Truth in Lending: 6.5.3.2.6 Introductory rates
Some card issuers offer introductory rates, also called “discount” or “teaser” rates.
Some card issuers offer introductory rates, also called “discount” or “teaser” rates.
Creditors may offer deferred interest programs, which do not impose a periodic rate on the balance if paid off by the end of the deferred interest period.617 If the balance is not repaid by then, the creditor will impose finance charges attributable to the periodic rates that apply to period between the date of purchase and the end of the deferred interest period.618
If a card issuer offers an initial rate that is higher than the regular rate (a “premium initial rate”) the issuer must disclose in the required table:620
A penalty rate is an increase in the initial APR triggered by the occurrence of a specific event, such as the consumer’s making a late payment or exceeding the credit limit.
If an introductory rate is disclosed either in the required table648 or in any promotional materials accompanying direct mail, electronic, or “take one” applications or solicitations,649 the issuer must briefly disclose directly beneath the table the circumstances under which the introductory rate may be revoked, and the type of rate that will apply after the introductory rate is revoked.650 Note that the Credit CARD Act prohibits issuers fro
If an issuer discloses an employee preferential rate in the required table, the issuer must briefly disclose beneath the table any circumstances under which the preferential rate may be revoked, and the rate that will apply after revocation.660 This provision includes any preferential rate for employees of the issuer, employees of a third party, or individuals with a similar affiliation to the issuer or the third party, such as executive officers, directors, or principal shareholders.661 Not
Credit and charge card issuers are required to disclose any annual or other periodic fee or any one-time fee imposed for the issuance or availability of a credit or charge card (such as a membership fee), including fees based on account activity or inactivity.667 Note that Regulation Z’s substantive provisions prohibit the imposition of fees for account inactivity for a credit card under an open-end (not home-secured) consumer credit plan.668
Because application fees were considered administrative fees for processing applications for credit rather than fees for the issuance or availability of credit, the official interpretations previously exempted them from disclosure.683 However, this exemption was deleted as of July 2010, and thus application fees must be disclosed in the required table.684
If an application or solicitation to become a member of an organization results in the automatic issuance of a credit or charge card, the application or solicitation for membership would be considered one to open a credit card account requiring disclosures.685 However, if the membership fee merely results in being eligible to apply for an account, it need not be disclosed.686
Whether credit or charge card enhancement fees (such as travel insurance or card registration services) are required to be disclosed as fees for the issuance or availability of a card depends on whether such fees are payable at the cardholder’s discretion.687 For example, a card issuer may offer a credit card account on which a $20 fee is imposed for the issuance of the card with optional enhancements available for an additional $10 fee. Only the $20 fee is required to be disclosed.
Credit card issuers must disclose any minimum interest charge or fixed finance charge that could be imposed for any period during which any extension of credit that is subject to a finance charge is outstanding.693 This would occur where the amount of minimum interest charge is greater than the interest that would otherwise be imposed for such period under the applicable APR.
Credit and charge card issuers must disclose any transaction charge imposed in connection with the use of the card to purchase goods and services.703 This provision does not cover fees for cash advances, which are required to be disclosed separately.704 Regulation Z states that card issuers providing disclosures under this section have no responsibility to disclose transaction charges imposed by a person other than the card issuer, such as a seller of goods honoring a credit or charge card.
Previously, “currency conversion” or foreign transaction fees imposed on the consumer’s account by the Visa and MasterCard networks (which are not considered creditors) were not required to be disclosed in application disclosures,710 although they were required to be disclosed in some cases under state law.711
Credit card issuers must disclose the grace period for purchases, i.e., date by which, or the period within which, any credit extended under a credit card account for the purchase of goods or services must be repaid to avoid incurring a finance charge due to periodic interest.728 Issuers must disclose the grace period using the phrase “How to Avoid Paying Interest on Purchases” as the heading for the row describing the grace period.729
Credit card issuers are required to disclose the method of computing the balance on which finance charges will be calculated for the purchase of goods and services.748 (No disclosure of the method of computing the balance for cash advances is required.) The disclosure of the balance computation method must be made directly beneath the required table but not in the table.749 TILA actually requires the balance computation method to be included in the required table;
Charge card issuers must disclose that charges incurred by use of a charge card are payable when the periodic statement reflecting those charges is received by the cardholder.760 The disclosure should be substantially similar to that set forth in Regulation Z; it does not have to be identical. Language in the disclosure may be modified to more accurately reflect the circumstances of repayment under the charge card account.761
Issuers that require the consumer to purchase credit insurance, debt cancellation, or debt suspension coverage as part of a credit card plan must disclose the fees for such coverage in the required table.789 In addition, issuers must include a cross-reference to where the consumer can find additional information about such coverage, if applicable.790 Another volume in this series discusses these products in detail.791
Card issuers who make direct mail applications and solicitations to open a credit or charge card account must make the disclosures described at § 6.5.3, supra, on or with an application that is mailed to consumers.804 These disclosures must be accurate as of the time the disclosures are mailed.805 An accurate variable APR is
TILA requires that any solicitation to open a credit card account using the internet or other interactive computer service must clearly and conspicuously disclose the information described at § 6.5.3, supra, for credit cards.807 Thus, card issuers who provide applications and solicitations by electronic communication must make the disclosures described at
Regulation Z sets forth the disclosure requirements for telephone solicitations and certain telephone applications to open a credit or charge card account.812 These requirements apply if a telephone conversation between a card issuer and consumer may result in the issuance of a card as a result of a card issuer-initiated offer to open a credit or charge card account for which the card issuer does not require any application (that is, a “preapproved” or “prescreened” telephone solicitation).