptions. In disclosing that a longer delay may apply, a bank may disclose when funds will generally be available based on when the funds would be available if the deposit were of a nonlocal check. </p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–5A</inline> A bank may use this form when it is providing the disclosure to its consumers required by <ref href="/us/cfr/t12/s229.57">§ 229.57</ref> explaining that a substitute check is the legal equivalent of an original check and the circumstances under which the consumer may make a claim for expedited recredit.</p>
<heading style="-uslm-sgm:HD3">C. Model Clauses, Models C–6 Through C–11A </heading>
<p style="-uslm-sgm:P">1. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models C–6 through C–11A generally.</inline> Certain clauses like those in the models must be incorporated into a bank's availability policy disclosure under certain circumstances. <?page num="958"?>The commentary to each clause indicates when a clause similar to the model clause is required. </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–6 Holds on other funds (check cashing).</inline> A bank that reserves the right to place a hold on funds already on deposit when it cashes a check for a customer, as addressed in <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref>, must incorporate this type of clause in its availability policy disclosure. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–7 Holds on other funds (other account).</inline> A bank that reserves the right to place a hold on funds in an account of the customer other than the account into which the deposit is made, as addressed in <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref>, must incorporate this type of clause in its availability policy disclosure. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–8 Appendix B availability (nonlocal checks).</inline> A bank in a check processing region where the availability schedules for certain nonlocal checks have been reduced, as described in appendix B of Regulation CC, must incorporate this type of clause in its availability policy disclosure. Banks using Model C–5 may insert this clause at the conclusion of the discussion titled “Nonlocal checks.” </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–9 Automated teller machine deposits (extended holds).</inline> A bank that reserves the right to delay availability of deposits at nonproprietary ATMs until the fifth business day following the date of deposit, as permitted by <ref href="/us/cfr/t12/s229.12/f">§ 229.12(f)</ref>, must incorporate this type of clause in its availability policy disclosure. A bank must choose among the alternative language based on how it chooses to differentiate between proprietary and nonproprietary ATMs, as required under <ref href="/us/cfr/t12/s229.16/b/5">§ 229.16(b)(5)</ref>. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–10 Cash withdrawal limitation.</inline> A bank that imposes cash withdrawal limitations under <ref href="/us/cfr/t12/s229.12">§ 229.12</ref> must incorporate this type of clause in its availability policy disclosure. Banks reserving the right to impose the cash withdrawal limitation and using Model C–3 should disclose that funds may not be available until the sixth (rather than fifth) business day in the first paragraph under the heading “Longer Delays May Apply.” </p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–11 Credit union interest payment policy.</inline> A credit union subject to the notice requirement of <ref href="/us/cfr/t12/s229.14/b/2">§ 229.14(b)(2)</ref> must incorporate this type of clause in its availability policy disclosure. This model clause is only an example of a hypothetical policy. Credit unions may follow any policy for accrual provided the method of accruing interest is the same for cash and check deposits. </p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–11A Availability of funds deposited at other locations.</inline> A clause similar to Model C–11A should be used if a bank bases the availability of funds on the location where the funds are deposited (for example, at a contractual or other branch located in a different check processing region). Similarly, a clause similar to Model C–11A should be used if a bank distinguishes between local and non-local checks (for example, a bank using model availability policy disclosure C–4 or C–5), and accepts deposits in more than one check processing region. </p>
<heading style="-uslm-sgm:HD3">D. Model Notices, Models C–12 through C–25</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">1. Models C–12 through C–25 generally.</inline> Models C–12 through C–25 provide models of the various notices required by the regulation. A bank that cashes a check and places a hold on funds in an account of the customer (see <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref>) should modify the model hold notice accordingly. For example, the bank could replace the word “deposit” with the word “transaction” and could add the phrase “or cashed” after the word “deposited.” </p>
<p style="-uslm-sgm:P">2. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–12 Exception hold notice.</inline> This model satisfies the written notice required under <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> when a bank places a hold based on a <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exception. If a hold is being placed on more than one check in a deposit, each check need not be described, but if different reasons apply, each reason must be indicated. A bank may use the actual date when funds will be available for withdrawal rather than the number of the business day following the day of deposit. A bank must incorporate in the notice the material set out in brackets if it imposes overdraft or returned check fees after invoking the reasonable cause exception under <ref href="/us/cfr/t12/s229.13/e">§ 229.13(e)</ref>. </p>
<p style="-uslm-sgm:P">3. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–13 Reasonable cause hold notice.</inline> This notice satisfies the written notice required under <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> when a bank invokes the reasonable cause exception under <ref href="/us/cfr/t12/s229.13/e">§ 229.13(e)</ref>. The notice provides the bank with a list of specific reasons that may be given for invoking the exception. If a hold is being placed on more than one check in a deposit, each check must be described separately, and if different reasons apply, each reason must be indicated. A bank may disclose its reason for doubting collectibility by checking the appropriate reason on the model. If the “Other” category is checked, the reason must be given. A bank may use the actual date when funds will be available for withdrawal rather than the number of the business day following the day of deposit. A bank must incorporate in the notice the material set out in brackets if it imposes overdraft or returned check fees after invoking the reasonable cause exception under <ref href="/us/cfr/t12/s229.13/e">§ 229.13(e)</ref>. </p>
<p style="-uslm-sgm:P">4. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–14 One-time notice for large deposit and redeposited check exception holds.</inline> This model satisfies the notice requirements of <ref href="/us/cfr/t12/s229.13/g/2">§ 229.13(g)(2)</ref> concerning nonconsumer accounts. </p>
<p style="-uslm-sgm:P">5. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–15 One-time notice for repeated overdraft exception hold.</inline> This model satisfies the notice requirements of <ref href="/us/cfr/t12/s229.13/g/3">§ 229.13(g)(3)</ref>. </p>
<p style="-uslm-sgm:P">6. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–16 Case-by-case hold notice.</inline> This model satisfies the notice required under <ref href="/us/cfr/t12/s229.16/c/2">§ 229.16(c)(2)</ref> when a bank with a case-by-case hold policy imposes a hold on a deposit. This notice does not require a statement of the <?page num="959"?>specific reason for the hold, as is the case when a <ref href="/us/cfr/t12/s229.13">§ 229.13</ref> exception hold is placed. A bank may specify the actual date when funds will be available for withdrawal rather than the number of the business day following the day of deposit when funds will be available. A bank must incorporate in the notice the material set out in brackets if it imposes overdraft fees after invoking a case-by-case hold. </p>
<p style="-uslm-sgm:P">7. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–17 Notice at locations where employees accept consumer deposits and Model C–18 Notice at locations where employees accept consumer deposits (case-by-case holds).</inline> These models satisfy the notice requirement of <ref href="/us/cfr/t12/s229.18/b">§ 229.18(b)</ref>. Model C–17 reflects an availability policy of holds to statutory limits on all deposits, and Model C–18 reflects a case-by-case availability policy. </p>
<p style="-uslm-sgm:P">8. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–19 Notice at automated teller machines.</inline> This model satisfies the ATM notice requirement of <ref href="/us/cfr/t12/s229.18/c/1">§ 229.18(c)(1)</ref>. </p>
<p style="-uslm-sgm:P">9. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–20 Notice at automated teller machines (delayed receipt).</inline> This model satisfies the ATM notice requirement of <ref href="/us/cfr/t12/s229.18/c/2">§ 229.18(c)(2)</ref> when receipt of deposits at off-premises ATMs is delayed under <ref href="/us/cfr/t12/s229.19/a/4">§ 229.19(a)(4)</ref>. It is based on collection of deposits once a week. If collections occur more or less frequently, the description of when deposits are received must be adjusted accordingly. </p>
<p style="-uslm-sgm:P">10. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–21 Deposit slip notice.</inline> This model satisfies the notice requirements of <ref href="/us/cfr/t12/s229.18/a">§ 229.18(a)</ref> for deposit slips. </p>
<p style="-uslm-sgm:P">11. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Models C–22 through C–25 generally.</inline> Models C–22 through C–25 provide models for the various notices required when a consumer who receives substitute checks makes an expedited recredit claim under <ref href="/us/cfr/t12/s229.54">§ 229.54</ref> for a loss related to a substitute check. The Check 21 Act does not provide banks that use these models with a safe harbor. However, the Board has published these models to aid banks' efforts to comply with <ref href="/us/cfr/t12/s229.54/e">§ 229.54(e)</ref>.</p>
<p style="-uslm-sgm:P">12. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–22 Valid Claim Refund Notice.</inline> A bank may use this model when crediting the entire amount or the remaining amount of a consumer's expedited recredit claim after determining that the consumer's claim is valid. This notice could be used when the bank provides the consumer a full recredit based on a valid claim determination within ten days of the receipt of the consumer's claim or when the bank recredits the remaining amount of a consumer's expedited recredit claim by the 45th calendar day after receiving the consumer's claim, as required under <ref href="/us/cfr/t12/s229.54/e/1">§ 229.54(e)(1)</ref>.</p>
<p style="-uslm-sgm:P">13. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–23 Provisional Refund Notice.</inline> A bank may use this model when providing a full or partial expedited recredit to a consumer pending further investigation of the consumer's claim, as required under <ref href="/us/cfr/t12/s229.54/e/1">§ 229.54(e)(1)</ref>.</p>
<p style="-uslm-sgm:P">14. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–24 Denial Notice.</inline> A bank may use this model when denying a claim for an expedited recredit under <ref href="/us/cfr/t12/s229.54/e/2">§ 229.54(e)(2)</ref>.</p>
<p style="-uslm-sgm:P">15. <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Model C–25 Reversal Notice.</inline> A bank may use this model when reversing an expedited recredit that was credited to a consumer's account under <ref href="/us/cfr/t12/s229.54/e/3">§ 229.54(e)(3)</ref>.</p>
<source style="-uslm-sgm:CITA">[Reg. CC, <ref href="/us/fr/60/51672">60 FR 51672</ref>, <date date="1995-10-03">Oct. 3, 1995</date>, as amended by Reg. CC, <ref href="/us/fr/62/13816">62 FR 13816</ref>, <date date="1997-03-24" role="amended">Mar. 24, 1997</date>; <ref href="/us/fr/64/59613">64 FR 59613</ref>, <date date="1999-11-03" role="amended">Nov. 3, 1999</date>; <ref href="/us/fr/68/52078">68 FR 52078</ref>, <date date="2003-09-02" role="amended">Sept. 2, 2003</date>; <ref href="/us/fr/68/53672">68 FR 53672</ref>, <date date="2003-09-12" role="amended">Sept. 12, 2003</date>; <ref href="/us/fr/69/47317">69 FR 47317</ref>, <date date="2004-08-04" role="amended">Aug. 4, 2004</date>; <ref href="/us/fr/70/71225">70 FR 71225</ref>, <date date="2005-11-28" role="amended">Nov. 28, 2005</date>; <ref href="/us/fr/82/27585">82 FR 27585</ref>, <date date="2017-06-15" role="amended">June 15, 2017</date>; <ref href="/us/fr/83/46853">83 FR 46853</ref>, <date date="2018-09-17" role="amended">Sept. 17, 2018</date>]
</source>
</content>
</appendix>
<appendix style="-uslm-sgm:APPENDIX">
<preface style="-uslm-sgm:APPENDIX">
<ear style="-uslm-sgm:EAR">Pt. 229, App. F</ear>
</preface>
<content style="-uslm-sgm:APPENDIX">
<num style="-uslm-sgm:HED">Appendix F to Part 229—</num>
<heading style="-uslm-sgm:HED">Official Board Interpretations; Preemption Determinations</heading>
<heading style="-uslm-sgm:HD2">Uniform Commercial Code, Section 4–213(5)</heading>
<p style="-uslm-sgm:P">Section 4–213(5) of the Uniform Commercial Code (“U.C.C.”) provides that money deposited in a bank is available for withdrawal as of right at the opening of business of the banking day after deposit. Although the language “deposited in a bank” is unclear, arguably it is broader than the language “made in person to an employee of the depositary bank”, which conditions the next-day availability of cash under Regulation CC (<ref href="/us/cfr/t12/s229.10/a/1">§ 229.10(a)(1)</ref>). Under Regulation CC, deposits of cash that are not made in person to an employee of the depositary bank must be made available by the second business day after the banking day of deposit (<ref href="/us/cfr/t12/s229.10/a/2">§ 229.10(a)(2)</ref>). Therefore, this provision of the U.C.C. may call for the availability of certain cash deposits in a shorter time than provided in Regulation CC.</p>
<p style="-uslm-sgm:P">This provision of the U.C.C., however, is subject to Section 4–103(1), which provides, in part, that “the effect of the provisions of this Article may be varied by agreement * * *.” (The Regulation CC funds availability requirements may not be varied by agreement.) U.C.C. Section 4–213(5) supersedes the Regulation CC provision in <ref href="/us/cfr/t12/s229.10/a/2">§ 229.10(a)(2)</ref>, but a depositary bank may not agree with its customer under section 4–103(1) of the Code to extend availability beyond the time periods provided in <ref href="/us/cfr/t12/s229.10/a">§ 229.10(a)</ref> of Regulation CC.</p>
<heading style="-uslm-sgm:HD2">California</heading>
<heading style="-uslm-sgm:HD3">Background</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act (the “Act”) and subpart B (and in connection therewith, subpart A) of Regulation CC preempt the provisions of California law concerning availability of funds. This preemption determination specifies those provisions of the California funds availability law that supersede the Act and Regulation CC. (See also <?page num="960"?>the Board's preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)</p>
<p style="-uslm-sgm:P">California has four separate sets of regulations establishing maximum availability schedules. The regulations applicable to commercial banks and branches of foreign banks located in California (Cal. Admin. Code tit. 10, <ref href="/us/cfr/t12/s10.190401">§§ 10.190401</ref>–10.190402) were promulgated by the Superintendent of Banks. The regulations applicable to savings banks and savings and loan associations (Cal. Admin. Code tit. 10, <ref href="/us/cfr/t12/s106.200">§§ 106.200</ref>–106.202) were adopted by the Savings and Loan Commissioner. The regulations applicable to credit unions (Cal. Admin. Code tit. 10, section 901) and to industrial loan companies (Cal. Admin. Code tit. 10, section 1101) were adopted by the Commissioner of Corporations.</p>
<p style="-uslm-sgm:P">All the regulations were adopted pursuant to California Financial Code section 866.5 and California Commercial Code section 4213(4)(a), under which the appropriate state regulatory agency for each depository institution must issue administrative regulations to define a reasonable time for permitting customers to draw on items received for deposit in the customer's account. California Financial Code section 867 also establishes availability periods for funds deposited by cashier's check, certified check, teller's check, or depository check under certain circumstances. Finally, California Financial Code section 866.2 establishes disclosure requirements.</p>
<p style="-uslm-sgm:P">The Board's determination with respect to these California laws and regulations governing the funds availability requirements applicable to depository institutions in California are as follows.</p>
<heading style="-uslm-sgm:HD3">Commercial Banks and Branches of Foreign Banks</heading>
<heading style="-uslm-sgm:HD3">Coverage </heading>
<p style="-uslm-sgm:P">The California State Banking Department regulations, which apply to California state commercial banks, California national banks, and California branch offices of foreign banks, provide that a depositary bank shall make funds deposited into a deposit account available for withdrawal as provided in Regulation CC with certain exceptions. The funds availability schedules in Regulation CC apply only to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in Regulation CC, which generally consist of transaction accounts. The California funds availability law and regulations apply to accounts as defined by Regulation CC as well as savings accounts (other than time accounts), as defined in the Board's Regulation D (<ref href="/us/cfr/t12/s204.2/d">12 CFR 204.2(d)</ref>). (Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on other funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC in certain circumstances.) </p>
<heading style="-uslm-sgm:HD3">Availability Schedules </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary schedule.</inline> Regulation CC provides that, until <date date="1990-09-01">September 1, 1990</date>, nonlocal checks must be made available for withdrawal by the seventh business day after the banking day of deposit, except for certain nonlocal checks listed in appendix B–1, which must be made available within a shorter time (by the fifth business day following deposit for those California checks listed). Under the temporary schedule in the California regulations, a depositary bank with a four-digit routing symbol of 1210 (“1210 bank”) or of 1220 (“1220 bank”) that receives for deposit a check drawn on a nonlocal, in-state commercial bank or foreign bank branch <ref id="fnd3e59625" idref="fnd3e59637" style="-uslm-sgm:SU">1</ref> must make the funds available for withdrawal by the fourth business day after the day of deposit. The California regulations provide that 1210 and 1220 banks must make deposited checks drawn on nonlocal in-state thrifts (defined as savings and loan associations, savings banks, and credit unions) available by the fifth business day after deposit. In addition, California law provides that all other depositary banks must make deposited checks drawn on a nonlocal in-state commercial bank or foreign bank branch available by the fifth business day after deposit and checks drawn on nonlocal in-state thrifts available by the sixth business day after deposit. To the extent that these schedules provide for shorter holds than Regulation CC and its appendix B–1, the state schedules supersede the federal schedules. <ref id="fnd3e59629" idref="fnd3e59661" style="-uslm-sgm:SU">2</ref> For example, the California four-<?page num="961"?>day schedule that applies to checks drawn on in-state nonlocal commercial banks or foreign bank branches and deposited in a 1210 or 1220 bank would be shorter than and would supersede the federal schedules. </p>
<footnote id="fnd3e59637" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e59625" style="-uslm-sgm:SU">1</ref> The California regulation uses the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">paying bank</inline> when describing the institution on which these checks are drawn, but does not define <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">paying bank</inline> or <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank.</inline> Regulation CC's definitions of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">paying bank</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">bank</inline> include savings institutions and credit unions as well as commercial banks and branches of foreign banks. However, because the California regulation makes separate provisions for checks drawn on savings institutions and credit unions, the Board concludes that the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">paying bank,</inline> as used in the California regulation, includes only commercial banks and foreign bank branches.</p>
</content>
</footnote>
<footnote id="fnd3e59661" style="-uslm-sgm:FTNT">
<content>
<p style="-uslm-sgm:P">
<ref idref="fnd3e59629" style="-uslm-sgm:SU">2</ref> Appendix B–1 of Regulation CC provides that the federal schedules will be the same as the California schedules (5 days) in the following cases: A depositary bank bearing a 1210 routing number receiving for deposit checks bearing a 3220 or a 3223 routing number, and a depositary bank bearing a 1220 routing number receiving for deposit checks bearing a 3210 routing number. In the cases where federal and state law are the same, the state law is not preempted by, nor does it supersede, the federal law.</p>
</content>
</footnote>
<p style="-uslm-sgm:P">The California regulations do not specify whether the state schedules apply to deposits of checks at nonproprietary ATMs. Under the temporary schedules in Regulation CC, deposits at nonproprietary ATMs must be made available for withdrawal by the seventh business day following deposit. To the extent that the California schedules provide for shorter availability for deposits at nonproprietary ATMs, they would supersede the temporary schedule in Regulation CC for deposits at nonproprietary ATMs specified in <ref href="/us/cfr/t12/s229.11/d">§ 229.11(d)</ref>. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permanent schedule.</inline> Regulation CC provides that, as of <date date="1990-09-01">September 1, 1990</date>, nonlocal checks must be made available for withdrawal by the fifth business day after the banking day of deposit. Under the permanent schedule in the California regulations, a depositary bank with a four-digit routing symbol of 1210 or of 1220 that receives for deposit a check drawn on a nonlocal, in-state commercial bank or foreign bank branch must make the funds available for withdrawal by the fourth business day after the day of deposit. These state schedules provide for shorter hold periods than and thus supersede the federal schedules. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Second-day availability.</inline> Section 867 of the California Financial Code requires depository institutions to make funds deposited by cashier's check, teller's check, certified check, or depository check available for withdrawal on the second business day following deposit, if certain conditions are met. The Regulation CC next-day availability requirement for cashier's checks and teller's checks applies only to those checks issued to a customer of the bank or acquired from the bank for remittance purposes. To the extent that the state second-day availability requirement applies to cashier's and teller's checks issued to a non-customer of the bank for other than remittance purposes, the state two-day requirement supersedes the federal local and nonlocal schedules. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Availability at start of day.</inline> The California regulations do not specify when during the day funds must be made available for withdrawal. Section 229.19(b) of Regulation CC provides that funds must be made available at the start of the business day. In those cases where federal and state law provide for holds for the same number of days, to the extent that the California regulations allow funds to be made available later in the day than does Regulation CC, the federal law would preempt state law. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions to the availability schedules.</inline> Under the state preemption standards of Regulation CC (see <ref href="/us/cfr/t12/s229.20/c">§ 229.20(c)</ref> and accompanying Commentary), for deposits subject to the state availability schedules, a state exception may be used to extend the state availability schedule up to the federal availability schedule. Once the deposit is held up to the federal availability schedule limit under a state exception, the depositary bank may further extend the hold under any federal exception that can be applied to the deposit. If no state exceptions exist, then no exceptions holds may be placed on deposits covered by state schedules. Thus, to the extent that California law provides for exceptions to the California schedules that supersede Regulation CC, those exceptions may be applied in order to extend the state availability schedules up to the federal availability schedules or such later time as is permitted by a federal exception. </p>
<heading style="-uslm-sgm:HD3">Disclosures </heading>
<p style="-uslm-sgm:P">California law (Cal. Fin. Code <ref href="/us/cfr/t12/s866.2">§ 866.2</ref>) requires depository institutions to provide written disclosures of their general availability policies to potential customers prior to opening any deposit account. The law also requires that preprinted deposit slips and ATM deposit envelopes contain a conspicuous summary of the general policy. Finally, the law requires depository institutions to provide specific notice of the time the customer may withdraw funds deposited by check or similar instrument into a deposit account if the funds are not available for immediate withdrawal. </p>
<p style="-uslm-sgm:P">Section 229.20(c)(2) of Regulation CC provides that inconsistency may exist when a state law provides for disclosures or notices concerning funds availability relating to accounts. California Financial Code <ref href="/us/cfr/t12/s866.2">§ 866.2</ref> requires disclosures that differ from those required by Regulation CC and, therefore, is preempted to the extent that it applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in Regulation CC. The state law continues to apply to savings accounts and other accounts not governed by Regulation CC disclosure requirements. </p>
<heading style="-uslm-sgm:HD3">Savings Institutions</heading>
<heading style="-uslm-sgm:HD3">Coverage </heading>
<p style="-uslm-sgm:P">The California Department of Savings and Loan regulations, which apply to California savings and loan associations and California savings banks, provide that a depositary bank shall make funds deposited into a transaction or non-transaction account available for withdrawal as provided in Regulation CC. The funds availability schedules in Regulation CC apply only to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in Regulation CC, which generally consist of transaction accounts. The California funds availability law and regulations apply to accounts as defined by Regulation CC as well as savings accounts as defined in the Board's Regulation D (<ref href="/us/cfr/t12/s204.2/d">12 CFR 204.2(d)</ref>). <?page num="962"?>(Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on other funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC in certain circumstances.) </p>
<heading style="-uslm-sgm:HD3">Availability Schedules </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Second-day availability.</inline> Section 867 of the California Financial Code requires depository institutions to make funds deposited by cashier's check, teller's check, certified check, or depository check available for withdrawal on the second business day following deposit, if certain conditions are met. The Regulation CC next-day availability requirement for cashier's checks and teller's checks applies only to those checks issued to a customer of the bank or acquired from the bank for remittance purposes. To the extent that the state second-day availability requirement applies to cashier's and teller's checks issued to a non-customer of the bank for other than remittance purposes, the state two-day requirement supersedes the federal local and nonlocal schedules. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary and permanent schedules.</inline> Other than the provisions of Section 867 discussed above, California law incorporates the Regulation CC availability requirements with respect to deposits to accounts covered by Regulation CC. Because the state requirements are consistent with the federal requirements, the California regulation is not preempted by, nor does it supersede, the federal law. </p>
<heading style="-uslm-sgm:HD3">Disclosures </heading>
<p style="-uslm-sgm:P">California law (Cal. Fin. Code <ref href="/us/cfr/t12/s866.2">§ 866.2</ref>) requires depository institutions to provide written disclosures of their general availability policies to potential customers prior to opening any deposit account. The law also requires that preprinted deposit slips and ATM deposit envelopes contain a conspicuous summary of the general policy. Finally, the law requires depository institutions to provide specific notice of the time the customer may withdraw funds deposited by check or similar instrument into a deposit account if the funds are not available for immediate withdrawal. Section 229.20(c)(2) of Regulation CC provides that inconsistency may exist when a state law provides for disclosures or notices concerning funds availability relating to accounts. To the extent that California Financial Code <ref href="/us/cfr/t12/s866.2">§ 866.2</ref> requires disclosures that differ from those required by Regulation CC and apply to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in Regulation CC (generally, transaction accounts), the California law is preempted by Regulation CC. </p>
<p style="-uslm-sgm:P">The Department of Savings and Loan regulations provide that for those non-transaction accounts covered by state law but not by federal law, disclosures in accordance with Regulation CC will be deemed to comply with the state law disclosure requirements. To the extent that the Department of Savings and Loan regulations permit reliance on Regulation CC disclosures for transaction accounts and to the extent the state regulations survive the preemption of California Financial Code <ref href="/us/cfr/t12/s866.2">§ 866.2</ref>, they are not preempted by, nor do they supersede, the federal law. The state law continues to apply to savings accounts and other non-transaction accounts not governed by Regulation CC disclosure requirements.</p>
<heading style="-uslm-sgm:HD3">Credit Unions and Industrial Loan Companies</heading>
<p style="-uslm-sgm:P">Each credit union and federally-insured industrial loan company that maintains an office in California for the acceptance of deposits must make funds deposited by check available for withdrawal in accordance with the following table:</p>
<xhtml:table cols="3" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c3,L2,s10,xs36,xs36">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED" rowspan="2"> </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED" colspan="2">Availability</xhtml:th>
</xhtml:tr>
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED">Credit Union</xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Industrial Loan Company</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tfoot>
<xhtml:tr>
<xhtml:td colspan="3">
<footnote style="-uslm-sgm:TNOTE">
<content>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Note:</inline> These time periods are stated in terms of availability for withdrawal not later than the Xth business day following the banking day of deposit to facilitate comparison with Regulation CC. State regulations are stated in terms of availability at the start of the business day subsequent to the number of days specified in the regulation.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
</xhtml:tfoot>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">$100 or less checks; U.S. Treasury checks; state/local gov't checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1st day</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">1st day</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">On us checks; cashier's/certifies/teller's/depository checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd day</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd day</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">In-state checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6th day</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6th day</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">out-of-state checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10th day</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">12th day</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<heading style="-uslm-sgm:HD3">Coverage</heading>
<p style="-uslm-sgm:P">The California law and regulations govern the availability of funds to “demand deposits, negotiable order of withdrawal draft accounts, savings deposits subject to automatic transfers, share draft accounts, and all savings deposits and share accounts, other than time deposits.” (California Financial Code section 886(b)) The federal preemption of state funds availability laws only applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> subject to Regulation CC, which generally includes transaction accounts. Thus, the California funds availability regulations continue to apply to deposits in savings and other accounts (such as accounts in which the account-holder is another bank) that are no <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC. (Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on other funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC in certain circumstances.)</p>
<p style="-uslm-sgm:P">The California law applies to any <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Item</inline> (California Financial Code section 866.5 and California Commercial Code section <?page num="963"?>4213(4)(a)). The California Commercial Code defines <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">item</inline> to mean <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any instrument for the payment of money even though it is not negotiable * * *</inline> (Cal. Com. Code section 4104(g)). This term is broader in scope than the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">check</inline> in the Act and Regulation CC. The Commissioner's regulations, however, define the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">item</inline> to include checks, negotiable orders of withdrawal, share drafts, warrants, and money orders. As limited by the state regulations, the state law applies only to instruments that are also <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">checks</inline> as defined in <ref href="/us/cfr/t12/s229.2/k">§ 229.2(k)</ref> of Regulation CC.</p>
<heading style="-uslm-sgm:HD3">Availability Schedules</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary schedule.</inline> The California regulations provide that in-state nonlocal checks must be made available for withdrawal not later than the sixth business day following deposit. This time period is shorter than the seventh business day availability required for nonlocal checks under <ref href="/us/cfr/t12/s229.11/c">§ 229.11(c)</ref> of Regulation CC, although it is not shorter than the schedules for nonlocal checks set forth in <ref href="/us/cfr/t12/s229.11/c/2">§ 229.11(c)(2)</ref> and appendix B–1 of Regulation CC. Thus, the state scheduled for in-state nonlocal checks supersede the federal schedule to the extent that they apply to an item payable by a California institution that is defined as a nonlocal check under Regulation CC, and is not subject to reduced schedules under <ref href="/us/cfr/t12/s229.11/c/2">§ 229.11(c)(2)</ref> and appendix B–1.</p>
<p style="-uslm-sgm:P">Under the California regulations, credit unions and industrial loan companies must provide next-day availability to first-indorsed items issued by any federally-insured institution. This regulatory requirement, however, has been superseded by section 867 of the California Financial Code, which requires depository institutions to make funds deposited by cashier's check, teller's check, certified checks, or depository check available for withdrawal on the second business day following deposit, if certain conditions are met. This requirement became effective <date date="1988-01-01">January 1, 1988</date>.</p>
<p style="-uslm-sgm:P">The Regulation CC next-day availability requirement for cashier's checks and teller's checks applies only to those checks issued for remittance purposes. To the extent that the state second business day availability requirement applies to cashier's and teller's checks issued for other than remittance purposes, the state two-day requirement supersedes the federal local and nonlocal schedules.</p>
<p style="-uslm-sgm:P">The California regulations do not specify whether they apply to deposits of checks at nonproprietary ATMs. Under the temporary schedule in Regulation CC, deposits at nonproprietary ATMs must be made available for withdrawal at the start of the seventh business day after deposit. To the extent that the California schedules provide for shorter availability for deposits at nonproprietary ATMs, they would supersede the temporary schedule in Regulation CC for deposits at nonproprietary ATMs specified in <ref href="/us/cfr/t12/s229.11/d">§ 229.11(d)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permanent schedule.</inline> Under the California regulations, credit unions and industrial loan companies must provide next-day availability to first-indorsed items issued by any federally-insured institution. This regulatory requirement, however, has been superseded by section 867 of the California Financial Code, which requires depository institutions to make funds deposited by cashier's check, teller's check, certified check, or depository check available for withdrawal on the second business day following deposit, if certain conditions are met. This requirement became effective <date date="1988-01-01">January 1, 1988</date>.</p>
<p style="-uslm-sgm:P">The Regulation CC next-day availability requirement for cashier's and teller's checks applies only to those checks issued for remittance purposes. To the extent that the state second business day availability requirement applies to cashier's and teller's checks issued for other than remittance purposes, the state two-day requirement supersedes the federal local and nonlocal schedules.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Next-day availability.</inline> Credit unions and industrial loan companies in California are required to give next-day availability to items drawn by the State of California or any of its departments, agencies, or political subdivisions. California law supersedes the fedeal law in that the state law does not condition next-day availability on receipt at a staffed teller station or use of a special deposit slip.</p>
<p style="-uslm-sgm:P">California credit unions and industrial loan companies must provide second business day availability to checks drawn on the depositary bank. Regulation CC requires next-day availability for checks deposited in a branch of the depositary bank and drawn on the same or another branch of the same bank if both branches are located in the same state or the same check processing region. Thus, generally, the Regulation CC rule for availability of on us checks preempts the California regulations. To the extent, however, that an on us check is (1) drawn on an out-of-state branch of the depositary bank that is not in the same check processing region as the branch in which it was deposited, or (2) deposited at an off-premises ATM or another facility of the depositary bank that is not considered a branch under federal law, the state regulation supersedes the Regulation CC availability requirements.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions to the availability schedules.</inline> California law provides exceptions to the state availability schedules for large deposits, new accounts, repeated overdrafters, doubtful collectibility, foreign items, and emergency conditions. In all cases where the federal availability schedule preempts the state schedule, only the federal exceptions will apply. For deposits that are covered by the state availability schedule (e.g., in-state nonlocal checks under the temporary schedule; cashier's or teller's checks that are not <?page num="964"?>deposited with a special deposit slip or at a staff teller station), the state exceptions may be used to extend the state availability schedule up to the federal availability schedule. Once the deposit is held up to the federal availability limit under a state exception, the depositary bank may further extend the hold under any federal exception that can be applied to the deposit. Any time a depositary bank invokes an exception to extend a hold beyond the time periods otherwise permitted by law, it must give notice of the extended hold to its customer in accordance with <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> of Regulation CC.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business day/banking day.</inline> The definitions of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">business day</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking day</inline> in the California regulations are preempted by the Regulation CC definition of those terms. Thus, for determining the permissible hold under the California schedules that supersede the Regulation CC schedule, deposits are considered made on the specified number of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">business days</inline> following the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking day</inline> of deposit.</p>
<heading style="-uslm-sgm:HD3">Disclosures</heading>
<p style="-uslm-sgm:P">California law (Cal. Fin. Code section 866.2) requires depository institutions to provide written disclosures of their general availability policies to potential customers prior to opening any deposit account. The law also requires that preprinted deposit slips and ATM deposit envelopes contain a conspicuous summary of the general policy. Finally, the law requires a depository institution to provide specific notice of the time the customer may withdraw funds deposited by check or similar instrument into a deposit account if the funds are not available for immediate withdrawal.</p>
<p style="-uslm-sgm:P">Section 229.20(c)(2) of Regulation CC provides that inconsistency may exist when a state law provides for disclosures or notices concerning funds availability relating to accounts. California Financial Code section 866.2 requires disclosures that differ from those required by Regulation CC, and therefore is preempted to the extent that it applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in Regulation CC. The state law continues to apply to savings accounts and other accounts not governed by Regulation CC disclosure requirements.</p>
<heading style="-uslm-sgm:HD2">Connecticut</heading>
<heading style="-uslm-sgm:HD3">Background</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act (the “Act”) and subpart B (and in connection therewith, subpart A) of Regulation CC, preempt provisions of Connecticut law relating to the availability of funds. This preemption determination specifies those provisions of the Connecticut funds availability law that supersede the Act and Regulation CC. (See also the Board's preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)</p>
<p style="-uslm-sgm:P">In 1987, Connecticut amended its statute governing funds availability (Conn. Gen. Stat. section 36–9v), which requires Connecticut depository institutions to make funds deposited in a checking, time, interest, or savings account available for withdrawal with specified periods.</p>
<p style="-uslm-sgm:P">Generally, the Connecticut statute, as amended, provides that items deposited in a checking, time, interest, or savings account at a depository institution must be available for withdrawal in accordance with the following table:</p>
<xhtml:table cols="2" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c2,L0,p6,7/8,g1,t1,s20,xs36">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED"> </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Availability</inline>
</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">On us checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd day</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">In-state checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">4th day</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Out-of-state checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6th day</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:P">Exceptions to the schedules are provided for items received for deposit for the purpose of opening an account and for items that the depositary bank has reason to believe will not clear. The Connecticut statute also requires availability policy disclosures to depositors in the form of written notices and notices posted conspicuously at each branch.</p>
<heading style="-uslm-sgm:HD3">Coverage</heading>
<p style="-uslm-sgm:P">The Connecticut statute governs the availability of funds deposited in savings and time accounts, as well as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref> of Regulation CC. The federal preemption of state funds availability requirements only applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> subject to Regulation CC, which generally consist of trasaction accounts. Regulation CC does not affect the Connecticut statute to the extent that the state law applies to deposits in savings and other accounts (including transaction accounts where the account holder is a bank, foreign bank or the U.S. Treasury) that are not <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC. (Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on other funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC, in certain circumstances.)</p>
<p style="-uslm-sgm:P">The Connecticut statute applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">items</inline> deposited in accounts. This term encompasses instruments that are not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">checks</inline> in Regulation CC (<ref href="/us/cfr/t12/s229.2/k">§ 229.2(k)</ref>), such as nonnegotiable instruments, and are therefore not subject to Regulation CC's provisions governing funds availability. Those items that are subject to Connecticut law but are not subject to Regulation CC will continue to be covered by the state availability schedules and exceptions.
<?page num="965"?></p>
<heading style="-uslm-sgm:HD3">Availability Schedules</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary schedule.</inline> Connecticut law provides that certain checks that are nonlocal under Regulation CC must be available in a shorter time (sixth business day after deposit for checks payable by depository institutions not located in Connecticut) than under the federal regulation (seventh business day after deposit under the temporary schedule for nonlocal checks). Accordingly, the Connecticut law supersedes Regulation CC with respect to nonlocal checks (other than checks covered by appendix B–1) deposited in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> until the federal permanent availability schedules take effect on <date date="1990-09-01">September 1, 1990</date>.</p>
<p style="-uslm-sgm:P">The Connecticut statute does not specify whether it applies to deposits of checks at nonproprietary ATMs. Under the temporary schedule in Regulation CC, deposits at nonproprietary ATMs must be made available for withdrawal at the start of the seventh business day after deposit. To the extent that the Connecticut schedules provide for shorter availability for deposits at nonproprietary ATMs, they would supersede the temporary schedule in Regulation CC for deposits at nonproprietary ATMs specified in <ref href="/us/cfr/t12/s229.11/d">§ 229.11(d)</ref>.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions to the availability schedule.</inline> The Connecticut law provides exceptions for items received for deposit for the purpose of opening new accounts and for items that the depositary bank has reason to believe will not clear. In all cases where the federal availability schedule preempts the state schedule, only the federal exceptions will apply. For deposits that are covered by the state availability schedule (e.g., nonlocal out-of-state checks under the temporary schedule), the state exceptions may be used to extend the state availability schedule (of six business days) to meet the federal availability schedule (of seven business days). Once the deposit is held up to the federal availability schedule limit under a state exception, the depositary bank may further extend the hold under any federal exception that can be applied to the deposit. Any time a depositary bank invokes an exception to extend a hold beyond the time periods otherwise permitted by law, it must give notice of the extended hold to its customer, in accordance with <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> of Regulation CC.</p>
<heading style="-uslm-sgm:HD3">Disclosures</heading>
<p style="-uslm-sgm:P">The Connecticut statute (Conn. Gen. Stat. Section 36–9v(b)) requires written notice to depositors of an institution's check hold policy and requires a notice of the policy to be posted in each branch.</p>
<p style="-uslm-sgm:P">Regulation CC preempts state disclosure requirements concerning funds availability that relate to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> that are inconsistent with the federal requirements. The state requriements are different from, and therefore inconsistent with, the federal disclosure rules. (<ref href="/us/cfr/t12/s229.20/c/2">§ 229.20(c)(2)</ref>). Thus, the Connecticut statute is preempted by Regulation CC to the extent that these disclosure provisions apply to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined by Regulation CC. The Connecticut disclosure rules would continue to apply to accounts, such as savings and time accounts, not governed by the Regulation CC disclosure requirements.</p>
<heading style="-uslm-sgm:HD2">Illinois</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act and subpart B, and, in connection therewith, subpart A, of Regulation CC, preempt provisions of Illinois law relating to the availability of funds. Section 4–213(5) of the Uniform Commercial Code as adopted in Illinois (Illinois Revised Statutes Chapter 26, paragraph 4–213(5), enacted <date date="1988-07-26">July 26, 1988</date>) provides that:</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Time periods after which deposits must be available for withdrawal shall be determined by the provisions of the federal Expedited Funds Availability Act (Title VI of the Competitive Equality Banking Act of 1987) and the regulations promulgated by the Federal Reserve Board for the implementation of that Act.</p>
<?GPOvSpace 02?>
<p style="-uslm-sgm:P">Section 4–213(5) of the Illinois law does not supersede Regulation CC; and, because this provision of Illinois law does not permit funds to be made available for withdrawal in a longer period of time than required under the Act and Regulation, it is not preempted by Regulation CC.</p>
<heading style="-uslm-sgm:HD2">Maine</heading>
<heading style="-uslm-sgm:HD3">Background</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act (the “Act”) and subpart B (and in connection therewith, subpart A) of Regulation CC, preempt the provisions of Maine law concerning the availability of funds. This preemption determination addresses the relation of the Act and Regulation CC to the Maine funds availability law. (See also the Board's preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)</p>
<p style="-uslm-sgm:P">In 1985, Maine adopted a statute governing funds availability (Title 9–B MRSA section 241(5)), which requires Maine financial institutions to make funds deposited in a transaction account, savings account, or time account available for withdrawal within a reasonable period. The Maine statute gives the Superintendent of Banking for the State of Maine the authority to promulgate rules setting forth time limitations and disclosure requirements governing funds availability.
<?page num="966"?></p>
<p style="-uslm-sgm:P">The Superintendent of Banking issued regulations implementing the Maine funds availability statute, effective <date date="1987-07-01">July 1, 1987</date> (Regulation 18(IV)), and adopted amendments to this regulation, effective <date date="1988-09-01">September 1, 1988</date>. Under the revised regulation, funds deposited to any deposit account in a Maine financial institution must be made available for withdrawal in accordance with the Act and Regulation CC (Regulation 18–IV(A)(1)). The state regulation provides that an institution's funds availability policies for accounts subject to Regulation CC be disclosed in a manner consistent with the Regulation CC requirements. Funds availability policies for accounts not subject to Regulation CC must be disclosed in accordance with the state regulation (Regulation 18–IV(A)(2)).</p>
<heading style="-uslm-sgm:HD3">Coverage</heading>
<p style="-uslm-sgm:P">The Maine law and regulation govern the availability of funds to any deposit account, as defined in the Board's Regulation D (<ref href="/us/cfr/t12/s204.2/a">12 CFR 204.2(a)</ref>). This coverage is broader than the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> covered in Regulation CC. The Maine law continues to apply to all deposit accounts, including those that are not accounts under Regulation CC. (Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on other funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC, in certain circumstances.)</p>
<heading style="-uslm-sgm:HD3">Availability Schedules and Disclosures</heading>
<p style="-uslm-sgm:P">The Maine regulation incorporates the Regulation CC availability and disclosure requirements with respect to deposits to accounts covered by Regulation CC. Because the state requirements are consistent with the federal requirements, the Maine regulation is not preempted by, nor does it supersede, the federal law.</p>
<heading style="-uslm-sgm:HD2">Massachusetts</heading>
<heading style="-uslm-sgm:HD3">Background</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act (the “Act”) and subpart B (and in connection therewith, subpart A) of Regulation CC, preempt provisions of Massachusetts law relating to the availability of funds. This preemption determination addresses the relationship of the Act and Regulation CC to the Massachusetts funds availability law. (See also the Board's preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)</p>
<p style="-uslm-sgm:P">In 1988, Massachusetts amended its statute governing funds availability (Mass. Gen. L. ch. 167D, section 35), to require Massachusetts banking institutions to make funds available for withdrawal and disclose their availability policies in accordance with the Act and Regulation CC. The Massachusetts law, however, provides that “local originating depository institution” is to be defined as any originating depository institution located in the Commonwealth.</p>
<heading style="-uslm-sgm:HD3">Coverage</heading>
<p style="-uslm-sgm:P">The Massachusetts statute governs the availability of funds deposited in “any demand deposit, negotiable order of withdrawal account, savings deposit, share account or other asset account.” Regulation CC applies only to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref>. Regulation CC does not affect the Massachusetts statute to the extent that the state law applies to deposits in savings and other accounts (including transaction accounts where the account holder is a bank, foreign bank, or the U.S. Treasury) that are not <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC. (Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on other funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC, in certain circumstances.)</p>
<heading style="-uslm-sgm:HD3">Availability Schedules</heading>
<p style="-uslm-sgm:P">The Massachusetts definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">local originating depository institution</inline> (local paying bank in Regulation CC terminology) requires that in-state checks that are nonlocal checks under Regulation CC be made available in accordance with the Regulation CC local schedule. The Massachusetts law supersedes Regulation CC under the temporary and permanent schedule with respect to nonlocal checks payable by banks located in Massachusetts and deposited into <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts.</inline> Regulation CC preempts the Massachusetts law, however, to the extent the state law does not define banks located outside of Massachusetts, but in the same check processing region as the paying bank, as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">local originating depository institutions.</inline>
</p>
<heading style="-uslm-sgm:HD3">Disclosures</heading>
<p style="-uslm-sgm:P">The Massachusetts regulation incorporates the Regulation CC disclosure requirements with respect to both accounts covered by Regulation CC and savings and other accounts not governed by the federal regulation. Because the state requirements are consistent with the federal requirements, the Massachusetts regulation is not preempted by, nor does it supersede, the federal law. The Massachusetts disclosure rules would continue to apply to accounts not governed by the Regulation CC disclosure requirements.</p>
<heading style="-uslm-sgm:HD2">New Jersey</heading>
<heading style="-uslm-sgm:HD3">Background</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (12 <?page num="967"?>CFR part 229), to determine whether the Expedited Funds Availability Act (the “Act”) and subpart B (and in connection therewith, subpart A) of Regulation CC preempt the provisions of New Jersey law concerning disclosure of a bank's funds availability policy. (See also the Board's preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)</p>
<p style="-uslm-sgm:P">New Jersey does not have a law or regulation establishing the maximum time periods within which funds deposited by check or electronic payment must be made available for withdrawal. New Jersey does, however, have regulations concerning the disclosure of a banking institution's availability policy (N.J.A.C. 3:1–15.1 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>).</p>
<heading style="-uslm-sgm:HD3">Disclosures</heading>
<p style="-uslm-sgm:P">New Jersey law requires every banking institution (defined as any state or federally chartered commercial bank, savings bank, or savings and loan association) to provide written disclosure to all holders of and applicants for deposit accounts which describes the institution's funds availability policy. Institutions must also disclose to their customers any significant changes to their availability policy.</p>
<p style="-uslm-sgm:P">Regulation CC preempts state disclosure requirements concerning funds availability that relates to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> that are inconsistent with the federal requirements. The state requirements are different from, and therefore inconsistent with, the federal disclosure rules. (<ref href="/us/cfr/t12/s229.20/c/2">§ 229.20(c)(2)</ref>). Thus, the New Jersey statute (N.J.A.C. sections 3:1–15.1 <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">et seq.</inline>) is preempted by Regulation CC to the extent that these disclosure provisions apply to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined by Regulation CC. The New Jersey disclosure rules would continue to apply to other <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">deposit accounts,</inline> as defined by New Jersey law, including money market accounts and savings accounts established by a natural person for personal or family purposes, which are not governed by the Regulation CC disclosure requirements.</p>
<heading style="-uslm-sgm:HD2">New York</heading>
<heading style="-uslm-sgm:HD3">Background</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act (the “Act”) and subpart B (and in connection therewith, subpart A) of Regulation CC, preempt the provisions of New York law concerning the availability of funds. This preemption determination addresses the relation of the Act and Regulation CC to the New York funds availability law. (See also the Board's preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)</p>
<p style="-uslm-sgm:P">In 1983, the New York State Banking Department, pursuant to section 14–d of the New York Banking law, issued regulations requiring that funds deposited in an account be made available for withdrawal within specified time periods, and provided certain exceptions to those availability schedules. Part 34 of the New York State Banking Department's General Regulations established time frames within which commercial banks, trust companies, and branches of foreign banks (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banks</inline>); and savings banks, savings and loan associations, and credit unions (<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">savings institutions</inline>) must make funds deposited in customer accounts available for withdrawal.</p>
<p style="-uslm-sgm:P">The Banking Department amended part 34, effective <date date="1988-09-01">September 1, 1988</date>, generally to exclude accounts covered by Regulation CC from the scope of the state regulation. Part 34.4 (a)(2) and (b)(2) of the revised New York rules, however, continue to apply to checks deposited to accounts, as defined in Regulation CC. These provisions require that the proceeds of nonlocal checks payable by a New York institution be made available for withdrawal not later than the start of the fourth business day following deposit, if deposited in a bank, or the fifth business day following deposit, if deposited in a savings institution. The revised regulation also provides that, with respect to savings accounts and time deposits, New York institutions could elect to comply with either the state or federal availability and disclosure requirements.</p>
<p style="-uslm-sgm:P">This preemption determination supersedes the determination issued by the Board on <date date="1988-08-18">August 18, 1988</date> (<ref href="/us/fr/53/32357">53 FR 32357</ref> (August 24, 1988)).</p>
<heading style="-uslm-sgm:HD3">Coverage</heading>
<p style="-uslm-sgm:P">The New York law and regulation govern the availability of funds in savings accounts and time deposits, as well as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref> of Regulation CC. The New York law continues to apply to deposits to savings accounts and time deposits that are not accounts under Regulation CC. (Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Hold on other funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC, in certain circumstances.)</p>
<p style="-uslm-sgm:P">The New York law and regulation apply to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">items</inline> deposited to accounts. Part 34.3(e) defines <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">item</inline> as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">a check, negotiable order of withdrawal or money order deposited into an account.</inline> The Board interprets the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">item</inline> in New York law to be consistent with the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">check</inline> in Regulation CC (<ref href="/us/cfr/t12/s229.2/k">§ 229.2(k)</ref>).</p>
<heading style="-uslm-sgm:HD3">Availability Schedules</heading>
<p style="-uslm-sgm:P">The provisions of New York law governing the availability of in-state nonlocal items <?page num="968"?>provide for shorter hold than is provided under Regulation CC, and supersede that federal availability requirements. With the exception of these provisions, the New York regulation does not apply to deposits to accounts covered by Regulation CC.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary schedule.</inline> The time periods for the availability of in-state nonlocal checks, contained in part 34.4 (a)(2) and (b)(2), are shorter that the seventh business day availability required for nonlocal checks under <ref href="/us/cfr/t12/s229.11/c">§ 229.11(c)</ref> of Regulation CC, although they are not necessarily shorter than the schedules for nonlocal checks set forth in <ref href="/us/cfr/t12/s229.11/c/2">§ 229.11(c)(2)</ref> and appendix B–1 of Regulation CC. Thus, these state schedules supersede the federal schedule to the extent that they apply to an item payable by a New York bank or savings institution that is defined as a nonlocal checks under Regulation CC and the applicable state schedule is less than the applicable schedule specified in <ref href="/us/cfr/t12/s229.11/c">§ 229.11(c)</ref> and appendix B–1.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permanent schedule.</inline> The New York schedule for banks supersedes the Regulation CC requirement in the permanent schedule, effective <date date="1990-09-01">September 1, 1990</date>, that nonlocal checks be made available for withdrawal by the start of the fifth business day following deposit, to the extent that the in-state checks are defined as nonlocal under Regulation CC, and the Regulation CC schedule for nonlocal checks is not shortened under <ref href="/us/cfr/t12/s229.12/c/2">§ 229.12(c)(2)</ref> and appendix B–2 of Regulation CC. In addition, the New York schedule for savings institutions supersedes the Regulation CC time period adjustment for withdrawal by cash or similar means in the permanent schedule, to the extent that the in-state checks are defined as nonlocal under Regulation CC, and the Regulation CC schedule for nonlocal checks is not shortened under <ref href="/us/cfr/t12/s229.12/c/2">§ 229.12(c)(2)</ref> and appendix B–2.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions to the availability schedules.</inline> New York law provides exceptions to the state availability schedules for large deposits, new accounts, repeated overdrafters, doubtful collectibility, foreign items, and emergency conditions (part 34.4). The state exceptions apply only with respect to deposits of in-state nonlocal checks that are subject to the state availability schedule. For these deposits, the depositary bank may invoke a state exception and place a hold on the deposit up to the federal availability schedule limit for that type of deposit. Once the federal availability schedule limit is reached, the depositary bank may further extend the hold under any of the federal exceptions that apply to that deposit. Any time a depositary bank invokes an exception to extend a hold beyond the time periods otherwise permitted by law, it must give notice of the extended hold to its customer in accordance with <ref href="/us/cfr/t12/s229.12/g">§ 229.12(g)</ref> of Regulation CC.</p>
<heading style="-uslm-sgm:HD3">Disclosures</heading>
<p style="-uslm-sgm:P">The revised New York regulation does not contain funds availability disclosure requirements applicable to accounts subject to Regulation CC.</p>
<heading style="-uslm-sgm:HD2">Rhode Island</heading>
<heading style="-uslm-sgm:HD3">Background</heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act (the “Act”) and subpart B (and in connection therewith, subpart A) of Regulation CC, supersede provisions of Rhode Island law relating to the availability of funds. This preemption determination specifies those provisions in the Rhode Island funds availability law that supersede the Act and Regulation CC. (See also the Board's preemption determination regarding the Uniform Commercial Code, section 4–213(5), pertaining to availability of cash deposits.)</p>
<p style="-uslm-sgm:P">In 1986, Rhode Island adopted a statute governing funds availability (R.I. Gen. Laws tit. 6A, sections 4–601 through 4–608), which requires Rhode Island depository institutions to make checks deposited in a personal transaction account available for withdrawal within certain specific periods. Commercial banks and thrift institutions (mutual savings banks, savings banks, savings and loan institutions and credit unions) must make funds available for withdrawal in accordance with the following table:</p>
<xhtml:table cols="3" style="-uslm-sgm:GPOTABLE; -uslm-sgm-GPOTABLE:c3,L2,s20,xs28,xs28">
<xhtml:thead style="-uslm-sgm:BOXHD">
<xhtml:tr>
<xhtml:th style="-uslm-sgm:CHED"> </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Commercial banks </xhtml:th>
<xhtml:th style="-uslm-sgm:CHED">Thrift institutions</xhtml:th>
</xhtml:tr>
</xhtml:thead>
<xhtml:tfoot>
<xhtml:tr>
<xhtml:td colspan="3">
<footnote style="-uslm-sgm:TNOTE">
<content>
<inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Note:</inline> These time periods are stated in terms of availability for withdrawal not later than the Xth business day following the banking day of deposit to facilitate comparison with Regulation CC. State regulations are stated in terms of availability at the start of the business day subsequent to the number of days specified in the regulation.</content>
</footnote>
</xhtml:td>
</xhtml:tr>
</xhtml:tfoot>
<xhtml:tbody>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Treasury checks, Rhode Island Government checks, first-indorsed</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">In-state cashier's checks less than $2,500</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">On-us checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">2nd</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3rd</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">In-state clearinghouse checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">3rd</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">4th</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">In-state nonclearinghouse checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">5th</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">6th</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">1st or 2nd Federal Reserve District checks (out-of-state)</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7th</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">7th</xhtml:td>
</xhtml:tr>
<xhtml:tr style="-uslm-sgm:ROW">
<xhtml:td style="-uslm-sgm:ENT; -uslm-sgm-I:I01">Other checks</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">9th</xhtml:td>
<xhtml:td style="-uslm-sgm:ENT">10th</xhtml:td>
</xhtml:tr>
</xhtml:tbody>
</xhtml:table>
<p style="-uslm-sgm:FP">The Rhode Island statute also provides restrictions and exceptions to the schedules and requires institutions to make certain disclosures to their customers.</p>
<heading style="-uslm-sgm:HD3">Coverage</heading>
<p style="-uslm-sgm:P">The Rhode Island statute governing the availability of funds deposited in <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">personal transaction accounts,</inline> a term not defined in the statute. The federal law would continue to apply to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts,</inline> as defined in <ref href="/us/cfr/t12/s229.2/a">§ 229.2(a)</ref>, that are not <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">personal transaction accounts.</inline>
<?page num="969"?> </p>
<p style="-uslm-sgm:P">The Rhode Island statute applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">items,</inline> defined as checks, negotiable orders of withdrawal, or money orders. The Board interprets the definition of item to be consistent with the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">check</inline> in Regulation CC (<ref href="/us/cfr/t12/s299.2/k">§ 299.2(k)</ref>).</p>
<heading style="-uslm-sgm:HD3">Availability Schedules</heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary schedule.</inline> Rhode Island law requires availability for certain checks in the same time as does Regulation CC. Thus, in these instances, the federal law does not preempt the state law. Rhode Island law requires commercial banks (but not thrift institutions) to make checks payable by a depositary institution that uses the same in-state clearing facility as the depositary bank available for withdrawal on the third business day following the day of the deposit. This is the same time period contained in Regulation CC for local checks payable by a bank that is a member of the same local clearinghouse as the depositary bank. (The Board views the definition of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">the same in-state clearing facility</inline> as having the same meaning as the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">the same check clearinghouse association</inline> in the federal law's provision that allows banks to limit the customer's ability to withdraw cash on the third business day if the local check being deposited is payable by a bank that is not a member of the same local clearinghouse as the depositary bank.) Since the Rhode Island law and the federal law both require the funds to be made available no later than the third business day, the state law is not preempted by the federal law.</p>
<p style="-uslm-sgm:P">The Rhode Island law also requires commercial banks and savings institutions to make checks payable by a depository institution located in the First or Second Federal Reserve District (outside of Rhode Island) available on the seventh business day following deposit. To the extent that this provision applies to checks payable by institutions located outside the Boston check processing region, it provides for availability in the same time as required for nonlocal checks under the temporary federal schedule, and thus is not preempted by the federal law.</p>
<p style="-uslm-sgm:P">The Rhode Island statute does not specify whether it applies to deposits of checks at nonproprietary ATMs. Under the temporary schedule in Regulation CC, deposits at nonproprietary ATMs must be made available for withdrawal at the opening of the seventh business day after deposit. To the extent that the Rhode Island schedules provide for shorter availability for deposits at nonproprietary ATMs, they would supersede the temporary schedule. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions to the availability schedules.</inline> The Rhode Island law contains exceptions for reason to doubt collectibility or ability of the depositor to reimburse the depositary bank, for new accounts, for large checks, and for foreign checks. In all cases where the federal availability schedule preempts the state schedule, only the federal exceptions will apply. For deposits that are covered by the state availability schedule, the state exceptions may be used to extend the state availability schedule to meet the federal availability schedule. Once the deposit is held up to the federal availability schedule limit under a state exception, the depositary bank may further extend the hold under any federal exception that can be applied to the deposit. Thus, if the state and federal availability schedules are the same for a particular deposit, both a state and a federal exception must be applicable to that deposit in order to extend the hold beyond the schedule. Any time a depositary bank invokes an exception to extend a hold beyond the time periods otherwise permitted by law, it must give notice of the extended hold to its customer, in accordance with <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> of Regulation CC. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business day/banking day.</inline> The Rhode Island statute defines <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">business day</inline> as excluding Saturday, Sunday and legal holidays. This definition is preempted by the Regulation CC definitions of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">business day</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking day.</inline> Thus, for determining the permissible hold under the Rhode Island schedules that supersede the Regulation CC schedule, deposits are considered made on the specified number of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">business days</inline> following the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking day</inline> of deposit. </p>
<heading style="-uslm-sgm:HD3">Disclosures</heading>
<p style="-uslm-sgm:P">The Rhode Island statute requires written notice to depositors of an institution's check hold policy and requires a notice on deposit slips. Regulation CC preempts state disclosure requirements concerning funds availability that relate to accounts that are inconsistent with the federal requirements. The state reuirements are different from, and therefore inconsistent with, the federal rules. (<ref href="/us/cfr/t12/s229.20/c/2">§ 229.20(c)(2)</ref>) Thus, Regulation CC preempts the Rhode Island disclosure requirements concerning funds availability.</p>
<heading style="-uslm-sgm:HD2">Wisconsin</heading>
<heading style="-uslm-sgm:HD3">Background </heading>
<p style="-uslm-sgm:P">The Board has been requested, in accordance with <ref href="/us/cfr/t12/s229.20/d">§ 229.20(d)</ref> of Regulation CC (<ref href="/us/cfr/t12/p229">12 CFR part 229</ref>), to determine whether the Expedited Funds Availability Act (the Act) and subpart B (and in connection therewith, subpart A) of Regulation CC preempt the provisions of Wisconsin law concerning availability of funds. This preemption determination specifies those provisions of the Wisconsin funds availability law that are not preempted by the Act and Regulation CC. (See also the Board's preemption determination regarding the Uniform Commercial <?page num="970"?>Code, section 4–213(5), pertaining to availability of cash deposits.) </p>
<p style="-uslm-sgm:P">Wisconsin Statutes sections 404.213(4m), 215.136, and 186.117 require Wisconsin banks, savings and loan associations, and credit unions, respectively, to make funds deposited in accounts available for withdrawal within specified time frames. Generally, checks drawn on the U.S. Treasury, the State of Wisconsin, or on a local government located in Wisconsin must be made available for withdrawal by the second day following deposit. (The law governing commercial banks determines availability based on banking day; the laws governing savings and loan associations and credit unions determine availability based on business days.) In-state and out-of-state checks must be made available for withdrawal within five days and eight days following deposit, respectively. Exceptions are provided for new accounts and reason to doubt collectibility. In addition, Wisconsin Statutes section 404.103 permits commercial banks to vary these availability requirements by agreement. </p>
<heading style="-uslm-sgm:HD3">Coverage </heading>
<p style="-uslm-sgm:P">Wisconsin law defines <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">account,</inline> with respect to the rules governing commercial banks, as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">any account with a bank and includes a checking, time, interest or savings account</inline> (Wisconsin Statutes section 404.104(1)(a)). The statutes relating to the funds availability requirements applicable to savings and loan associations and credit unions do not define the term <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">account.</inline> The Federal preemption of state funds availability requirements applies only to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> subject to Regulation CC, which generally consist of transaction accounts. Regulation CC does not affect the Wisconsin law to the extent that the state law applies to deposits in savings, time, and other accounts (including transaction accounts where the account holder is a bank, foreign bank, or the U.S. Treasury) that are not <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC. (Note, however, that under <ref href="/us/cfr/t12/s229.19/e">§ 229.19(e)</ref> of Regulation CC, <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Holds on Other Funds,</inline> the federal availability schedules may apply to savings, time, and other accounts not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> under Regulation CC in certain circumstances.) </p>
<p style="-uslm-sgm:P">The Wisconsin statute applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">items</inline> deposited in accounts. This term encompasses instruments that are not defined as <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">checks</inline> in Regulation CC (<ref href="/us/cfr/t12/s229.2/k">§ 229.2(k)</ref>), such as nonnegotiable instruments, and are therefore not subject to Regulation CC's provisions governing funds availability. Those items that are subject to Wisconsin law but are not subject to Regulation CC will continue to be covered by the state availability schedules and exceptions. </p>
<heading style="-uslm-sgm:HD3">Availability Schedules </heading>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Temporary schedule.</inline> The Wisconsin statute requires that in-state nonlocal checks be made available for withdrawal not later than the fifth day following deposit (Wisconsin Statutes sections 404.213(4m)(b)(2); 215.136(2)(b); 186.117(2)(b)). This time period is shorter than the seventh business day availability required for nonlocal checks under <ref href="/us/cfr/t12/s229.11/c">§ 229.11(c)</ref> of Regulation CC, although it is not shorter than the schedules for nonlocal checks set forth in <ref href="/us/cfr/t12/s229.11/c/2">§ 229.11(c)(2)</ref> and appendix B–1 of Regulation CC. Thus, the state schedule for in-state nonlocal checks supersedes the Federal schedule to the extent that it applies to an item payable by a Wisconsin bank that is defined as a nonlocal check under Regulation CC and is not subject to reduced schedules under <ref href="/us/cfr/t12/s229.11/c/2">§ 229.11(c)(2)</ref> and appendix B–1. </p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Permanent Schedule.</inline> Under the Federal permanent availability schedule, nonlocal checks must be made available for withdrawal not later than the fifth business day following deposit. The fifth day availability requirement for in-state items in the Wisconsin statute supersedes the Regulation CC time period adjustment for withdrawal by cash or similar means in the permanent schedule, to the extent that the in-state checks are defined as nonlocal under Regulation CC.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Next-day availability.</inline> Under the Wisconsin statute, the proceeds of state and local government checks must be made available for withdrawal by the second day following deposit, if the check is endorsed only by the person to whom it was issued (Wisconsin Statutes sections 404.213(4m)(b)(1); 215.136(2)(b); and 186.117(2)(a)). Regulation CC requires next-day availability for these checks if they are (1) deposited in an account of a payee of the check, (2) deposited in a depositary bank located in the same state as the state or local government that issued the check, (3) deposited in person to an employee of the depositary bank, and (4) deposited with a special deposit slip, if the depositary bank informed its customers that use of such a slip is a condition to next-day availability. Under the Federal law, if a state or local government check is not deposited in person to an employee of the depositary bank, but meets the other conditions set forth in <ref href="/us/cfr/t12/s229.10/c/1/iv">§ 229.10(c)(1)(iv)</ref>, the funds must be made available for withdrawal not later than the second business day following deposit. The Wisconsin statute supersedes Regulation CC to the extent that the state law does not permit the use of a special deposit slip as a condition to receipt of second-day availability.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Exceptions to the schedules.</inline> Wisconsin law provides exceptions to the state availability schedules for new accounts (those opened less than 90 days) and reason to doubt collectibility (Wisconsin Statutes sections <?page num="971"?>404.213(4m)(b); 215.136(2); and 186.117(2)). The state availability law also permits commercial banks to vary the funds availability requirements by agreement (Wisconsin Statute section 404.103(1)). In all cases where the Federal schedule preempts the state schedule, only the Federal exceptions apply. For deposits that are covered by the state availability schedule (e.g., in-state nonlocal checks), a state exception must apply in order to extend the state availability schedule up to the Federal availability schedule. Once the deposit is held up to the Federal availability limit under a state exception, the depositary bank may further extend the hold only if a Federal exception can be applied to the deposit. Any time a depositary bank invokes an exception to extend a hold beyond the time periods otherwise permitted by law, it must give notice of the extended hold to its customer in accordance with <ref href="/us/cfr/t12/s229.13/g">§ 229.13(g)</ref> of Regulation CC.</p>
<p style="-uslm-sgm:P">
<inline style="-uslm-sgm:E" class="-gpo-grid-0-3">Business day/banking day.</inline> The definitions of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">business day</inline> and <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking day</inline> in the Wisconsin statutes are preempted by the Regulation CC definition of those terms. For determining the permissible hold under the Wisconsin schedules that supersede the Regulation CC schedule, deposits are considered available for withdrawal on the specified number of <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">business days</inline> following the <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">banking day</inline> of deposit.</p>
<p style="-uslm-sgm:P">Wisconsin law considers funds to be deposited, for the purpose of determining when they must be made available for withdrawal, when an item is “received at the proof and transit facility of the depository.” For the purposes of this preemption determination, funds are considered deposited under Wisconsin law in accordance with the rules set forth in <ref href="/us/cfr/t12/s229.19/a">§ 229.19(a)</ref> of Regulation CC.</p>
<heading style="-uslm-sgm:HD3">Disclosures</heading>
<p style="-uslm-sgm:P">The Wisconsin statute does not require disclosure of a bank's funds availability policy. The state law does require, however, that a bank give notice to its customer if it extends the time within which funds will be available for withdrawal due to the bank's doubt as to the collectibility of the item (Wisconsin Statutes sections 404.213(4m)(b); 215.136(2); and 186.117(2)).</p>
<p style="-uslm-sgm:P">Regulation CC preempts state disclosure requirements concerning funds availability that relate to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> that are inconsistent with the Federal requirements. The state requirement is different from, and therefore inconsistent with, the Federal disclosure rules (<ref href="/us/cfr/t12/s229.20/c/2">§ 229.20(c)(2)</ref>). Thus, the Wisconsin statute is preempted by Regulation CC to the extent that the state notice requirement applies to <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">accounts</inline> as defined by Regulation CC. The Wisconsin requirement would continue to apply to accounts, such as savings and time accounts, not governed by the Regulation CC disclosure requirements.</p>
<source style="-uslm-sgm:CITA" />
</content>
</appendix>
</part>
</subchapter>
</chapter>
</title>
</main>
<backMatter style="-uslm-sgm:BMTR">
<content style="-uslm-sgm:FAIDS"><?page num="973"?>
<heading style="-uslm-sgm:HED">FINDING AIDS</heading>
<p style="-uslm-sgm:P">A list of CFR titles, subtitles, chapters, subchapters and parts and an alphabetical list of agencies publishing in the CFR are included in the CFR Index and Finding Aids volume to the Code of Federal Regulations which is published separately and revised annually. </p>
<p style="-uslm-sgm:P">Table of CFR Titles and Chapters</p>
<p style="-uslm-sgm:P">Alphabetical List of Agencies Appearing in the CFR</p>
<p style="-uslm-sgm:P">List of CFR Sections Affected
</p>
</content>
<index role="tableOfCFRTitlesAndChapters" style="-uslm-sgm:TOCTAC">
<heading style="-uslm-sgm:HED">Table of CFR Titles and Chapters</heading>
<subheading style="-uslm-sgm:REV">(Revised as of <date date="2019-01-01">January 1, 2019</date>)</subheading>
<headingItem style="-uslm-sgm:CHHD">
<designator>Chap.</designator>
</headingItem>
<?page num="975"?>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 1—General Provisions</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Administrative Committee of the Federal Register (Parts 1—49)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Federal Register (Parts 50—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Administrative Conference of the United States (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Miscellaneous Agencies (Parts 400—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">National Capital Planning Commission (Parts 600—699)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 2—Grants and Agreements</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of Management and Budget Guidance for Grants and Agreements</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Office of Management and Budget Governmentwide Guidance for Grants and Agreements (Parts 2—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of Management and Budget Guidance (Parts 200—299)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Federal Agency Regulations for Grants and Agreements</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Department of Health and Human Services (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Department of Agriculture (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Department of State (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Agency for International Development (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Veterans Affairs (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Department of Energy (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Treasury (Parts 1000—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">Department of Defense (Parts 1100—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Transportation (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Commerce (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIV</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Interior (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XV</designator>
<label style="-uslm-sgm:SUBJECT">Environmental Protection Agency (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVIII</designator>
<label style="-uslm-sgm:SUBJECT">National Aeronautics and Space Administration (Parts 1800—1899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XX</designator>
<label style="-uslm-sgm:SUBJECT">United States Nuclear Regulatory Commission (Parts 2000—2099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXII</designator>
<label style="-uslm-sgm:SUBJECT">Corporation for National and Community Service (Parts 2200—2299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIII</designator>
<label style="-uslm-sgm:SUBJECT">Social Security Administration (Parts 2300—2399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIV</designator>
<label style="-uslm-sgm:SUBJECT">Department of Housing and Urban Development (Parts 2400—2499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXV</designator>
<label style="-uslm-sgm:SUBJECT">National Science Foundation (Parts 2500—2599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVI</designator>
<label style="-uslm-sgm:SUBJECT">National Archives and Records Administration (Parts 2600—2699)
<?page num="976"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVII</designator>
<label style="-uslm-sgm:SUBJECT">Small Business Administration (Parts 2700—2799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVIII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Justice (Parts 2800—2899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIX</designator>
<label style="-uslm-sgm:SUBJECT">Department of Labor (Parts 2900—2999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXX</designator>
<label style="-uslm-sgm:SUBJECT">Department of Homeland Security (Parts 3000—3099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXI</designator>
<label style="-uslm-sgm:SUBJECT">Institute of Museum and Library Services (Parts 3100—3199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXII</designator>
<label style="-uslm-sgm:SUBJECT">National Endowment for the Arts (Parts 3200—3299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXIII</designator>
<label style="-uslm-sgm:SUBJECT">National Endowment for the Humanities (Parts 3300—3399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXIV</designator>
<label style="-uslm-sgm:SUBJECT">Department of Education (Parts 3400—3499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXV</designator>
<label style="-uslm-sgm:SUBJECT">Export-Import Bank of the United States (Parts 3500—3599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXVI</designator>
<label style="-uslm-sgm:SUBJECT">Office of National Drug Control Policy, Executive Office of the President (Parts 3600—3699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXVII</designator>
<label style="-uslm-sgm:SUBJECT">Peace Corps (Parts 3700—3799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LVIII</designator>
<label style="-uslm-sgm:SUBJECT">Election Assistance Commission (Parts 5800—5899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LIX</designator>
<label style="-uslm-sgm:SUBJECT">Gulf Coast Ecosystem Restoration Council (Parts 5900—5999)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 3—The President</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Executive Office of the President (Parts 100—199)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 4—Accounts</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Government Accountability Office (Parts 1—199)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 5—Administrative Personnel</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Office of Personnel Management (Parts 1—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Merit Systems Protection Board (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Office of Management and Budget (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Personnel Management and Office of the Director of National Intelligence (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">The International Organizations Employees Loyalty Board (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Federal Retirement Thrift Investment Board (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Special Counsel (Parts 1800—1899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Appalachian Regional Commission (Parts 1900—1999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">Armed Forces Retirement Home (Parts 2100—2199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIV</designator>
<label style="-uslm-sgm:SUBJECT">Federal Labor Relations Authority, General Counsel of the Federal Labor Relations Authority and Federal Service Impasses Panel (Parts 2400—2499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVI</designator>
<label style="-uslm-sgm:SUBJECT">Office of Government Ethics (Parts 2600—2699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXI</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Treasury (Parts 3100—3199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Deposit Insurance Corporation (Parts 3200—3299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Energy (Parts 3300—3399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIV</designator>
<label style="-uslm-sgm:SUBJECT">Federal Energy Regulatory Commission (Parts 3400—3499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXV</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Interior (Parts 3500—3599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVI</designator>
<label style="-uslm-sgm:SUBJECT">Department of Defense (Parts 3600—3699)
<?page num="977"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVIII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Justice (Parts 3800—3899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIX</designator>
<label style="-uslm-sgm:SUBJECT">Federal Communications Commission (Parts 3900—3999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXX</designator>
<label style="-uslm-sgm:SUBJECT">Farm Credit System Insurance Corporation (Parts 4000—4099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXI</designator>
<label style="-uslm-sgm:SUBJECT">Farm Credit Administration (Parts 4100—4199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXIII</designator>
<label style="-uslm-sgm:SUBJECT">Overseas Private Investment Corporation (Parts 4300—4399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXIV</designator>
<label style="-uslm-sgm:SUBJECT">Securities and Exchange Commission (Parts 4400—4499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Personnel Management (Parts 4500—4599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXVI</designator>
<label style="-uslm-sgm:SUBJECT">Department of Homeland Security (Parts 4600—4699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXVII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Election Commission (Parts 4700—4799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XL</designator>
<label style="-uslm-sgm:SUBJECT">Interstate Commerce Commission (Parts 5000—5099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLI</designator>
<label style="-uslm-sgm:SUBJECT">Commodity Futures Trading Commission (Parts 5100—5199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Labor (Parts 5200—5299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLIII</designator>
<label style="-uslm-sgm:SUBJECT">National Science Foundation (Parts 5300—5399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLV</designator>
<label style="-uslm-sgm:SUBJECT">Department of Health and Human Services (Parts 5500—5599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLVI</designator>
<label style="-uslm-sgm:SUBJECT">Postal Rate Commission (Parts 5600—5699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLVII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Trade Commission (Parts 5700—5799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLVIII</designator>
<label style="-uslm-sgm:SUBJECT">Nuclear Regulatory Commission (Parts 5800—5899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLIX</designator>
<label style="-uslm-sgm:SUBJECT">Federal Labor Relations Authority (Parts 5900—5999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">L</designator>
<label style="-uslm-sgm:SUBJECT">Department of Transportation (Parts 6000—6099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LII</designator>
<label style="-uslm-sgm:SUBJECT">Export-Import Bank of the United States (Parts 6200—6299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LIII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Education (Parts 6300—6399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LIV</designator>
<label style="-uslm-sgm:SUBJECT">Environmental Protection Agency (Parts 6400—6499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LV</designator>
<label style="-uslm-sgm:SUBJECT">National Endowment for the Arts (Parts 6500—6599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LVI</designator>
<label style="-uslm-sgm:SUBJECT">National Endowment for the Humanities (Parts 6600—6699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LVII</designator>
<label style="-uslm-sgm:SUBJECT">General Services Administration (Parts 6700—6799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LVIII</designator>
<label style="-uslm-sgm:SUBJECT">Board of Governors of the Federal Reserve System (Parts 6800—6899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LIX</designator>
<label style="-uslm-sgm:SUBJECT">National Aeronautics and Space Administration (Parts 6900—6999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LX</designator>
<label style="-uslm-sgm:SUBJECT">United States Postal Service (Parts 7000—7099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXI</designator>
<label style="-uslm-sgm:SUBJECT">National Labor Relations Board (Parts 7100—7199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXII</designator>
<label style="-uslm-sgm:SUBJECT">Equal Employment Opportunity Commission (Parts 7200—7299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXIII</designator>
<label style="-uslm-sgm:SUBJECT">Inter-American Foundation (Parts 7300—7399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXIV</designator>
<label style="-uslm-sgm:SUBJECT">Merit Systems Protection Board (Parts 7400—7499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXV</designator>
<label style="-uslm-sgm:SUBJECT">Department of Housing and Urban Development (Parts 7500—7599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXVI</designator>
<label style="-uslm-sgm:SUBJECT">National Archives and Records Administration (Parts 7600—7699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXVII</designator>
<label style="-uslm-sgm:SUBJECT">Institute of Museum and Library Services (Parts 7700—7799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXVIII</designator>
<label style="-uslm-sgm:SUBJECT">Commission on Civil Rights (Parts 7800—7899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXIX</designator>
<label style="-uslm-sgm:SUBJECT">Tennessee Valley Authority (Parts 7900—7999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXX</designator>
<label style="-uslm-sgm:SUBJECT">Court Services and Offender Supervision Agency for the District of Columbia (Parts 8000—8099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXI</designator>
<label style="-uslm-sgm:SUBJECT">Consumer Product Safety Commission (Parts 8100—8199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXIII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Agriculture (Parts 8300—8399)
<?page num="978"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXIV</designator>
<label style="-uslm-sgm:SUBJECT">Federal Mine Safety and Health Review Commission (Parts 8400—8499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXVI</designator>
<label style="-uslm-sgm:SUBJECT">Federal Retirement Thrift Investment Board (Parts 8600—8699) </label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXVII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Management and Budget (Parts 8700—8799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXX</designator>
<label style="-uslm-sgm:SUBJECT">Federal Housing Finance Agency (Parts 9000—9099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXXIII</designator>
<label style="-uslm-sgm:SUBJECT">Special Inspector General for Afghanistan Reconstruction (Parts 9300—9399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXXIV</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Consumer Financial Protection (Parts 9400—9499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">LXXXVI</designator>
<label style="-uslm-sgm:SUBJECT">National Credit Union Administration (Parts 9600—9699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XCVII</designator>
<label style="-uslm-sgm:SUBJECT">Department of Homeland Security Human Resources Management System (Department of Homeland Security—Office of Personnel Management) (Parts 9700—9799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XCVIII</designator>
<label style="-uslm-sgm:SUBJECT">Council of the Inspectors General on Integrity and Efficiency (Parts 9800—9899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XCIX</designator>
<label style="-uslm-sgm:SUBJECT">Military Compensation and Retirement Modernization Commission (Parts 9900—9999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">C</designator>
<label style="-uslm-sgm:SUBJECT">National Council on Disability (Parts 10000—10049)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">CI</designator>
<label style="-uslm-sgm:SUBJECT">National Mediation Board (Part 10101)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 6—Domestic Security</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Department of Homeland Security, Office of the Secretary (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Privacy and Civil Liberties Oversight Board (Parts 1000—1099)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 7—Agriculture</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary of Agriculture (Parts 0—26)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations of the Department of Agriculture</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Agricultural Marketing Service (Standards, Inspections, Marketing Practices), Department of Agriculture (Parts 27—209)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Food and Nutrition Service, Department of Agriculture (Parts 210—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Animal and Plant Health Inspection Service, Department of Agriculture (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Federal Crop Insurance Corporation, Department of Agriculture (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Agricultural Research Service, Department of Agriculture (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Natural Resources Conservation Service, Department of Agriculture (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Farm Service Agency, Department of Agriculture (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Grain Inspection, Packers and Stockyards Administration (Federal Grain Inspection Service), Department of Agriculture (Parts 800—899)
<?page num="979"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Agricultural Marketing Service (Marketing Agreements and Orders; Fruits, Vegetables, Nuts), Department of Agriculture (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Agricultural Marketing Service (Marketing Agreements and Orders; Milk), Department of Agriculture (Parts 1000—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">Agricultural Marketing Service (Marketing Agreements and Orders; Miscellaneous Commodities), Department of Agriculture (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIV</designator>
<label style="-uslm-sgm:SUBJECT">Commodity Credit Corporation, Department of Agriculture (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XV</designator>
<label style="-uslm-sgm:SUBJECT">Foreign Agricultural Service, Department of Agriculture (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVI</designator>
<label style="-uslm-sgm:SUBJECT">Rural Telephone Bank, Department of Agriculture (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVII</designator>
<label style="-uslm-sgm:SUBJECT">Rural Utilities Service, Department of Agriculture (Parts 1700—1799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVIII</designator>
<label style="-uslm-sgm:SUBJECT">Rural Housing Service, Rural Business-Cooperative Service, Rural Utilities Service, and Farm Service Agency, Department of Agriculture (Parts 1800—2099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XX</designator>
<label style="-uslm-sgm:SUBJECT">Local Television Loan Guarantee Board (Parts 2200—2299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Advocacy and Outreach, Department of Agriculture (Parts 2500—2599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVI</designator>
<label style="-uslm-sgm:SUBJECT">Office of Inspector General, Department of Agriculture (Parts 2600—2699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Information Resources Management, Department of Agriculture (Parts 2700—2799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVIII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Operations, Department of Agriculture (Parts 2800—2899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIX</designator>
<label style="-uslm-sgm:SUBJECT">Office of Energy Policy and New Uses, Department of Agriculture (Parts 2900—2999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXX</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Chief Financial Officer, Department of Agriculture (Parts 3000—3099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXI</designator>
<label style="-uslm-sgm:SUBJECT">Office of Environmental Quality, Department of Agriculture (Parts 3100—3199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Procurement and Property Management, Department of Agriculture (Parts 3200—3299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXIII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Transportation, Department of Agriculture (Parts 3300—3399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXIV</designator>
<label style="-uslm-sgm:SUBJECT">National Institute of Food and Agriculture (Parts 3400—3499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXV</designator>
<label style="-uslm-sgm:SUBJECT">Rural Housing Service, Department of Agriculture (Parts 3500—3599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXVI</designator>
<label style="-uslm-sgm:SUBJECT">National Agricultural Statistics Service, Department of Agriculture (Parts 3600—3699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXVII</designator>
<label style="-uslm-sgm:SUBJECT">Economic Research Service, Department of Agriculture (Parts 3700—3799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXXVIII</designator>
<label style="-uslm-sgm:SUBJECT">World Agricultural Outlook Board, Department of Agriculture (Parts 3800—3899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLI</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XLII</designator>
<label style="-uslm-sgm:SUBJECT">Rural Business-Cooperative Service and Rural Utilities Service, Department of Agriculture (Parts 4200—4299)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO"><?page num="980"?>
<label style="-uslm-sgm:HED">Title 8—Aliens and Nationality</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Department of Homeland Security (Immigration and Naturalization) (Parts 1—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Executive Office for Immigration Review, Department of Justice (Parts 1000—1399)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 9—Animals and Animal Products</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Animal and Plant Health Inspection Service, Department of Agriculture (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Grain Inspection, Packers and Stockyards Administration (Packers and Stockyards Programs), Department of Agriculture (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Food Safety and Inspection Service, Department of Agriculture (Parts 300—599)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 10—Energy</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Nuclear Regulatory Commission (Parts 0—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Department of Energy (Parts 200—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Department of Energy (Parts 700—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Department of Energy (General Provisions) (Parts 1000—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIII</designator>
<label style="-uslm-sgm:SUBJECT">Nuclear Waste Technical Review Board (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVII</designator>
<label style="-uslm-sgm:SUBJECT">Defense Nuclear Facilities Safety Board (Parts 1700—1799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVIII</designator>
<label style="-uslm-sgm:SUBJECT">Northeast Interstate Low-Level Radioactive Waste Commission (Parts 1800—1899)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 11—Federal Elections</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Federal Election Commission (Parts 1—9099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Election Assistance Commission (Parts 9400—9499)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 12—Banks and Banking</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Comptroller of the Currency, Department of the Treasury (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Federal Reserve System (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Federal Deposit Insurance Corporation (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Export-Import Bank of the United States (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">(Parts 500—599) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Farm Credit Administration (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">National Credit Union Administration (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Financing Bank (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Federal Housing Finance Board (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Consumer Financial Protection (Parts 1000—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">Federal Financial Institutions Examination Council (Parts 1100—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Housing Finance Agency (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIII</designator>
<label style="-uslm-sgm:SUBJECT">Financial Stability Oversight Council (Parts 1300—1399)
<?page num="981"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIV</designator>
<label style="-uslm-sgm:SUBJECT">Farm Credit System Insurance Corporation (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XV</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Treasury (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVI</designator>
<label style="-uslm-sgm:SUBJECT">Office of Financial Research (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Federal Housing Enterprise Oversight, Department of Housing and Urban Development (Parts 1700—1799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVIII</designator>
<label style="-uslm-sgm:SUBJECT">Community Development Financial Institutions Fund, Department of the Treasury (Parts 1800—1899)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 13—Business Credit and Assistance</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Small Business Administration (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Economic Development Administration, Department of Commerce (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Emergency Steel Guarantee Loan Board (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Emergency Oil and Gas Guaranteed Loan Board (Parts 500—599)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 14—Aeronautics and Space</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Federal Aviation Administration, Department of Transportation (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Secretary, Department of Transportation (Aviation Proceedings) (Parts 200—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Commercial Space Transportation, Federal Aviation Administration, Department of Transportation (Parts 400—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">National Aeronautics and Space Administration (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Air Transportation System Stabilization (Parts 1300—1399)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 15—Commerce and Foreign Trade</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary of Commerce (Parts 0—29)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations Relating to Commerce and Foreign Trade</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of the Census, Department of Commerce (Parts 30—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">National Institute of Standards and Technology, Department of Commerce (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">International Trade Administration, Department of Commerce (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Foreign-Trade Zones Board, Department of Commerce (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Industry and Security, Department of Commerce (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Economic Analysis, Department of Commerce (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">National Oceanic and Atmospheric Administration, Department of Commerce (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">National Technical Information Service, Department of Commerce (Parts 1100—1199)
<?page num="982"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIII</designator>
<label style="-uslm-sgm:SUBJECT">East-West Foreign Trade Board (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIV</designator>
<label style="-uslm-sgm:SUBJECT">Minority Business Development Agency (Parts 1400—1499)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle C—</designator>
<label>Regulations Relating to Foreign Trade Agreements</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XX</designator>
<label style="-uslm-sgm:SUBJECT">Office of the United States Trade Representative (Parts 2000—2099)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle D—</designator>
<label>Regulations Relating to Telecommunications and Information</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIII</designator>
<label style="-uslm-sgm:SUBJECT">National Telecommunications and Information Administration, Department of Commerce (Parts 2300—2399) [Reserved]</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 16—Commercial Practices</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Federal Trade Commission (Parts 0—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Consumer Product Safety Commission (Parts 1000—1799)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 17—Commodity and Securities Exchanges</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Commodity Futures Trading Commission (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Securities and Exchange Commission (Parts 200—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Treasury (Parts 400—499)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 18—Conservation of Power and Water Resources</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Federal Energy Regulatory Commission, Department of Energy (Parts 1—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Delaware River Basin Commission (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Water Resources Council (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Susquehanna River Basin Commission (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIII</designator>
<label style="-uslm-sgm:SUBJECT">Tennessee Valley Authority (Parts 1300—1399)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 19—Customs Duties</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">U.S. Customs and Border Protection, Department of Homeland Security; Department of the Treasury (Parts 0—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">United States International Trade Commission (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">International Trade Administration, Department of Commerce (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">U.S. Immigration and Customs Enforcement, Department of Homeland Security (Parts 400—599) [Reserved]</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 20—Employees' Benefits</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Office of Workers' Compensation Programs, Department of Labor (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Railroad Retirement Board (Parts 200—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Social Security Administration (Parts 400—499)
<?page num="983"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Employees' Compensation Appeals Board, Department of Labor (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Employment and Training Administration, Department of Labor (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Office of Workers' Compensation Programs, Department of Labor (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Benefits Review Board, Department of Labor (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Joint Board for the Enrollment of Actuaries (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Assistant Secretary for Veterans' Employment and Training Service, Department of Labor (Parts 1000—1099)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 21—Food and Drugs</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Food and Drug Administration, Department of Health and Human Services (Parts 1—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Drug Enforcement Administration, Department of Justice (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Office of National Drug Control Policy (Parts 1400—1499)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 22—Foreign Relations</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Department of State (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Agency for International Development (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Peace Corps (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">International Joint Commission, United States and Canada (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Broadcasting Board of Governors (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Overseas Private Investment Corporation (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Foreign Service Grievance Board (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Inter-American Foundation (Parts 1000—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">International Boundary and Water Commission, United States and Mexico, United States Section (Parts 1100—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">United States International Development Cooperation Agency (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIII</designator>
<label style="-uslm-sgm:SUBJECT">Millennium Challenge Corporation (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIV</designator>
<label style="-uslm-sgm:SUBJECT">Foreign Service Labor Relations Board; Federal Labor Relations Authority; General Counsel of the Federal Labor Relations Authority; and the Foreign Service Impasse Disputes Panel (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XV</designator>
<label style="-uslm-sgm:SUBJECT">African Development Foundation (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVI</designator>
<label style="-uslm-sgm:SUBJECT">Japan-United States Friendship Commission (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVII</designator>
<label style="-uslm-sgm:SUBJECT">United States Institute of Peace (Parts 1700—1799)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 23—Highways</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Federal Highway Administration, Department of Transportation (Parts 1—999)
<?page num="984"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">National Highway Traffic Safety Administration and Federal Highway Administration, Department of Transportation (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">National Highway Traffic Safety Administration, Department of Transportation (Parts 1300—1399)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 24—Housing and Urban Development</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary, Department of Housing and Urban Development (Parts 0—99)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations Relating to Housing and Urban Development</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Office of Assistant Secretary for Equal Opportunity, Department of Housing and Urban Development (Parts 100—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of Assistant Secretary for Housing-Federal Housing Commissioner, Department of Housing and Urban Development (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Government National Mortgage Association, Department of Housing and Urban Development (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Housing and Office of Multifamily Housing Assistance Restructuring, Department of Housing and Urban Development (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Office of Assistant Secretary for Community Planning and Development, Department of Housing and Urban Development (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Office of Assistant Secretary for Community Planning and Development, Department of Housing and Urban Development (Parts 600—699) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Secretary, Department of Housing and Urban Development (Housing Assistance Programs and Public and Indian Housing Programs) (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development (Section 8 Housing Assistance Programs, Section 202 Direct Loan Program, Section 202 Supportive Housing for the Elderly Program and Section 811 Supportive Housing for Persons With Disabilities Program) (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Office of Assistant Secretary for Public and Indian Housing, Department of Housing and Urban Development (Parts 900—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Inspector General, Department of Housing and Urban Development (Parts 2000—2099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XV</designator>
<label style="-uslm-sgm:SUBJECT">Emergency Mortgage Insurance and Loan Programs, Department of Housing and Urban Development (Parts 2700—2799) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XX</designator>
<label style="-uslm-sgm:SUBJECT">Office of Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development (Parts 3200—3899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIV</designator>
<label style="-uslm-sgm:SUBJECT">Board of Directors of the HOPE for Homeowners Program (Parts 4000—4099) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXV</designator>
<label style="-uslm-sgm:SUBJECT">Neighborhood Reinvestment Corporation (Parts 4100—4199)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO"><?page num="985"?>
<label style="-uslm-sgm:HED">Title 25—Indians</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Indian Affairs, Department of the Interior (Parts 1—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Indian Arts and Crafts Board, Department of the Interior (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">National Indian Gaming Commission, Department of the Interior (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Navajo and Hopi Indian Relocation (Parts 700—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Indian Affairs, Department of the Interior, and Indian Health Service, Department of Health and Human Services (Part 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Assistant Secretary, Indian Affairs, Department of the Interior (Parts 1000—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Special Trustee for American Indians, Department of the Interior (Parts 1200—1299)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 26—Internal Revenue</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Internal Revenue Service, Department of the Treasury (Parts 1—End)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 27—Alcohol, Tobacco Products and Firearms</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Alcohol and Tobacco Tax and Trade Bureau, Department of the Treasury (Parts 1—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Alcohol, Tobacco, Firearms, and Explosives, Department of Justice (Parts 400—699)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 28—Judicial Administration</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Department of Justice (Parts 0—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Federal Prison Industries, Inc., Department of Justice (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Prisons, Department of Justice (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Offices of Independent Counsel, Department of Justice (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Independent Counsel (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Court Services and Offender Supervision Agency for the District of Columbia (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">National Crime Prevention and Privacy Compact Council (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">Department of Justice and Department of State (Parts 1100—1199)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 29—Labor</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary of Labor (Parts 0—99)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations Relating to Labor</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">National Labor Relations Board (Parts 100—199)
<?page num="986"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of Labor-Management Standards, Department of Labor (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">National Railroad Adjustment Board (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Labor-Management Standards, Department of Labor (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Wage and Hour Division, Department of Labor (Parts 500—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Construction Industry Collective Bargaining Commission (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">National Mediation Board (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Mediation and Conciliation Service (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIV</designator>
<label style="-uslm-sgm:SUBJECT">Equal Employment Opportunity Commission (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVII</designator>
<label style="-uslm-sgm:SUBJECT">Occupational Safety and Health Administration, Department of Labor (Parts 1900—1999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XX</designator>
<label style="-uslm-sgm:SUBJECT">Occupational Safety and Health Review Commission (Parts 2200—2499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXV</designator>
<label style="-uslm-sgm:SUBJECT">Employee Benefits Security Administration, Department of Labor (Parts 2500—2599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Mine Safety and Health Review Commission (Parts 2700—2799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XL</designator>
<label style="-uslm-sgm:SUBJECT">Pension Benefit Guaranty Corporation (Parts 4000—4999)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 30—Mineral Resources</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Mine Safety and Health Administration, Department of Labor (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Safety and Environmental Enforcement, Department of the Interior (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Geological Survey, Department of the Interior (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Ocean Energy Management, Department of the Interior (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Surface Mining Reclamation and Enforcement, Department of the Interior (Parts 700—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Natural Resources Revenue, Department of the Interior (Parts 1200—1299)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 31—Money and Finance: Treasury</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary of the Treasury (Parts 0—50)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations Relating to Money and Finance</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Monetary Offices, Department of the Treasury (Parts 51—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Fiscal Service, Department of the Treasury (Parts 200—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Secret Service, Department of the Treasury (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Office of Foreign Assets Control, Department of the Treasury (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Engraving and Printing, Department of the Treasury (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Federal Law Enforcement Training Center, Department of the Treasury (Parts 700—799)
<?page num="987"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Investment Security, Department of the Treasury (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Federal Claims Collection Standards (Department of the Treasury—Department of Justice) (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Financial Crimes Enforcement Network, Department of the Treasury (Parts 1000—1099)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 32—National Defense</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Department of Defense</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Secretary of Defense (Parts 1—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Army (Parts 400—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Navy (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Air Force (Parts 800—1099)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Other Regulations Relating to National Defense</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Defense Logistics Agency (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVI</designator>
<label style="-uslm-sgm:SUBJECT">Selective Service System (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVII</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Director of National Intelligence (Parts 1700—1799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVIII</designator>
<label style="-uslm-sgm:SUBJECT">National Counterintelligence Center (Parts 1800—1899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIX</designator>
<label style="-uslm-sgm:SUBJECT">Central Intelligence Agency (Parts 1900—1999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XX</designator>
<label style="-uslm-sgm:SUBJECT">Information Security Oversight Office, National Archives and Records Administration (Parts 2000—2099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXI</designator>
<label style="-uslm-sgm:SUBJECT">National Security Council (Parts 2100—2199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Science and Technology Policy (Parts 2400—2499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVII</designator>
<label style="-uslm-sgm:SUBJECT">Office for Micronesian Status Negotiations (Parts 2700—2799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXVIII</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Vice President of the United States (Parts 2800—2899)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 33—Navigation and Navigable Waters</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Coast Guard, Department of Homeland Security (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Corps of Engineers, Department of the Army, Department of Defense (Parts 200—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Saint Lawrence Seaway Development Corporation, Department of Transportation (Parts 400—499)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 34—Education</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary, Department of Education (Parts 1—99)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations of the Offices of the Department of Education</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Office for Civil Rights, Department of Education (Parts 100—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of Elementary and Secondary Education, Department of Education (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Office of Special Education and Rehabilitative Services, Department of Education (Parts 300—399)
<?page num="988"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Career, Technical and Adult Education, Department of Education (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Office of Bilingual Education and Minority Languages Affairs, Department of Education (Parts 500—599) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Office of Postsecondary Education, Department of Education (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Educational Research and Improvement, Department of Education (Parts 700—799) [Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle C—</designator>
<label>Regulations Relating to Education</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">(Parts 1100—1199) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">National Council on Disability (Parts 1200—1299)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:RESERVED" role="reserved">Title 35 [Reserved] </label>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 36—Parks, Forests, and Public Property</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">National Park Service, Department of the Interior (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Forest Service, Department of Agriculture (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Corps of Engineers, Department of the Army (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">American Battle Monuments Commission (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Smithsonian Institution (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Library of Congress (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Advisory Council on Historic Preservation (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Pennsylvania Avenue Development Corporation (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Presidio Trust (Parts 1000—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">Architectural and Transportation Barriers Compliance Board (Parts 1100—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">National Archives and Records Administration (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XV</designator>
<label style="-uslm-sgm:SUBJECT">Oklahoma City National Memorial Trust (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVI</designator>
<label style="-uslm-sgm:SUBJECT">Morris K. Udall Scholarship and Excellence in National Environmental Policy Foundation (Parts 1600—1699)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 37—Patents, Trademarks, and Copyrights</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">United States Patent and Trademark Office, Department of Commerce (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">U.S. Copyright Office, Library of Congress (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Copyright Royalty Board, Library of Congress (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">National Institute of Standards and Technology, Department of Commerce (Parts 400—599)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 38—Pensions, Bonuses, and Veterans' Relief</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Department of Veterans Affairs (Parts 0—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Armed Forces Retirement Home (Parts 200—299)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO"><?page num="989"?>
<label style="-uslm-sgm:HED">Title 39—Postal Service</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">United States Postal Service (Parts 1—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Postal Regulatory Commission (Parts 3000—3099)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 40—Protection of Environment</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Environmental Protection Agency (Parts 1—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Environmental Protection Agency and Department of Justice (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Council on Environmental Quality (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Chemical Safety and Hazard Investigation Board (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Environmental Protection Agency and Department of Defense; Uniform National Discharge Standards for Vessels of the Armed Forces (Parts 1700—1799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Gulf Coast Ecosystem Restoration Council (Parts 1800—1899)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 41—Public Contracts and Property Management</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Federal Procurement Regulations System [Note]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Other Provisions Relating to Public Contracts</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">50</designator>
<label style="-uslm-sgm:SUBJECT">Public Contracts, Department of Labor (Parts 50–1—50–999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">51</designator>
<label style="-uslm-sgm:SUBJECT">Committee for Purchase From People Who Are Blind or Severely Disabled (Parts 51–1—51–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">60</designator>
<label style="-uslm-sgm:SUBJECT">Office of Federal Contract Compliance Programs, Equal Employment Opportunity, Department of Labor (Parts 60–1—60–999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">61</designator>
<label style="-uslm-sgm:SUBJECT">Office of the Assistant Secretary for Veterans' Employment and Training Service, Department of Labor (Parts 61–1—61–999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">62—100</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle C—</designator>
<label>Federal Property Management Regulations System</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">101</designator>
<label style="-uslm-sgm:SUBJECT">Federal Property Management Regulations (Parts 101–1—101–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">102</designator>
<label style="-uslm-sgm:SUBJECT">Federal Management Regulation (Parts 102–1—102–299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">103—104</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">105</designator>
<label style="-uslm-sgm:SUBJECT">General Services Administration (Parts 105–1—105–999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">109</designator>
<label style="-uslm-sgm:SUBJECT">Department of Energy Property Management Regulations (Parts 109–1—109–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">114</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Interior (Parts 114–1—114–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">115</designator>
<label style="-uslm-sgm:SUBJECT">Environmental Protection Agency (Parts 115–1—115–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">128</designator>
<label style="-uslm-sgm:SUBJECT">Department of Justice (Parts 128–1—128–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">129—200</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle D—</designator>
<label>Other Provisions Relating to Property Management [Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle E—</designator>
<label>Federal Information Resources Management Regulations System [Reserved]</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle F—</designator>
<label>Federal Travel Regulation System</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">300</designator>
<label style="-uslm-sgm:SUBJECT">General (Parts 300–1—300–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">301</designator>
<label style="-uslm-sgm:SUBJECT">Temporary Duty (TDY) Travel Allowances (Parts 301–1—301–99)
<?page num="990"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">302</designator>
<label style="-uslm-sgm:SUBJECT">Relocation Allowances (Parts 302–1—302–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">303</designator>
<label style="-uslm-sgm:SUBJECT">Payment of Expenses Connected with the Death of Certain Employees (Part 303–1—303–99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">304</designator>
<label style="-uslm-sgm:SUBJECT">Payment of Travel Expenses from a Non-Federal Source (Parts 304–1—304–99)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 42—Public Health</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Public Health Service, Department of Health and Human Services (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II—III</designator>
<label style="-uslm-sgm:SUBJECT">[Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Centers for Medicare &amp; Medicaid Services, Department of Health and Human Services (Parts 400—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Office of Inspector General-Health Care, Department of Health and Human Services (Parts 1000—1099)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 43—Public Lands: Interior</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary of the Interior (Parts 1—199)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations Relating to Public Lands</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Reclamation, Department of the Interior (Parts 400—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Bureau of Land Management, Department of the Interior (Parts 1000—9999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Utah Reclamation Mitigation and Conservation Commission (Parts 10000—10099)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 44—Emergency Management and Assistance</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Federal Emergency Management Agency, Department of Homeland Security (Parts 0—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Department of Commerce and Department of Transportation (Parts 400—499)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 45—Public Welfare</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Department of Health and Human Services (Parts 1—199)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Regulations Relating to Public Welfare</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of Family Assistance (Assistance Programs), Administration for Children and Families, Department of Health and Human Services (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Office of Child Support Enforcement (Child Support Enforcement Program), Administration for Children and Families, Department of Health and Human Services (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Office of Refugee Resettlement, Administration for Children and Families, Department of Health and Human Services (Parts 400—499)
<?page num="991"?></label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Foreign Claims Settlement Commission of the United States, Department of Justice (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">National Science Foundation (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">Commission on Civil Rights (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">Office of Personnel Management (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IX</designator>
<label style="-uslm-sgm:SUBJECT">Denali Commission (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Office of Community Services, Administration for Children and Families, Department of Health and Human Services (Parts 1000—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">National Foundation on the Arts and the Humanities (Parts 1100—1199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Corporation for National and Community Service (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XIII</designator>
<label style="-uslm-sgm:SUBJECT">Administration for Children and Families, Department of Health and Human Services (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVI</designator>
<label style="-uslm-sgm:SUBJECT">Legal Services Corporation (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVII</designator>
<label style="-uslm-sgm:SUBJECT">National Commission on Libraries and Information Science (Parts 1700—1799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XVIII</designator>
<label style="-uslm-sgm:SUBJECT">Harry S. Truman Scholarship Foundation (Parts 1800—1899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXI</designator>
<label style="-uslm-sgm:SUBJECT">Commission of Fine Arts (Parts 2100—2199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIII</designator>
<label style="-uslm-sgm:SUBJECT">Arctic Research Commission (Parts 2300—2399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXIV</designator>
<label style="-uslm-sgm:SUBJECT">James Madison Memorial Fellowship Foundation (Parts 2400—2499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XXV</designator>
<label style="-uslm-sgm:SUBJECT">Corporation for National and Community Service (Parts 2500—2599)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 46—Shipping</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Coast Guard, Department of Homeland Security (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Maritime Administration, Department of Transportation (Parts 200—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Coast Guard (Great Lakes Pilotage), Department of Homeland Security (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Federal Maritime Commission (Parts 500—599)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 47—Telecommunication</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Federal Communications Commission (Parts 0—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Office of Science and Technology Policy and National Security Council (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">National Telecommunications and Information Administration, Department of Commerce (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">National Telecommunications and Information Administration, Department of Commerce, and National Highway Traffic Safety Administration, Department of Transportation (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">The First Responder Network Authority (Parts 500—599)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO"><?page num="992"?>
<label style="-uslm-sgm:HED">Title 48—Federal Acquisition Regulations System</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">1</designator>
<label style="-uslm-sgm:SUBJECT">Federal Acquisition Regulation (Parts 1—99)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">2</designator>
<label style="-uslm-sgm:SUBJECT">Defense Acquisition Regulations System, Department of Defense (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">3</designator>
<label style="-uslm-sgm:SUBJECT">Department of Health and Human Services (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">4</designator>
<label style="-uslm-sgm:SUBJECT">Department of Agriculture (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">5</designator>
<label style="-uslm-sgm:SUBJECT">General Services Administration (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">6</designator>
<label style="-uslm-sgm:SUBJECT">Department of State (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">7</designator>
<label style="-uslm-sgm:SUBJECT">Agency for International Development (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">8</designator>
<label style="-uslm-sgm:SUBJECT">Department of Veterans Affairs (Parts 800—899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">9</designator>
<label style="-uslm-sgm:SUBJECT">Department of Energy (Parts 900—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">10</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Treasury (Parts 1000—1099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">12</designator>
<label style="-uslm-sgm:SUBJECT">Department of Transportation (Parts 1200—1299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">13</designator>
<label style="-uslm-sgm:SUBJECT">Department of Commerce (Parts 1300—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">14</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Interior (Parts 1400—1499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">15</designator>
<label style="-uslm-sgm:SUBJECT">Environmental Protection Agency (Parts 1500—1599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">16</designator>
<label style="-uslm-sgm:SUBJECT">Office of Personnel Management, Federal Employees Health Benefits Acquisition Regulation (Parts 1600—1699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">17</designator>
<label style="-uslm-sgm:SUBJECT">Office of Personnel Management (Parts 1700—1799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">18</designator>
<label style="-uslm-sgm:SUBJECT">National Aeronautics and Space Administration (Parts 1800—1899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">19</designator>
<label style="-uslm-sgm:SUBJECT">Broadcasting Board of Governors (Parts 1900—1999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">20</designator>
<label style="-uslm-sgm:SUBJECT">Nuclear Regulatory Commission (Parts 2000—2099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">21</designator>
<label style="-uslm-sgm:SUBJECT">Office of Personnel Management, Federal Employees Group Life Insurance Federal Acquisition Regulation (Parts 2100—2199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">23</designator>
<label style="-uslm-sgm:SUBJECT">Social Security Administration (Parts 2300—2399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">24</designator>
<label style="-uslm-sgm:SUBJECT">Department of Housing and Urban Development (Parts 2400—2499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">25</designator>
<label style="-uslm-sgm:SUBJECT">National Science Foundation (Parts 2500—2599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">28</designator>
<label style="-uslm-sgm:SUBJECT">Department of Justice (Parts 2800—2899)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">29</designator>
<label style="-uslm-sgm:SUBJECT">Department of Labor (Parts 2900—2999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">30</designator>
<label style="-uslm-sgm:SUBJECT">Department of Homeland Security, Homeland Security Acquisition Regulation (HSAR) (Parts 3000—3099)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">34</designator>
<label style="-uslm-sgm:SUBJECT">Department of Education Acquisition Regulation (Parts 3400—3499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">51</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Army Acquisition Regulations (Parts 5100—5199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">52</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Navy Acquisition Regulations (Parts 5200—5299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">53</designator>
<label style="-uslm-sgm:SUBJECT">Department of the Air Force Federal Acquisition Regulation Supplement (Parts 5300—5399) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">54</designator>
<label style="-uslm-sgm:SUBJECT">Defense Logistics Agency, Department of Defense (Parts 5400—5499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">57</designator>
<label style="-uslm-sgm:SUBJECT">African Development Foundation (Parts 5700—5799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">61</designator>
<label style="-uslm-sgm:SUBJECT">Civilian Board of Contract Appeals, General Services Administration (Parts 6100—6199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">99</designator>
<label style="-uslm-sgm:SUBJECT">Cost Accounting Standards Board, Office of Federal Procurement Policy, Office of Management and Budget (Parts 9900—9999)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO"><?page num="993"?>
<label style="-uslm-sgm:HED">Title 49—Transportation</label>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle A—</designator>
<label>Office of the Secretary of Transportation (Parts 1—99)</label>
</referenceItem>
<referenceItem style="-uslm-sgm:SUBTITL">
<designator>Subtitle B—</designator>
<label>Other Regulations Relating to Transportation</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">Pipeline and Hazardous Materials Safety Administration, Department of Transportation (Parts 100—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">Federal Railroad Administration, Department of Transportation (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">Federal Motor Carrier Safety Administration, Department of Transportation (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Coast Guard, Department of Homeland Security (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">National Highway Traffic Safety Administration, Department of Transportation (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Federal Transit Administration, Department of Transportation (Parts 600—699)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VII</designator>
<label style="-uslm-sgm:SUBJECT">National Railroad Passenger Corporation (AMTRAK) (Parts 700—799)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VIII</designator>
<label style="-uslm-sgm:SUBJECT">National Transportation Safety Board (Parts 800—999)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">X</designator>
<label style="-uslm-sgm:SUBJECT">Surface Transportation Board (Parts 1000—1399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XI</designator>
<label style="-uslm-sgm:SUBJECT">Research and Innovative Technology Administration, Department of Transportation (Parts 1400—1499) [Reserved]</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">XII</designator>
<label style="-uslm-sgm:SUBJECT">Transportation Security Administration, Department of Homeland Security (Parts 1500—1699)</label>
</referenceItem>
</referenceItem>
<referenceItem role="tocTitleHeader" style="-uslm-sgm:TITLENO">
<label style="-uslm-sgm:HED">Title 50—Wildlife and Fisheries</label>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">I</designator>
<label style="-uslm-sgm:SUBJECT">United States Fish and Wildlife Service, Department of the Interior (Parts 1—199)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">II</designator>
<label style="-uslm-sgm:SUBJECT">National Marine Fisheries Service, National Oceanic and Atmospheric Administration, Department of Commerce (Parts 200—299)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">III</designator>
<label style="-uslm-sgm:SUBJECT">International Fishing and Related Activities (Parts 300—399)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">IV</designator>
<label style="-uslm-sgm:SUBJECT">Joint Regulations (United States Fish and Wildlife Service, Department of the Interior and National Marine Fisheries Service, National Oceanic and Atmospheric Administration, Department of Commerce); Endangered Species Committee Regulations (Parts 400—499)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">V</designator>
<label style="-uslm-sgm:SUBJECT">Marine Mammal Commission (Parts 500—599)</label>
</referenceItem>
<referenceItem>
<designator style="-uslm-sgm:CHAPNO">VI</designator>
<label style="-uslm-sgm:SUBJECT">Fishery Conservation and Management, National Oceanic and Atmospheric Administration, Department of Commerce (Parts 600—699)</label>
</referenceItem>
</referenceItem>
</index>
<index role="alphaListOfAgencies" style="-uslm-sgm:ALPHLIST"><?page num="995"?>
<heading style="-uslm-sgm:HED">Alphabetical List of Agencies Appearing in the CFR</heading>
<subheading style="-uslm-sgm:REV">(Revised as of <date date="2019-01-01">January 1, 2019</date>)</subheading>
<headingItem>
<designator style="-uslm-sgm:AGHD">Agency</designator>
<designator style="-uslm-sgm:CFRHD">CFR Title, Subtitle or Chapter</designator>
</headingItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Administrative Conference of the United States</label>
<target style="-uslm-sgm:CFRID">1, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Advisory Council on Historic Preservation</label>
<target style="-uslm-sgm:CFRID">36, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Advocacy and Outreach, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Afghanistan Reconstruction, Special Inspector General for</label>
<target style="-uslm-sgm:CFRID">5, LXXXIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">African Development Foundation</label>
<target style="-uslm-sgm:CFRID">22, XV</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 57</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Agency for International Development</label>
<target style="-uslm-sgm:CFRID">2, VII; 22, II</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 7</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Agricultural Marketing Service</label>
<target style="-uslm-sgm:CFRID">7, I, IX, X, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Agricultural Research Service</label>
<target style="-uslm-sgm:CFRID">7, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Agriculture, Department of</label>
<target style="-uslm-sgm:CFRID">2, IV; 5, LXXIII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Advocacy and Outreach, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Agricultural Marketing Service</label>
<target style="-uslm-sgm:CFRID">7, I, IX, X, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Agricultural Research Service</label>
<target style="-uslm-sgm:CFRID">7, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Animal and Plant Health Inspection Service</label>
<target style="-uslm-sgm:CFRID">7, III; 9, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Chief Financial Officer, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Commodity Credit Corporation</label>
<target style="-uslm-sgm:CFRID">7, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Economic Research Service</label>
<target style="-uslm-sgm:CFRID">7, XXXVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Energy Policy and New Uses, Office of</label>
<target style="-uslm-sgm:CFRID">2, IX; 7, XXIX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Environmental Quality, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXXI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Farm Service Agency</label>
<target style="-uslm-sgm:CFRID">7, VII, XVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 4</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Crop Insurance Corporation</label>
<target style="-uslm-sgm:CFRID">7, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Food and Nutrition Service</label>
<target style="-uslm-sgm:CFRID">7, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Food Safety and Inspection Service</label>
<target style="-uslm-sgm:CFRID">9, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Foreign Agricultural Service</label>
<target style="-uslm-sgm:CFRID">7, XV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Forest Service</label>
<target style="-uslm-sgm:CFRID">36, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Grain Inspection, Packers and Stockyards Administration</label>
<target style="-uslm-sgm:CFRID">7, VIII; 9, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Information Resources Management, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Inspector General, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Agricultural Library</label>
<target style="-uslm-sgm:CFRID">7, XLI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Agricultural Statistics Service</label>
<target style="-uslm-sgm:CFRID">7, XXXVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Institute of Food and Agriculture</label>
<target style="-uslm-sgm:CFRID">7, XXXIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Natural Resources Conservation Service</label>
<target style="-uslm-sgm:CFRID">7, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Operations, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Procurement and Property Management, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXXII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Rural Business-Cooperative Service</label>
<target style="-uslm-sgm:CFRID">7, XVIII, XLII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Rural Development Administration</label>
<target style="-uslm-sgm:CFRID">7, XLII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Rural Housing Service</label>
<target style="-uslm-sgm:CFRID">7, XVIII, XXXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Rural Telephone Bank</label>
<target style="-uslm-sgm:CFRID">7, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Rural Utilities Service</label>
<target style="-uslm-sgm:CFRID">7, XVII, XVIII, XLII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of Agriculture, Office of</label>
<target style="-uslm-sgm:CFRID">7, Subtitle A</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Transportation, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXXIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">World Agricultural Outlook Board</label>
<target style="-uslm-sgm:CFRID">7, XXXVIII</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Air Force, Department of</label>
<target style="-uslm-sgm:CFRID">32, VII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation Supplement</label>
<target style="-uslm-sgm:CFRID">48, 53</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Air Transportation Stabilization Board</label>
<target style="-uslm-sgm:CFRID">14, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Alcohol and Tobacco Tax and Trade Bureau</label>
<target style="-uslm-sgm:CFRID">27, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Alcohol, Tobacco, Firearms, and Explosives, Bureau of</label>
<target style="-uslm-sgm:CFRID">27, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">AMTRAK</label>
<target style="-uslm-sgm:CFRID">49, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">American Battle Monuments Commission</label>
<target style="-uslm-sgm:CFRID">36, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">American Indians, Office of the Special Trustee</label>
<target style="-uslm-sgm:CFRID">25, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Animal and Plant Health Inspection Service</label>
<target style="-uslm-sgm:CFRID">7, III; 9, I
<?page num="996"?></target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Appalachian Regional Commission</label>
<target style="-uslm-sgm:CFRID">5, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Architectural and Transportation Barriers Compliance Board</label>
<target style="-uslm-sgm:CFRID">36, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Arctic Research Commission</label>
<target style="-uslm-sgm:CFRID">45, XXIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Armed Forces Retirement Home</label>
<target style="-uslm-sgm:CFRID">5, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Army, Department of</label>
<target style="-uslm-sgm:CFRID">32, V</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Engineers, Corps of</label>
<target style="-uslm-sgm:CFRID">33, II; 36, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 51</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Bilingual Education and Minority Languages Affairs, Office of</label>
<target style="-uslm-sgm:CFRID">34, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Blind or Severely Disabled, Committee for Purchase from People Who Are</label>
<target style="-uslm-sgm:CFRID">41, 51</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Broadcasting Board of Governors</label>
<target style="-uslm-sgm:CFRID">22, V</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 19</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Career, Technical, and Adult Education, Office of</label>
<target style="-uslm-sgm:CFRID">34, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Census Bureau</label>
<target style="-uslm-sgm:CFRID">15, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Centers for Medicare &amp; Medicaid Services</label>
<target style="-uslm-sgm:CFRID">42, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Central Intelligence Agency</label>
<target style="-uslm-sgm:CFRID">32, XIX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Chemical Safety and Hazardous Investigation Board</label>
<target style="-uslm-sgm:CFRID">40, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Chief Financial Officer, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Child Support Enforcement, Office of</label>
<target style="-uslm-sgm:CFRID">45, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Children and Families, Administration for</label>
<target style="-uslm-sgm:CFRID">45, II, III, IV, X, XIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Civil Rights, Commission on</label>
<target style="-uslm-sgm:CFRID">5, LXVIII; 45, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Civil Rights, Office for </label>
<target style="-uslm-sgm:CFRID">34, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Council of the Inspectors General on Integrity and Efficiency</label>
<target style="-uslm-sgm:CFRID">5, XCVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Court Services and Offender Supervision Agency for the District of Columbia</label>
<target style="-uslm-sgm:CFRID">5, LXX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Coast Guard</label>
<target style="-uslm-sgm:CFRID">33, I; 46, I; 49, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Coast Guard (Great Lakes Pilotage)</label>
<target style="-uslm-sgm:CFRID">46, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Commerce, Department of</label>
<target style="-uslm-sgm:CFRID">2, XIII; 44, IV; 50, VI</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Census Bureau</label>
<target style="-uslm-sgm:CFRID">15, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Economic Analysis, Bureau of</label>
<target style="-uslm-sgm:CFRID">15, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Economic Development Administration</label>
<target style="-uslm-sgm:CFRID">13, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Emergency Management and Assistance</label>
<target style="-uslm-sgm:CFRID">44, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 13</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Foreign-Trade Zones Board</label>
<target style="-uslm-sgm:CFRID">15, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Industry and Security, Bureau of</label>
<target style="-uslm-sgm:CFRID">15, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">International Trade Administration</label>
<target style="-uslm-sgm:CFRID">15, III; 19, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Institute of Standards and Technology</label>
<target style="-uslm-sgm:CFRID">15, II; 37, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Marine Fisheries Service</label>
<target style="-uslm-sgm:CFRID">50, II, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Oceanic and Atmospheric Administration</label>
<target style="-uslm-sgm:CFRID">15, IX; 50, II, III, IV, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Technical Information Service</label>
<target style="-uslm-sgm:CFRID">15, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Telecommunications and Information Administration</label>
<target style="-uslm-sgm:CFRID">15, XXIII; 47, III, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Weather Service</label>
<target style="-uslm-sgm:CFRID">15, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Patent and Trademark Office, United States</label>
<target style="-uslm-sgm:CFRID">37, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of Commerce, Office of</label>
<target style="-uslm-sgm:CFRID">15, Subtitle A</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Commercial Space Transportation</label>
<target style="-uslm-sgm:CFRID">14, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Commodity Credit Corporation</label>
<target style="-uslm-sgm:CFRID">7, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Commodity Futures Trading Commission</label>
<target style="-uslm-sgm:CFRID">5, XLI; 17, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Community Planning and Development, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, V, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Community Services, Office of</label>
<target style="-uslm-sgm:CFRID">45, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Comptroller of the Currency</label>
<target style="-uslm-sgm:CFRID">12, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Construction Industry Collective Bargaining Commission</label>
<target style="-uslm-sgm:CFRID">29, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Consumer Financial Protection Bureau</label>
<target style="-uslm-sgm:CFRID">5, LXXXIV; 12, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Consumer Product Safety Commission</label>
<target style="-uslm-sgm:CFRID">5, LXXI; 16, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Copyright Royalty Board</label>
<target style="-uslm-sgm:CFRID">37, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Corporation for National and Community Service</label>
<target style="-uslm-sgm:CFRID">2, XXII; 45, XII, XXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Cost Accounting Standards Board</label>
<target style="-uslm-sgm:CFRID">48, 99</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Council on Environmental Quality</label>
<target style="-uslm-sgm:CFRID">40, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Court Services and Offender Supervision Agency for the District of Columbia</label>
<target style="-uslm-sgm:CFRID">5, LXX; 28, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Customs and Border Protection</label>
<target style="-uslm-sgm:CFRID">19, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Defense Contract Audit Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Defense, Department of</label>
<target style="-uslm-sgm:CFRID">2, XI; 5, XXVI; 32, Subtitle A; 40, VII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Advanced Research Projects Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Air Force Department</label>
<target style="-uslm-sgm:CFRID">32, VII
<?page num="997"?></target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Army Department</label>
<target style="-uslm-sgm:CFRID">32, V; 33, II; 36, III; 48, 51</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Defense Acquisition Regulations System</label>
<target style="-uslm-sgm:CFRID">48, 2</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Defense Intelligence Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Defense Logistics Agency</label>
<target style="-uslm-sgm:CFRID">32, I, XII; 48, 54</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Engineers, Corps of</label>
<target style="-uslm-sgm:CFRID">33, II; 36, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Imagery and Mapping Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Navy Department</label>
<target style="-uslm-sgm:CFRID">32, VI; 48, 52</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of Defense, Office of</label>
<target style="-uslm-sgm:CFRID">2, XI; 32, I</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Defense Contract Audit Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Defense Intelligence Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Defense Logistics Agency</label>
<target style="-uslm-sgm:CFRID">32, XII; 48, 54</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Defense Nuclear Facilities Safety Board</label>
<target style="-uslm-sgm:CFRID">10, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Delaware River Basin Commission</label>
<target style="-uslm-sgm:CFRID">18, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Denali Commission</label>
<target style="-uslm-sgm:CFRID">45, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Disability, National Council on </label>
<target style="-uslm-sgm:CFRID">5, C; 34, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">District of Columbia, Court Services and Offender Supervision Agency for the</label>
<target style="-uslm-sgm:CFRID">5, LXX; 28, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Drug Enforcement Administration</label>
<target style="-uslm-sgm:CFRID">21, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">East-West Foreign Trade Board</label>
<target style="-uslm-sgm:CFRID">15, XIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Economic Analysis, Bureau of</label>
<target style="-uslm-sgm:CFRID">15, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Economic Development Administration</label>
<target style="-uslm-sgm:CFRID">13, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Economic Research Service</label>
<target style="-uslm-sgm:CFRID">7, XXXVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Education, Department of</label>
<target style="-uslm-sgm:CFRID">2, XXXIV; 5, LIII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Bilingual Education and Minority Languages Affairs, Office of</label>
<target style="-uslm-sgm:CFRID">34, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Career, Technical, and Adult Education, Office of</label>
<target style="-uslm-sgm:CFRID">34, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Civil Rights, Office for</label>
<target style="-uslm-sgm:CFRID">34, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Educational Research and Improvement, Office of</label>
<target style="-uslm-sgm:CFRID">34, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Elementary and Secondary Education, Office of</label>
<target style="-uslm-sgm:CFRID">34, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 34</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Postsecondary Education, Office of</label>
<target style="-uslm-sgm:CFRID">34, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of Education, Office of</label>
<target style="-uslm-sgm:CFRID">34, Subtitle A</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Special Education and Rehabilitative Services, Office of</label>
<target style="-uslm-sgm:CFRID">34, III</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Educational Research and Improvement, Office of</label>
<target style="-uslm-sgm:CFRID">34, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Election Assistance Commission</label>
<target style="-uslm-sgm:CFRID">2, LVIII; 11, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Elementary and Secondary Education, Office of</label>
<target style="-uslm-sgm:CFRID">34, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Emergency Oil and Gas Guaranteed Loan Board</label>
<target style="-uslm-sgm:CFRID">13, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Emergency Steel Guarantee Loan Board</label>
<target style="-uslm-sgm:CFRID">13, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Employee Benefits Security Administration</label>
<target style="-uslm-sgm:CFRID">29, XXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Employees' Compensation Appeals Board</label>
<target style="-uslm-sgm:CFRID">20, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Employees Loyalty Board</label>
<target style="-uslm-sgm:CFRID">5, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Employment and Training Administration</label>
<target style="-uslm-sgm:CFRID">20, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Employment Policy, National Commission for </label>
<target style="-uslm-sgm:CFRID">1, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Employment Standards Administration</label>
<target style="-uslm-sgm:CFRID">20, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Endangered Species Committee</label>
<target style="-uslm-sgm:CFRID">50, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Energy, Department of</label>
<target style="-uslm-sgm:CFRID">2, IX; 5, XXIII; 10, II, III, X</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 9</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Energy Regulatory Commission</label>
<target style="-uslm-sgm:CFRID">5, XXIV; 18, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Property Management Regulations</label>
<target style="-uslm-sgm:CFRID">41, 109</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Energy, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXIX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Engineers, Corps of</label>
<target style="-uslm-sgm:CFRID">33, II; 36, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Engraving and Printing, Bureau of</label>
<target style="-uslm-sgm:CFRID">31, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Environmental Protection Agency</label>
<target style="-uslm-sgm:CFRID">2, XV; 5, LIV; 40, I, IV, VII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 15</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Property Management Regulations</label>
<target style="-uslm-sgm:CFRID">41, 115</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Environmental Quality, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXXI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Equal Employment Opportunity Commission</label>
<target style="-uslm-sgm:CFRID">5, LXII; 29, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Equal Opportunity, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Executive Office of the President</label>
<target style="-uslm-sgm:CFRID">3, I</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Environmental Quality, Council on</label>
<target style="-uslm-sgm:CFRID">40, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Management and Budget, Office of</label>
<target style="-uslm-sgm:CFRID">2, Subtitle A; 5, III, LXXVII; 14, VI; 48, 99</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Drug Control Policy, Office of</label>
<target style="-uslm-sgm:CFRID">2, XXXVI; 21, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Security Council</label>
<target style="-uslm-sgm:CFRID">32, XXI; 47, 2
<?page num="998"?></target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Presidential Documents</label>
<target style="-uslm-sgm:CFRID">3</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Science and Technology Policy, Office of</label>
<target style="-uslm-sgm:CFRID">32, XXIV; 47, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Trade Representative, Office of the United States</label>
<target style="-uslm-sgm:CFRID">15, XX</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Export-Import Bank of the United States</label>
<target style="-uslm-sgm:CFRID">2, XXXV; 5, LII; 12, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Family Assistance, Office of</label>
<target style="-uslm-sgm:CFRID">45, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Farm Credit Administration</label>
<target style="-uslm-sgm:CFRID">5, XXXI; 12, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Farm Credit System Insurance Corporation</label>
<target style="-uslm-sgm:CFRID">5, XXX; 12, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Farm Service Agency</label>
<target style="-uslm-sgm:CFRID">7, VII, XVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 1</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Aviation Administration</label>
<target style="-uslm-sgm:CFRID">14, I</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Commercial Space Transportation</label>
<target style="-uslm-sgm:CFRID">14, III</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Claims Collection Standards</label>
<target style="-uslm-sgm:CFRID">31, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Communications Commission</label>
<target style="-uslm-sgm:CFRID">5, XXIX; 47, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Contract Compliance Programs, Office of</label>
<target style="-uslm-sgm:CFRID">41, 60</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Crop Insurance Corporation</label>
<target style="-uslm-sgm:CFRID">7, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Deposit Insurance Corporation</label>
<target style="-uslm-sgm:CFRID">5, XXII; 12, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Election Commission</label>
<target style="-uslm-sgm:CFRID">5, XXXVII; 11, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Emergency Management Agency</label>
<target style="-uslm-sgm:CFRID">44, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Employees Group Life Insurance Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 21</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Employees Health Benefits Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 16</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Energy Regulatory Commission</label>
<target style="-uslm-sgm:CFRID">5, XXIV; 18, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Financial Institutions Examination Council</label>
<target style="-uslm-sgm:CFRID">12, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Financing Bank</label>
<target style="-uslm-sgm:CFRID">12, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Highway Administration</label>
<target style="-uslm-sgm:CFRID">23, I, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Home Loan Mortgage Corporation</label>
<target style="-uslm-sgm:CFRID">1, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Housing Enterprise Oversight Office</label>
<target style="-uslm-sgm:CFRID">12, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Housing Finance Agency</label>
<target style="-uslm-sgm:CFRID">5, LXXX; 12, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Housing Finance Board</label>
<target style="-uslm-sgm:CFRID">12, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Labor Relations Authority</label>
<target style="-uslm-sgm:CFRID">5, XIV, XLIX; 22, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Law Enforcement Training Center</label>
<target style="-uslm-sgm:CFRID">31, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Management Regulation</label>
<target style="-uslm-sgm:CFRID">41, 102</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Maritime Commission</label>
<target style="-uslm-sgm:CFRID">46, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Mediation and Conciliation Service</label>
<target style="-uslm-sgm:CFRID">29, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Mine Safety and Health Review Commission</label>
<target style="-uslm-sgm:CFRID">5, LXXIV; 29, XXVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Motor Carrier Safety Administration</label>
<target style="-uslm-sgm:CFRID">49, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Prison Industries, Inc.</label>
<target style="-uslm-sgm:CFRID">28, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Procurement Policy Office</label>
<target style="-uslm-sgm:CFRID">48, 99</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Property Management Regulations</label>
<target style="-uslm-sgm:CFRID">41, 101</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Railroad Administration</label>
<target style="-uslm-sgm:CFRID">49, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Register, Administrative Committee of</label>
<target style="-uslm-sgm:CFRID">1, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Register, Office of</label>
<target style="-uslm-sgm:CFRID">1, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Reserve System</label>
<target style="-uslm-sgm:CFRID">12, II</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Board of Governors</label>
<target style="-uslm-sgm:CFRID">5, LVIII</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Retirement Thrift Investment Board</label>
<target style="-uslm-sgm:CFRID">5, VI, LXXVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Service Impasses Panel</label>
<target style="-uslm-sgm:CFRID">5, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Trade Commission</label>
<target style="-uslm-sgm:CFRID">5, XLVII; 16, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Transit Administration</label>
<target style="-uslm-sgm:CFRID">49, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Federal Travel Regulation System</label>
<target style="-uslm-sgm:CFRID">41, Subtitle F</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Financial Crimes Enforcement Network</label>
<target style="-uslm-sgm:CFRID">31, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Financial Research Office</label>
<target style="-uslm-sgm:CFRID">12, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Financial Stability Oversight Council</label>
<target style="-uslm-sgm:CFRID">12, XIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Fine Arts, Commission of</label>
<target style="-uslm-sgm:CFRID">45, XXI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Fiscal Service</label>
<target style="-uslm-sgm:CFRID">31, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Fish and Wildlife Service, United States</label>
<target style="-uslm-sgm:CFRID">50, I, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Food and Drug Administration</label>
<target style="-uslm-sgm:CFRID">21, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Food and Nutrition Service</label>
<target style="-uslm-sgm:CFRID">7, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Food Safety and Inspection Service</label>
<target style="-uslm-sgm:CFRID">9, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Foreign Agricultural Service</label>
<target style="-uslm-sgm:CFRID">7, XV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Foreign Assets Control, Office of</label>
<target style="-uslm-sgm:CFRID">31, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Foreign Claims Settlement Commission of the United States</label>
<target style="-uslm-sgm:CFRID">45, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Foreign Service Grievance Board</label>
<target style="-uslm-sgm:CFRID">22, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Foreign Service Impasse Disputes Panel</label>
<target style="-uslm-sgm:CFRID">22, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Foreign Service Labor Relations Board</label>
<target style="-uslm-sgm:CFRID">22, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Foreign-Trade Zones Board</label>
<target style="-uslm-sgm:CFRID">15, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Forest Service</label>
<target style="-uslm-sgm:CFRID">36, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">General Services Administration</label>
<target style="-uslm-sgm:CFRID">5, LVII; 41, 105
<?page num="999"?></target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Contract Appeals, Board of</label>
<target style="-uslm-sgm:CFRID">48, 61</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 5</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Management Regulation</label>
<target style="-uslm-sgm:CFRID">41, 102</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Property Management Regulations</label>
<target style="-uslm-sgm:CFRID">41, 101</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Travel Regulation System</label>
<target style="-uslm-sgm:CFRID">41, Subtitle F</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">General</label>
<target style="-uslm-sgm:CFRID">41, 300</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Payment From a Non-Federal Source for Travel Expenses</label>
<target style="-uslm-sgm:CFRID">41, 304</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Payment of Expenses Connected With the Death of Certain Employees</label>
<target style="-uslm-sgm:CFRID">41, 303</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Relocation Allowances</label>
<target style="-uslm-sgm:CFRID">41, 302</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Temporary Duty (TDY) Travel Allowances</label>
<target style="-uslm-sgm:CFRID">41, 301</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Geological Survey</label>
<target style="-uslm-sgm:CFRID">30, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Government Accountability Office</label>
<target style="-uslm-sgm:CFRID">4, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Government Ethics, Office of</label>
<target style="-uslm-sgm:CFRID">5, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Government National Mortgage Association</label>
<target style="-uslm-sgm:CFRID">24, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Grain Inspection, Packers and Stockyards Administration</label>
<target style="-uslm-sgm:CFRID">7, VIII; 9, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Gulf Coast Ecosystem Restoration Council</label>
<target style="-uslm-sgm:CFRID">2, LIX; 40, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Harry S. Truman Scholarship Foundation</label>
<target style="-uslm-sgm:CFRID">45, XVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Health and Human Services, Department of</label>
<target style="-uslm-sgm:CFRID">2, III; 5, XLV; 45, Subtitle A</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Centers for Medicare &amp; Medicaid Services</label>
<target style="-uslm-sgm:CFRID">42, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Child Support Enforcement, Office of</label>
<target style="-uslm-sgm:CFRID">45, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Children and Families, Administration for</label>
<target style="-uslm-sgm:CFRID">45, II, III, IV, X, XIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Community Services, Office of</label>
<target style="-uslm-sgm:CFRID">45, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Family Assistance, Office of</label>
<target style="-uslm-sgm:CFRID">45, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 3</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Food and Drug Administration</label>
<target style="-uslm-sgm:CFRID">21, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Indian Health Service</label>
<target style="-uslm-sgm:CFRID">25, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Inspector General (Health Care), Office of</label>
<target style="-uslm-sgm:CFRID">42, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Public Health Service</label>
<target style="-uslm-sgm:CFRID">42, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Refugee Resettlement, Office of</label>
<target style="-uslm-sgm:CFRID">45, IV</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Homeland Security, Department of</label>
<target style="-uslm-sgm:CFRID">2, XXX; 5, XXXVI; 6, I; 8, I</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Coast Guard</label>
<target style="-uslm-sgm:CFRID">33, I; 46, I; 49, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Coast Guard (Great Lakes Pilotage)</label>
<target style="-uslm-sgm:CFRID">46, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Customs and Border Protection</label>
<target style="-uslm-sgm:CFRID">19, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Emergency Management Agency</label>
<target style="-uslm-sgm:CFRID">44, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Human Resources Management and Labor Relations Systems</label>
<target style="-uslm-sgm:CFRID">5, XCVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Immigration and Customs Enforcement Bureau</label>
<target style="-uslm-sgm:CFRID">19, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Transportation Security Administration</label>
<target style="-uslm-sgm:CFRID">49, XII</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">HOPE for Homeowners Program, Board of Directors of</label>
<target style="-uslm-sgm:CFRID">24, XXIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Housing and Urban Development, Department of</label>
<target style="-uslm-sgm:CFRID">2, XXIV; 5, LXV; 24, Subtitle B </target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Community Planning and Development, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, V, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Equal Opportunity, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 24</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Housing Enterprise Oversight, Office of</label>
<target style="-uslm-sgm:CFRID">12, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Government National Mortgage Association</label>
<target style="-uslm-sgm:CFRID">24, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Housing—Federal Housing Commissioner, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, II, VIII, X, XX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Housing, Office of, and Multifamily Housing Assistance Restructuring, Office of</label>
<target style="-uslm-sgm:CFRID">24, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Inspector General, Office of</label>
<target style="-uslm-sgm:CFRID">24, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Public and Indian Housing, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary, Office of</label>
<target style="-uslm-sgm:CFRID">24, Subtitle A, VII</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Housing—Federal Housing Commissioner, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, II, VIII, X, XX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Housing, Office of, and Multifamily Housing Assistance Restructuring, Office of</label>
<target style="-uslm-sgm:CFRID">24, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Immigration and Customs Enforcement Bureau</label>
<target style="-uslm-sgm:CFRID">19, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Immigration Review, Executive Office for</label>
<target style="-uslm-sgm:CFRID">8, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Independent Counsel, Office of</label>
<target style="-uslm-sgm:CFRID">28, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Independent Counsel, Offices of </label>
<target style="-uslm-sgm:CFRID">28, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Indian Affairs, Bureau of</label>
<target style="-uslm-sgm:CFRID">25, I, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Indian Affairs, Office of the Assistant Secretary</label>
<target style="-uslm-sgm:CFRID">25, VI
<?page num="1000"?></target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Indian Arts and Crafts Board</label>
<target style="-uslm-sgm:CFRID">25, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Indian Health Service</label>
<target style="-uslm-sgm:CFRID">25, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Industry and Security, Bureau of</label>
<target style="-uslm-sgm:CFRID">15, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Information Resources Management, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Information Security Oversight Office, National Archives and Records Administration</label>
<target style="-uslm-sgm:CFRID">32, XX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Inspector General</label>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Agriculture Department</label>
<target style="-uslm-sgm:CFRID">7, XXVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Health and Human Services Department</label>
<target style="-uslm-sgm:CFRID">42, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Housing and Urban Development Department</label>
<target style="-uslm-sgm:CFRID">24, XII, XV</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Institute of Peace, United States</label>
<target style="-uslm-sgm:CFRID">22, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Inter-American Foundation</label>
<target style="-uslm-sgm:CFRID">5, LXIII; 22, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Interior, Department of</label>
<target style="-uslm-sgm:CFRID">2, XIV</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">American Indians, Office of the Special Trustee</label>
<target style="-uslm-sgm:CFRID">25, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Endangered Species Committee</label>
<target style="-uslm-sgm:CFRID">50, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 14</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Property Management Regulations System</label>
<target style="-uslm-sgm:CFRID">41, 114</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Fish and Wildlife Service, United States</label>
<target style="-uslm-sgm:CFRID">50, I, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Geological Survey</label>
<target style="-uslm-sgm:CFRID">30, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Indian Affairs, Bureau of</label>
<target style="-uslm-sgm:CFRID">25, I, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Indian Affairs, Office of the Assistant Secretary</label>
<target style="-uslm-sgm:CFRID">25, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Indian Arts and Crafts Board</label>
<target style="-uslm-sgm:CFRID">25, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Land Management, Bureau of</label>
<target style="-uslm-sgm:CFRID">43, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Indian Gaming Commission</label>
<target style="-uslm-sgm:CFRID">25, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Park Service</label>
<target style="-uslm-sgm:CFRID">36, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Natural Resource Revenue, Office of</label>
<target style="-uslm-sgm:CFRID">30, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Ocean Energy Management, Bureau of</label>
<target style="-uslm-sgm:CFRID">30, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Reclamation, Bureau of</label>
<target style="-uslm-sgm:CFRID">43, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Safety and Enforcement Bureau, Bureau of</label>
<target style="-uslm-sgm:CFRID">30, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of the Interior, Office of</label>
<target style="-uslm-sgm:CFRID">2, XIV; 43, Subtitle A</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Surface Mining Reclamation and Enforcement, Office of</label>
<target style="-uslm-sgm:CFRID">30, VII</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Internal Revenue Service</label>
<target style="-uslm-sgm:CFRID">26, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">International Boundary and Water Commission, United States and Mexico, United States Section</label>
<target style="-uslm-sgm:CFRID">22, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">International Development, United States Agency for</label>
<target style="-uslm-sgm:CFRID">22, II</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 7</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">International Development Cooperation Agency, United States</label>
<target style="-uslm-sgm:CFRID">22, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">International Joint Commission, United States and Canada</label>
<target style="-uslm-sgm:CFRID">22, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">International Organizations Employees Loyalty Board</label>
<target style="-uslm-sgm:CFRID">5, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">International Trade Administration</label>
<target style="-uslm-sgm:CFRID">15, III; 19, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">International Trade Commission, United States</label>
<target style="-uslm-sgm:CFRID">19, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Interstate Commerce Commission</label>
<target style="-uslm-sgm:CFRID">5, XL</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Investment Security, Office of</label>
<target style="-uslm-sgm:CFRID">31, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">James Madison Memorial Fellowship Foundation</label>
<target style="-uslm-sgm:CFRID">45, XXIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Japan–United States Friendship Commission</label>
<target style="-uslm-sgm:CFRID">22, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Joint Board for the Enrollment of Actuaries</label>
<target style="-uslm-sgm:CFRID">20, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Justice, Department of</label>
<target style="-uslm-sgm:CFRID">2, XXVIII; 5, XXVIII; 28, I, XI; 40, IV</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Alcohol, Tobacco, Firearms, and Explosives, Bureau of</label>
<target style="-uslm-sgm:CFRID">27, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Drug Enforcement Administration</label>
<target style="-uslm-sgm:CFRID">21, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 28</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Claims Collection Standards</label>
<target style="-uslm-sgm:CFRID">31, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Prison Industries, Inc.</label>
<target style="-uslm-sgm:CFRID">28, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Foreign Claims Settlement Commission of the United States</label>
<target style="-uslm-sgm:CFRID">45, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Immigration Review, Executive Office for</label>
<target style="-uslm-sgm:CFRID">8, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Independent Counsel, Offices of</label>
<target style="-uslm-sgm:CFRID">28, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Prisons, Bureau of</label>
<target style="-uslm-sgm:CFRID">28, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Property Management Regulations</label>
<target style="-uslm-sgm:CFRID">41, 128</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Labor, Department of</label>
<target style="-uslm-sgm:CFRID">2, XXIX; 5, XLII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Employee Benefits Security Administration</label>
<target style="-uslm-sgm:CFRID">29, XXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Employees' Compensation Appeals Board</label>
<target style="-uslm-sgm:CFRID">20, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Employment and Training Administration</label>
<target style="-uslm-sgm:CFRID">20, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Employment Standards Administration</label>
<target style="-uslm-sgm:CFRID">20, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 29</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Contract Compliance Programs, Office of</label>
<target style="-uslm-sgm:CFRID">41, 60
<?page num="1001"?></target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Procurement Regulations System</label>
<target style="-uslm-sgm:CFRID">41, 50</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Labor-Management Standards, Office of</label>
<target style="-uslm-sgm:CFRID">29, II, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Mine Safety and Health Administration</label>
<target style="-uslm-sgm:CFRID">30, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Occupational Safety and Health Administration</label>
<target style="-uslm-sgm:CFRID">29, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Public Contracts</label>
<target style="-uslm-sgm:CFRID">41, 50</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of Labor, Office of</label>
<target style="-uslm-sgm:CFRID">29, Subtitle A</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Veterans' Employment and Training Service, Office of the Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">41, 61; 20, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Wage and Hour Division</label>
<target style="-uslm-sgm:CFRID">29, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Workers' Compensation Programs, Office of</label>
<target style="-uslm-sgm:CFRID">20, I, VII</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Labor-Management Standards, Office of</label>
<target style="-uslm-sgm:CFRID">29, II, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Land Management, Bureau of</label>
<target style="-uslm-sgm:CFRID">43, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Legal Services Corporation</label>
<target style="-uslm-sgm:CFRID">45, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Libraries and Information Science, National Commission on </label>
<target style="-uslm-sgm:CFRID">45, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Library of Congress</label>
<target style="-uslm-sgm:CFRID">36, VII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Copyright Royalty Board </label>
<target style="-uslm-sgm:CFRID">37, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">U.S. Copyright Office</label>
<target style="-uslm-sgm:CFRID">37, II</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Local Television Loan Guarantee Board</label>
<target style="-uslm-sgm:CFRID">7, XX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Management and Budget, Office of</label>
<target style="-uslm-sgm:CFRID">5, III, LXXVII; 14, VI; 48, 99</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Marine Mammal Commission</label>
<target style="-uslm-sgm:CFRID">50, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Maritime Administration</label>
<target style="-uslm-sgm:CFRID">46, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Merit Systems Protection Board</label>
<target style="-uslm-sgm:CFRID">5, II, LXIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Micronesian Status Negotiations, Office for</label>
<target style="-uslm-sgm:CFRID">32, XXVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Military Compensation and Retirement Modernization Commission</label>
<target style="-uslm-sgm:CFRID">5, XCIX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Millennium Challenge Corporation</label>
<target style="-uslm-sgm:CFRID">22, XIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Mine Safety and Health Administration</label>
<target style="-uslm-sgm:CFRID">30, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Minority Business Development Agency</label>
<target style="-uslm-sgm:CFRID">15, XIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Miscellaneous Agencies</label>
<target style="-uslm-sgm:CFRID">1, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Monetary Offices</label>
<target style="-uslm-sgm:CFRID">31, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Morris K. Udall Scholarship and Excellence in National Environmental Policy Foundation</label>
<target style="-uslm-sgm:CFRID">36, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Museum and Library Services, Institute of</label>
<target style="-uslm-sgm:CFRID">2, XXXI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Aeronautics and Space Administration</label>
<target style="-uslm-sgm:CFRID">2, XVIII; 5, LIX; 14, V</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 18</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Agricultural Library</label>
<target style="-uslm-sgm:CFRID">7, XLI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Agricultural Statistics Service</label>
<target style="-uslm-sgm:CFRID">7, XXXVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National and Community Service, Corporation for</label>
<target style="-uslm-sgm:CFRID">2, XXII; 45, XII, XXV </target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Archives and Records Administration</label>
<target style="-uslm-sgm:CFRID">2, XXVI; 5, LXVI; 36, XII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Information Security Oversight Office</label>
<target style="-uslm-sgm:CFRID">32, XX</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Capital Planning Commission</label>
<target style="-uslm-sgm:CFRID">1, IV, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Counterintelligence Center</label>
<target style="-uslm-sgm:CFRID">32, XVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Credit Union Administration</label>
<target style="-uslm-sgm:CFRID">5, LXXXVI; 12, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Crime Prevention and Privacy Compact Council</label>
<target style="-uslm-sgm:CFRID">28, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Drug Control Policy, Office of</label>
<target style="-uslm-sgm:CFRID">2, XXXVI; 21, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Endowment for the Arts</label>
<target style="-uslm-sgm:CFRID">2, XXXII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Endowment for the Humanities</label>
<target style="-uslm-sgm:CFRID">2, XXXIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Foundation on the Arts and the Humanities</label>
<target style="-uslm-sgm:CFRID">45, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Geospatial-Intelligence Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Highway Traffic Safety Administration</label>
<target style="-uslm-sgm:CFRID">23, II, III; 47, VI; 49, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Imagery and Mapping Agency</label>
<target style="-uslm-sgm:CFRID">32, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Indian Gaming Commission</label>
<target style="-uslm-sgm:CFRID">25, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Institute of Food and Agriculture</label>
<target style="-uslm-sgm:CFRID">7, XXXIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Institute of Standards and Technology</label>
<target style="-uslm-sgm:CFRID">15, II; 37, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Intelligence, Office of Director of</label>
<target style="-uslm-sgm:CFRID">5, IV; 32, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Labor Relations Board</label>
<target style="-uslm-sgm:CFRID">5, LXI; 29, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Marine Fisheries Service</label>
<target style="-uslm-sgm:CFRID">50, II, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Mediation Board</label>
<target style="-uslm-sgm:CFRID">5, CI; 29, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Oceanic and Atmospheric Administration</label>
<target style="-uslm-sgm:CFRID">15, IX; 50, II, III, IV, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Park Service</label>
<target style="-uslm-sgm:CFRID">36, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Railroad Adjustment Board</label>
<target style="-uslm-sgm:CFRID">29, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Railroad Passenger Corporation (AMTRAK)</label>
<target style="-uslm-sgm:CFRID">49, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Science Foundation</label>
<target style="-uslm-sgm:CFRID">2, XXV; 5, XLIII; 45, VI</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 25</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Security Council</label>
<target style="-uslm-sgm:CFRID">32, XXI
<?page num="1002"?></target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Security Council and Office of Science and Technology Policy</label>
<target style="-uslm-sgm:CFRID">47, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Technical Information Service</label>
<target style="-uslm-sgm:CFRID">15, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Telecommunications and Information Administration</label>
<target style="-uslm-sgm:CFRID">15, XXIII; 47, III, IV, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">National Transportation Safety Board</label>
<target style="-uslm-sgm:CFRID">49, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Natural Resources Conservation Service</label>
<target style="-uslm-sgm:CFRID">7, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Natural Resource Revenue, Office of</label>
<target style="-uslm-sgm:CFRID">30, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Navajo and Hopi Indian Relocation, Office of</label>
<target style="-uslm-sgm:CFRID">25, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Navy, Department of</label>
<target style="-uslm-sgm:CFRID">32, VI</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 52</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Neighborhood Reinvestment Corporation</label>
<target style="-uslm-sgm:CFRID">24, XXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Northeast Interstate Low-Level Radioactive Waste Commission</label>
<target style="-uslm-sgm:CFRID">10, XVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Nuclear Regulatory Commission</label>
<target style="-uslm-sgm:CFRID">2, XX; 5, XLVIII; 10, I</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 20</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Occupational Safety and Health Administration</label>
<target style="-uslm-sgm:CFRID">29, XVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Occupational Safety and Health Review Commission</label>
<target style="-uslm-sgm:CFRID">29, XX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Ocean Energy Management, Bureau of</label>
<target style="-uslm-sgm:CFRID">30, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Oklahoma City National Memorial Trust</label>
<target style="-uslm-sgm:CFRID">36, XV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Operations Office</label>
<target style="-uslm-sgm:CFRID">7, XXVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Overseas Private Investment Corporation</label>
<target style="-uslm-sgm:CFRID">5, XXXIII; 22, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Patent and Trademark Office, United States</label>
<target style="-uslm-sgm:CFRID">37, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Payment From a Non-Federal Source for Travel Expenses</label>
<target style="-uslm-sgm:CFRID">41, 304</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Payment of Expenses Connected With the Death of Certain Employees</label>
<target style="-uslm-sgm:CFRID">41, 303</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Peace Corps</label>
<target style="-uslm-sgm:CFRID">2, XXXVII; 22, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Pennsylvania Avenue Development Corporation</label>
<target style="-uslm-sgm:CFRID">36, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Pension Benefit Guaranty Corporation</label>
<target style="-uslm-sgm:CFRID">29, XL</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Personnel Management, Office of</label>
<target style="-uslm-sgm:CFRID">5, I, XXXV; 5, IV; 45, VIII</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Human Resources Management and Labor Relations Systems, Department of Homeland Security</label>
<target style="-uslm-sgm:CFRID">5, XCVII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 17</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Employees Group Life Insurance Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 21</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Employees Health Benefits Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 16</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Pipeline and Hazardous Materials Safety Administration</label>
<target style="-uslm-sgm:CFRID">49, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Postal Regulatory Commission</label>
<target style="-uslm-sgm:CFRID">5, XLVI; 39, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Postal Service, United States</label>
<target style="-uslm-sgm:CFRID">5, LX; 39, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Postsecondary Education, Office of</label>
<target style="-uslm-sgm:CFRID">34, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">President's Commission on White House Fellowships</label>
<target style="-uslm-sgm:CFRID">1, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Presidential Documents</label>
<target style="-uslm-sgm:CFRID">3</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Presidio Trust</label>
<target style="-uslm-sgm:CFRID">36, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Prisons, Bureau of</label>
<target style="-uslm-sgm:CFRID">28, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Privacy and Civil Liberties Oversight Board</label>
<target style="-uslm-sgm:CFRID">6, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Procurement and Property Management, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXXII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Public Contracts, Department of Labor</label>
<target style="-uslm-sgm:CFRID">41, 50</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Public and Indian Housing, Office of Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">24, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Public Health Service</label>
<target style="-uslm-sgm:CFRID">42, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Railroad Retirement Board</label>
<target style="-uslm-sgm:CFRID">20, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Reclamation, Bureau of</label>
<target style="-uslm-sgm:CFRID">43, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Refugee Resettlement, Office of</label>
<target style="-uslm-sgm:CFRID">45, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Relocation Allowances</label>
<target style="-uslm-sgm:CFRID">41, 302</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Research and Innovative Technology Administration</label>
<target style="-uslm-sgm:CFRID">49, XI </target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Rural Business-Cooperative Service</label>
<target style="-uslm-sgm:CFRID">7, XVIII, XLII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Rural Development Administration</label>
<target style="-uslm-sgm:CFRID">7, XLII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Rural Housing Service</label>
<target style="-uslm-sgm:CFRID">7, XVIII, XXXV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Rural Telephone Bank</label>
<target style="-uslm-sgm:CFRID">7, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Rural Utilities Service</label>
<target style="-uslm-sgm:CFRID">7, XVII, XVIII, XLII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Safety and Environmental Enforcement, Bureau of</label>
<target style="-uslm-sgm:CFRID">30, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Saint Lawrence Seaway Development Corporation</label>
<target style="-uslm-sgm:CFRID">33, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Science and Technology Policy, Office of</label>
<target style="-uslm-sgm:CFRID">32, XXIV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Science and Technology Policy, Office of, and National Security Council</label>
<target style="-uslm-sgm:CFRID">47, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Secret Service</label>
<target style="-uslm-sgm:CFRID">31, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Securities and Exchange Commission</label>
<target style="-uslm-sgm:CFRID">5, XXXIV; 17, II
<?page num="1003"?></target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Selective Service System</label>
<target style="-uslm-sgm:CFRID">32, XVI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Small Business Administration</label>
<target style="-uslm-sgm:CFRID">2, XXVII; 13, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Smithsonian Institution</label>
<target style="-uslm-sgm:CFRID">36, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Social Security Administration</label>
<target style="-uslm-sgm:CFRID">2, XXIII; 20, III; 48, 23</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Soldiers' and Airmen's Home, United States</label>
<target style="-uslm-sgm:CFRID">5, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Special Counsel, Office of</label>
<target style="-uslm-sgm:CFRID">5, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Special Education and Rehabilitative Services, Office of</label>
<target style="-uslm-sgm:CFRID">34, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">State, Department of</label>
<target style="-uslm-sgm:CFRID">2, VI; 22, I; 28, XI</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 6</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Surface Mining Reclamation and Enforcement, Office of</label>
<target style="-uslm-sgm:CFRID">30, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Surface Transportation Board</label>
<target style="-uslm-sgm:CFRID">49, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Susquehanna River Basin Commission</label>
<target style="-uslm-sgm:CFRID">18, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Tennessee Valley Authority</label>
<target style="-uslm-sgm:CFRID">5, LXIX; 18, XIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Trade Representative, United States, Office of</label>
<target style="-uslm-sgm:CFRID">15, XX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Transportation, Department of</label>
<target style="-uslm-sgm:CFRID">2, XII; 5, L</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Commercial Space Transportation</label>
<target style="-uslm-sgm:CFRID">14, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Emergency Management and Assistance</label>
<target style="-uslm-sgm:CFRID">44, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 12</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Aviation Administration</label>
<target style="-uslm-sgm:CFRID">14, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Highway Administration</label>
<target style="-uslm-sgm:CFRID">23, I, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Motor Carrier Safety Administration</label>
<target style="-uslm-sgm:CFRID">49, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Railroad Administration</label>
<target style="-uslm-sgm:CFRID">49, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Transit Administration</label>
<target style="-uslm-sgm:CFRID">49, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Maritime Administration</label>
<target style="-uslm-sgm:CFRID">46, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">National Highway Traffic Safety Administration</label>
<target style="-uslm-sgm:CFRID">23, II, III; 47, IV; 49, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Pipeline and Hazardous Materials Safety Administration</label>
<target style="-uslm-sgm:CFRID">49, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Saint Lawrence Seaway Development Corporation</label>
<target style="-uslm-sgm:CFRID">33, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of Transportation, Office of</label>
<target style="-uslm-sgm:CFRID">14, II; 49, Subtitle A</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Transportation Statistics Bureau</label>
<target style="-uslm-sgm:CFRID">49, XI</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Transportation, Office of</label>
<target style="-uslm-sgm:CFRID">7, XXXIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Transportation Security Administration</label>
<target style="-uslm-sgm:CFRID">49, XII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Transportation Statistics Bureau</label>
<target style="-uslm-sgm:CFRID">49, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Travel Allowances, Temporary Duty (TDY)</label>
<target style="-uslm-sgm:CFRID">41, 301</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Treasury, Department of the</label>
<target style="-uslm-sgm:CFRID">2, X;5, XXI; 12, XV; 17, IV; 31, IX</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Alcohol and Tobacco Tax and Trade Bureau</label>
<target style="-uslm-sgm:CFRID">27, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Community Development Financial Institutions Fund</label>
<target style="-uslm-sgm:CFRID">12, XVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Comptroller of the Currency</label>
<target style="-uslm-sgm:CFRID">12, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Customs and Border Protection</label>
<target style="-uslm-sgm:CFRID">19, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Engraving and Printing, Bureau of</label>
<target style="-uslm-sgm:CFRID">31, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 10</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Claims Collection Standards</label>
<target style="-uslm-sgm:CFRID">31, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Law Enforcement Training Center</label>
<target style="-uslm-sgm:CFRID">31, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Financial Crimes Enforcement Network</label>
<target style="-uslm-sgm:CFRID">31, X</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Fiscal Service</label>
<target style="-uslm-sgm:CFRID">31, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Foreign Assets Control, Office of</label>
<target style="-uslm-sgm:CFRID">31, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Internal Revenue Service</label>
<target style="-uslm-sgm:CFRID">26, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Investment Security, Office of</label>
<target style="-uslm-sgm:CFRID">31, VIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Monetary Offices</label>
<target style="-uslm-sgm:CFRID">31, I</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secret Service</label>
<target style="-uslm-sgm:CFRID">31, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Secretary of the Treasury, Office of</label>
<target style="-uslm-sgm:CFRID">31, Subtitle A</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Truman, Harry S. Scholarship Foundation</label>
<target style="-uslm-sgm:CFRID">45, XVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">United States and Canada, International Joint Commission</label>
<target style="-uslm-sgm:CFRID">22, IV</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">United States and Mexico, International Boundary and Water Commission, United States Section</label>
<target style="-uslm-sgm:CFRID">22, XI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">U.S. Copyright Office</label>
<target style="-uslm-sgm:CFRID">37, II</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Utah Reclamation Mitigation and Conservation Commission</label>
<target style="-uslm-sgm:CFRID">43, III</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Veterans Affairs, Department of</label>
<target style="-uslm-sgm:CFRID">2, VIII; 38, I</target>
<referenceItem>
<label style="-uslm-sgm:SUBAGCY">Federal Acquisition Regulation</label>
<target style="-uslm-sgm:CFRID">48, 8</target>
</referenceItem>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Veterans' Employment and Training Service, Office of the Assistant Secretary for</label>
<target style="-uslm-sgm:CFRID">41, 61; 20, IX</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Vice President of the United States, Office of</label>
<target style="-uslm-sgm:CFRID">32, XXVIII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Wage and Hour Division</label>
<target style="-uslm-sgm:CFRID">29, V</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Water Resources Council</label>
<target style="-uslm-sgm:CFRID">18, VI</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">Workers' Compensation Programs, Office of</label>
<target style="-uslm-sgm:CFRID">20, I, VII</target>
</referenceItem>
<referenceItem>
<label style="-uslm-sgm:AGENCY">World Agricultural Outlook Board</label>
<target style="-uslm-sgm:CFRID">7, XXXVIII
</target>
</referenceItem>
</index>
<content style="-uslm-sgm:LSA">
<leftRunningHead style="-uslm-sgm:LRH">12 CFR (1–1–19 Edition) </leftRunningHead>
<rightRunningHead style="-uslm-sgm:RRH">List of CFR Sections Affected</rightRunningHead>
<?page num="1005"?>
<heading style="-uslm-sgm:HED">List of CFR Sections Affected </heading>
<p style="-uslm-sgm:P">All changes in this volume of the Code of Federal Regulations (CFR) that were made by documents published in the <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> since <date date="2014-01-01">January 1, 2014</date> are enumerated in the following list. Entries indicate the nature of the changes effected. Page numbers refer to <inline style="-uslm-sgm:E" class="-gpo-grid-0-4">Federal Register</inline> pages. The user should consult the entries for chapters, parts and subparts as well as sections for revisions.</p>
<p style="-uslm-sgm:P">For changes to this volume of the CFR prior to this listing, consult the annual edition of the monthly List of CFR Sections Affected (LSA). The LSA is available at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.govinfo.gov.</inline> For changes to this volume of the CFR prior to 2001, see the “List of CFR Sections Affected, 1949–1963, 1964–1972, 1973–1985, and 1986–2000” published in 11 separate volumes. The “List of CFR Sections Affected 1986–2000” is available at <inline style="-uslm-sgm:E" class="-gpo-grid-0-3">www.govinfo.gov.</inline>
</p>
<index role="listOfCFRSectionsAffected">
<groupItem role="year" style="-uslm-sgm:PUBYEAR">
<label style="-uslm-sgm:YEAR">2014</label>
<designator style="-uslm-sgm:CFRNO">12 CFR</designator>
<target style="-uslm-sgm:VOLHD">79 FR</target>
<referenceItem>
<target style="-uslm-sgm:PGHD">Page</target>
<designator style="-uslm-sgm:CHAPNO">Chapter II</designator>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>222.90</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(5) revised</label>
<target style="-uslm-sgm:PG">30711</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>222</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Appendix J amended</label>
<target style="-uslm-sgm:PG">30711</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Authority citation revised</label>
<target style="-uslm-sgm:PG">64040</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.8</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised</label>
<target style="-uslm-sgm:PG">13502</target>
</referenceItem>
<referenceItem style="-uslm-sgm:REV">
<label>Revised; eff. in part 4-1-15</label>
<target style="-uslm-sgm:PG">64040</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Appendix F amended</label>
<target style="-uslm-sgm:PG">37167</target>
</referenceItem>
<referenceItem style="-uslm-sgm:REV">
<label>Appendix A regulation at <ref href="/us/fr/78/62291">78 FR 62291</ref> withdrawn</label>
<target style="-uslm-sgm:PG">64045</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>226.9</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (c)(2)(v)(D) correctly amended; CFR correction</label>
<target style="-uslm-sgm:PG">43232</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>226</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Supplement I amended</label>
<target style="-uslm-sgm:PG">56484, 78298</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.12</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (u)(1) revised</label>
<target style="-uslm-sgm:PG">77854
</target>
</referenceItem>
</referenceItem>
</groupItem>
<groupItem role="year" style="-uslm-sgm:PUBYEAR">
<label style="-uslm-sgm:YEAR">2015</label>
<designator style="-uslm-sgm:CFRNO">12 CFR</designator>
<target style="-uslm-sgm:VOLHD">80 FR</target>
<referenceItem>
<target style="-uslm-sgm:PGHD">Page</target>
<designator style="-uslm-sgm:CHAPNO">Chapter II</designator>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Authority citation revised</label>
<target style="-uslm-sgm:PG">32681, 75424</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.2</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (r) footnote 2 revised</label>
<target style="-uslm-sgm:PG">20157</target>
</referenceItem>
<referenceItem style="-uslm-sgm:REV">
<label>(r)(1) footnotes 3 and 4 correctly removed</label>
<target style="-uslm-sgm:PG">70673</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.4</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(2)(iii) revised</label>
<target style="-uslm-sgm:PG">20157</target>
</referenceItem>
<referenceItem style="-uslm-sgm:REV">
<label>Footnote 1 correctly removed</label>
<target style="-uslm-sgm:PG">70673</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.8</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (c)(3), (d)(8), (11), (e)(2)(ii)(A), (f)(1)(i)(C), (2)(ii)(C) an d(g)(1)(i) revised; (d)(12), (13) and (e)(2)(i)(B) removed; (d)(14) redesignated as (d)(12)</label>
<target style="-uslm-sgm:PG">75424</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.12</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Footnote 1 correctly removed; Footnote 2 correctly redesignated as Footnote 1</label>
<target style="-uslm-sgm:PG">70673</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.14</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(1)(v) revised</label>
<target style="-uslm-sgm:PG">20157</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.17</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(6) footnote 6 revised</label>
<target style="-uslm-sgm:PG">20157</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.22</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Footnote 1 correctly removed</label>
<target style="-uslm-sgm:PG">70673</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.23</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(1)(iii) revised</label>
<target style="-uslm-sgm:PG">20157</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.172</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Footnote 1 correctly removed</label>
<target style="-uslm-sgm:PG">70673</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.190—225.196 (Subpart M)</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Added</label>
<target style="-uslm-sgm:PG">32681</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Appendix C amended</label>
<target style="-uslm-sgm:PG">20158</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>226</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Supplement I amended</label>
<target style="-uslm-sgm:PG">73945, 73948</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.12</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (h)(2)(i), (j)(2) and (l) amended; (u)(1) revised</label>
<target style="-uslm-sgm:PG">81164</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.42</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(3), (d) and (i) amended</label>
<target style="-uslm-sgm:PG">81164</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.43</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(2) amended</label>
<target style="-uslm-sgm:PG">81164
</target>
</referenceItem>
</referenceItem>
</groupItem>
<groupItem role="year" style="-uslm-sgm:PUBYEAR">
<label style="-uslm-sgm:YEAR">2016</label>
<designator style="-uslm-sgm:CFRNO">12 CFR</designator>
<target style="-uslm-sgm:VOLHD">81 FR</target>
<referenceItem>
<target style="-uslm-sgm:PGHD">Page
</target>
<designator style="-uslm-sgm:CHAPNO">Chapter II</designator>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Policy statement</label>
<target style="-uslm-sgm:PG">75315</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>226</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Supplement I amended</label>
<target style="-uslm-sgm:PG">86254, 86263</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>227</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Removed</label>
<target style="-uslm-sgm:PG">8134</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Policy statement</label>
<target style="-uslm-sgm:PG">48506
</target>
</referenceItem>
</referenceItem>
</groupItem>
<groupItem role="year" style="-uslm-sgm:PUBYEAR"><?page num="1006"?>
<label style="-uslm-sgm:YEAR">2017</label>
<designator style="-uslm-sgm:CFRNO">12 CFR</designator>
<target style="-uslm-sgm:VOLHD">82 FR</target>
<referenceItem>
<target style="-uslm-sgm:PGHD">Page</target>
<designator style="-uslm-sgm:CHAPNO">Chapter II
</designator>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Policy statement</label>
<target style="-uslm-sgm:PG">49089</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.8</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised</label>
<target style="-uslm-sgm:PG">9323</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>226</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Supplement I amended</label>
<target style="-uslm-sgm:PG">51975, 51979</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Authority citation revised</label>
<target style="-uslm-sgm:PG">61145</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.12</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (u)(1) revised</label>
<target style="-uslm-sgm:PG">5356</target>
</referenceItem>
<referenceItem style="-uslm-sgm:REV">
<label>(g)(3), (4)(iii)(B), (h)(2)(i) and (l) amended; (g)(5) and (j)(3) removed; (j)(4) and (5) redesignated as new (j)(3) and (4)</label>
<target style="-uslm-sgm:PG">55743</target>
</referenceItem>
<referenceItem style="-uslm-sgm:REV">
<label>(u)(1) revised</label>
<target style="-uslm-sgm:PG">61145</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.22</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(1) amended</label>
<target style="-uslm-sgm:PG">55743</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.42</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (c)(1) introductory text amended</label>
<target style="-uslm-sgm:PG">55743</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.43</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(2) revised</label>
<target style="-uslm-sgm:PG">55743</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.1</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(3) revised; (5) through (10) added; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27578</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.2</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (dd), (uu), (vv) and (bbb) revised; (ggg) and (hhh) added; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27578</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.30</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27579</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.31</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27579</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.32</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27580</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.33</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27580</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.34</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27581</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.35</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a) and (d) revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27582</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.36</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27583</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.38</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b), (c) and (d) revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27583</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.39</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27583</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.40</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27584</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.42</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27584</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.43</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(2) and (b) revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27584</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.51</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(2) and (3) revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27584</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.52</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a) revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27584</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.53</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a) revised; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27585</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Appendix D removed; appendix E amended; eff. 7-1-18</label>
<target style="-uslm-sgm:PG">27585
</target>
</referenceItem>
</referenceItem>
</groupItem>
<groupItem role="year" style="-uslm-sgm:PUBYEAR">
<label style="-uslm-sgm:YEAR">2018</label>
<designator style="-uslm-sgm:CFRNO">12 CFR</designator>
<target style="-uslm-sgm:VOLHD">83 FR</target>
<referenceItem>
<target style="-uslm-sgm:PGHD">Page</target>
<designator style="-uslm-sgm:CHAPNO">Chapter II
</designator>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.2</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (r) Footnote 2 revised; interim</label>
<target style="-uslm-sgm:PG">44198</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.4</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(2)(iii) revised; interim</label>
<target style="-uslm-sgm:PG">44198</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.14</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(1)(v) revised; interim</label>
<target style="-uslm-sgm:PG">44199</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.17</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(6) Footnote 6 revised; interim</label>
<target style="-uslm-sgm:PG">44199</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.23</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(1)(iii) revised; interim</label>
<target style="-uslm-sgm:PG">44199</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.62</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (e) through (m) redesignated as (f) through (n); new (e) added</label>
<target style="-uslm-sgm:PG">15035</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225.63</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (a)(12) amended; (a)(13), (b), and (d)(2) revised; (a)(14) added</label>
<target style="-uslm-sgm:PG">15035</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>225</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Appendix C amended; interim</label>
<target style="-uslm-sgm:PG">44199</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>226.43</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (b)(2) amended; CFR correction</label>
<target style="-uslm-sgm:PG">40659</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>226</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Supplement I amended</label>
<target style="-uslm-sgm:PG">59274, 59278</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Technical correction</label>
<target style="-uslm-sgm:PG">15298</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>228.12</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (u)(1) revised</label>
<target style="-uslm-sgm:PG">66603</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229.38</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> (i) added</label>
<target style="-uslm-sgm:PG">46853</target>
</referenceItem>
</referenceItem>
<referenceItem style="-uslm-sgm:ENTRY">
<designator>229</designator>
<referenceItem style="-uslm-sgm:ENTRY">
<label> Appendix E amended</label>
<target style="-uslm-sgm:PG">46853
</target>
</referenceItem>
</referenceItem>
</groupItem>
</index>
</content>
</backMatter>
<endMarker />
</cfrDoc>
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