PART 226—TRUTH IN LENDING (REGULATION Z) 6500 – Consumer Protection
226.1 Authority, purpose, coverage, organization, enforcement and liability.
226.2 Definitions and rules of construction.
226.3 Exempt transactions.
226.4 Finance charge.
Subpart B—Open-End Credit
226.5 General disclosure requirements.
226.5a Credit and charge card applications and solicitations.
226.5b Requirements for home equity plans.
226.6 Initial disclosure statement.
226.7 Periodic statement.
226.8 Identification of transactions.
226.9 Subsequent disclosure requirements.
226.10 Prompt crediting of payments.
226.11 Treatment of credit balances.
226.12 Special credit card provisions.
226.13 Billing error resolution.
226.14 Determination of annual percentage rate.
226.15 Right of rescission.
226.16 Advertising.
Subpart C—Closed-End Credit
226.17 General disclosure requirements.
226.18 Content of disclosures.
226.19 Certain residential mortgage and variable-rate transactions.
226.20 Subsequent disclosure requirements.
226.21 Treatment of credit balances.
226.22 Determination of annual percentage rate.
226.23 Right of rescission.
226.24 Advertising.
Subpart D—Miscellaneous
226.25 Record retention.
226.26 Use of annual percentage rate in oral disclosures.
226.27 Spanish language disclosures.
226.28 Effect on state laws.
226.29 State exemptions.
226.30 Limitation on rates.
Subpart E—Special Rules for Certain Home Mortgage Transactions
226.31 General rules.
226.32 Requirements for certain closed-end home mortgages.
226.33 Requirements for reverse mortgages.
226.34 Prohibited acts or practices in connection with credit secured by a consumer’s dwelling.
226.35 Prohibited acts or practices in connection with higher-priced mortgage loans
226.36 Prohibited acts or practices in connection with credit secured by a consumer’s principal dwelling.
Subpart F—Subpart F—Special Rules for Private Education Loans
226.46 Special disclosure requirements for private education loans.
226.47 Content of disclosures.
226.48 Limitations on private education loans.
Subpart F—Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students
§226.51 Ability to Pay.
§226.52 Limitations on fees.
§226.53 Allocation of payments.
§226.54 Limitations on the imposition of finance charges.
§226.55 Limitations on increasing annual percentage rates, fees, and charges.
§226.56 Requirements for over-the-limit transactions.
§226.57 Reporting and marketing rules for college student open-end credit.
§226.58 Internet posting of credit card agreements.
Appendix A—Effect on state laws.
Appendix B—State exemptions.
Appendix C—Issuance of staff interpretations.
Appendix D—Multiple advance construction loans.
Appendix E—Rules for card issuers that bill on a transaction-by-transaction basis.
Appendix F—Annual percentage rate computations for certain open-end credit plans.
Appendix G—Open-end model forms and clauses.
Appendix H—Closed-end model forms and clauses.
Appendix I—Federal enforcement agencies.
Appendix J—Annual percentage rate computations for closed-end credit transactions.
Appendix K—Total annual loan cost rate computations for reverse mortgage transactions.
Appendix L—Assumed loan periods for computations of total annual loan cost rates.
AUTHORITY: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5) and 1639(1).
SOURCE: The provisions of this Part 226 appear at 46 Fed. Reg. 20892, April 7, 1981, effective October 1, 1982, and 58 Fed. Reg. 50512, September 28, 1993, except as otherwise provided.
Subpart A—General
§ 226.1 Authority, purpose, coverage, organization, enforcement and liability.
(b) Purpose. The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. The regulation does not govern charges for consumer credit. The regulation requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer’s dwelling. It also imposes limitations on home-equity plans that are subject to the requirements of § 226.5b and mortgages that are subject to the requirements of § 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer’s principal dwelling. The regulation also regulates certain practices of creditors who extend private education loans as defined in § 226.46(b)(5).
(c) Coverage. (1) In general, this regulation applies to each individual or business that offers or extends credit when four conditions are met: (i) the credit is offered or extended to consumers; (ii) the offering or extension of credit is done regularly;1 (iii) the credit is subject to a finance charge or is payable by a written agreement in more than 4 installments; and (iv) the credit is primarily for personal, family, or household purposes.
(d) Organization. The regulation is divided into subparts and appendices as follows:
(2) Subpart B contains the rules for open-end credit. It requires that initial disclosures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and solicitations and for home equity plans subject to the requirements of §§ 226.5a and 226.5b, respectively. It also describes special rules that apply to credit card transactions, treatment of payments and credit balances, procedures for resolving credit billing errors, annual percentage rate calculations, rescission requirements, and advertising rules.
[Codified to 12 C.F.R. § 226.1]
[Section 226.1 amended at 49 Fed. Reg. 46991, November 30, 1984, effective December 31, 1984; 52 Fed. Reg. 43181, November 9, 1987, effective December 9, 1987; 54 Fed. Reg. 13865, April 6, 1989, effective April 3, 1989, but compliance is optional until August 31, 1989; 54 Fed. Reg. 24686, June 9, 1989, effective June 7, 1989, but compliance is optional until November 7, 1989; 60 Fed. Reg. 15471, March 24, 1995, effective March 22, 1995, compliance is optional until October 1, 1995; 66 Fed. Reg. 65617, December 20, 2001, effective December 20, 2001, but compliance is mandatory as of October 1, 2002; 73 Fed. Reg 44599, July 30, 2008, effective October 1, 2009; 74 Fed. Reg. 41231 August 14, 2009, effective September 14, 2009, compliance date February 14, 2010]
§ 226.2 Definitions and rules of construction.
(a) Definitions. For purposes of this regulation, the following definitions apply:
(1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq. ).
(5) Board means the Board of Governors of the Federal Reserve System.
(6) “Business day” means a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under §§ 226.15 and 226.23, and for purposes of § 226.19(a)(1)(ii), § 226.19(a)(2), and § 226.31, and § 226.46(d)(4), the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, the birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
(14) Credit means the right to defer payment of debt or to incur debt and defer its payment.
(i) A person (A) who regularly extends consumer credit3 that is subject to a finance charge or is payable by written agreement in more than four installments (not including a downpayment), and (B) to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.
(ii) For purposes of §§ 226.4(c)(8) (discounts), 226.9(d) (Finance charge imposed at time of transaction), and 226.12(e) (Prompt notification of returns and crediting of refunds), a person that honors a credit card.
(iii) For purposes of subpart B, any card issuer that extends either open-end credit or credit that is not subject to a finance charge and is not payable by written agreement in more than four installments.
(iv) For purposes of subpart B (except for the credit and charge card disclosures contained in §§ 226.5a and 226.9(e) and (f), the finance charge disclosures contained in §§ 226.6(a) and 226.7(d) through (g) and the right of rescission set forth in § 226.15) and subpart C, any card issuer that extends closed-end credit that is subject to a finance charge or is payable by written agreement in more than four installments.
(18) Downpayment means an amount, including the value of any property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction. A deferred portion of a downpayment may be treated as part of the downpayment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to a finance charge.
(19) Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
(20) Open-end credit means consumer credit extended by a creditor under a plan in which:
(i) The creditor reasonably contemplates repeated transactions;
(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and
(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.
(21) Periodic rate means a rate of finance charge that is or may be imposed by a creditor on a balance for a day, week, month, or other subdivision of a year.
(22) Person means a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust, or government unit.
(23) Prepaid finance charge means any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time.
(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.
(25) Security interest means an interest in property that secures performance of a consumer credit obligation and that is recognized by state or federal law. It does not include incidental interests such as interests in proceeds, accessions, additions, fixtures, insurance proceeds (whether or not the creditor is a loss payee or beneficiary), premium rebates, or interests in after-acquired property. For purposes of disclosure under §§ 226.6 and 226.18, the term does not include an interest that arises solely by operation of law. However, for purposes of the right of rescission under §§ 226.15 and 226.23, the term does include interests that arise solely by operation of law.
(26) State means any state, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States.
(b) Rules of construction. For purposes of this regulation, the following rules of construction apply:
(1) Where appropriate, the singular form of a word includes the plural form and plural includes singular.
(2) Where the words “obligation” and “transaction” are used in this regulation, they refer to a consumer credit obligation or transaction, depending upon the context. Where the word “credit” is used in this regulation, it means “consumer credit” unless the context clearly indicates otherwise.
(3) Unless defined in this regulation, the words used have the meanings given to them by state law or contract.
(4) Footnotes have the same legal effect as the text of the regulation.
(5) Where the word “amount” is used in this regulation to describe disclosure requirements, it refers to a numerical amount.
[Codified to 12 C.F.R. § 226.2]
[Section 226.2 amended at 46 Fed. Reg. 29246, June 1, 1981; 47 Fed. Reg. 7392, February 19, 1982; 48 Fed. Reg. 14886, April 6, 1983, effective October 1, 1982; 54 Fed. Reg. 13865, April 6, 1989, effective April 3, 1989, but compliance is optional until August 31, 1989; 60 Fed. Reg. 15471, March 24, 1995, effective March 22, 1995, compliance is optional until October 1, 1995; 61 Fed. Reg. 49245, September 19, 1996, effective October 21, 1996; 69 Fed. Reg. 16773, March 31, 2004; 73 Fed Reg. 44599, July 30, 2008, effective October 1, 2009; 74 Fed. Reg. 23300, May 19, 2009, effective, July 30, 2009, the amendments to §§ 226.2(a)(6), 226.17(b) and (f), and 226.19(a)(1); and amendments 13, 14, 16, and 17 to Supplement I to part 226, published on July 30, 2008 (73 FR 44522), previously to become effective on October 1, 2009, are now effective July 30, 2009; 74 Fed. Reg. 41232, August 14, 2009, effective September 14, 2009, compliance date September 14, 2010]
This regulation does not apply to the following:
(a) Business, commercial, agricultural, or organizational credit.4 (1) An extension of credit primarily for a business, commercial or agricultural purpose.
(2) A private education loan as defined in § 226.46(b)(5).
[Codified to 12 C.F.R. § 226.3]
[Section 226.3 amended at 48 Fed. Reg. 14886, April 6, 1983, effective October 1, 1982; 74 Fed. Reg. 41232, August 14, 2009, effective September 14, 2009, compliance date September 14, 2010]
(ii) retains a portion of the third-party charge, to the extent of the portion retained.
(i) Requires the particular services for which the consumer is charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party charge, to the extent of the portion retained.
(b) Example of finance charge. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:
(3) Points, loan fees, assumption fees, finder’s fees, and similar charges.
(4) Appraisal, investigation, and credit report fees.
(9) Discounts for the purpose of inducing payment by a means other than the use of credit.
(c) Charges excluded from the finance charge. The following charges are not finance charges:
(iii) Notary, and credit report fees.
(d) Insurance and debt cancellation coverage. (1) Voluntary credit. Premiums for credit life, accident, health, or loss-of-income insurance may be excluded from the finance charge if the following conditions are met:
(i) The insurance coverage is not required by the creditor, and this fact is disclosed in writing.
(ii) The premium for the initial term of insurance coverage is disclosed. If the term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(iii) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph. Any consumer in the transaction may sign or initial the request.
(2) Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property,5 may be excluded from the finance charge if the following conditions are met:
(i) The insurance coverage may be obtained from a person of the consumer’s choice,6 and this fact is disclosed.
(ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(3) Voluntary debt cancellation fees. (i) Charges or premiums paid for debt cancellation coverage of the type specified in paragraph (d)(3)(ii) of this section may be excluded from the finance charge, whether or not the coverage is insurance, if the following conditions are met:
(A) The debt cancellation agreement or coverage is not required by the creditor, and this fact is disclosed in writing;
(B) The fee or premium for the initial term of coverage is disclosed. If the term of coverage is less than the term of the credit transaction, the term of coverage also shall be disclosed. The fee or premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving a debt cancellation agreement that limits the total amount of indebtedness subject to coverage;
(C) The consumer signs or initials an affirmative written request for coverage after receiving the disclosures specified in this paragraph. Any consumer in the transaction may sign or initial the request.
(ii) Paragraph (d)(3)(i) of this section applies to fees paid for debt cancellation coverage that provides for cancellation of all or part of the debtor’s liability for amounts exceeding the value of the collateral securing the obligation, or in the event of the loss of life, health, or income or in case of accident.
(e) Certain security interest charges. If itemized and disclosed, the following charges may be excluded from the finance charge:
(1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.
(2) The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed the fees described in paragraph (e)(1) of this section that otherwise would be payable.
[Codified to 12 C.F.R. § 226.4]
[Section 226.4 amended at 61 Fed. Reg. 49245, September 19, 1996, effective October 21, 1996]
1 The meaning of “regularly” is explained in the definition of “creditor” in § 226.2(a). Go back to Text
3 A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of § 226.32) more than 25 times (or more than five times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of § 226.32 or one or more such credit extensions through a mortgage broker. Go back to Text
4 The provisions in § 226.12(a) and (b) governing the issurance of credit cards and the liability for their unauthorized use apply to all credit cards, even if the credit cards are issued for use in connection with extensions of credit that otherwise are exempt under this section. Go back to Text
5 This includes single interest insurance if the insurer waives all right of subrogation against the consumer. Go back to Text
6 A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer. Go back to Text
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