Appendix M1 to Part 226 - Repayment Disclosures
12:3.0.1.1.7.9.8.1.28 : Appendix M1
Appendix M1 to Part 226 - Repayment Disclosures
(a) Definitions. (1) “Promotional terms” means terms of a
cardholder's account that will expire in a fixed period of time, as
set forth by the card issuer.
(2) “Deferred interest or similar plan” means a plan where a
consumer will not be obligated to pay interest that accrues on
balances or transactions if those balances or transactions are paid
in full prior to the expiration of a specified period of time.
(b) Calculating minimum payment repayment estimates. (1)
Minimum payment formulas. When calculating the minimum
payment repayment estimate, card issuers must use the minimum
payment formula(s) that apply to a cardholder's account. If more
than one minimum payment formula applies to an account, the issuer
must apply each minimum payment formula to the portion of the
balance to which the formula applies. In this case, the issuer must
disclose the longest repayment period calculated. For example,
assume that an issuer uses one minimum payment formula to calculate
the minimum payment amount for a general revolving feature, and
another minimum payment formula to calculate the minimum payment
amount for special purchases, such as a “club plan purchase.” Also,
assume that based on a consumer's balances in these features and
the annual percentage rates that apply to such features, the
repayment period calculated pursuant to this Appendix for the
general revolving feature is 5 years, while the repayment period
calculated for the special purchase feature is 3 years. This issuer
must disclose 5 years as the repayment period for the entire
balance to the consumer. If any promotional terms related to
payments apply to a cardholder's account, such as a deferred
billing plan where minimum payments are not required for 12 months,
card issuers may assume no promotional terms apply to the account.
For example, assume that a promotional minimum payment of $10
applies to an account for six months, and then after the
promotional period expires, the minimum payment is calculated as 2
percent of the outstanding balance on the account or $20 whichever
is greater. An issuer may assume during the promotional period that
the $10 promotional minimum payment does not apply, and instead
calculate the minimum payment disclosures based on the minimum
payment formula of 2 percent of the outstanding balance or $20,
whichever is greater. Alternatively, during the promotional period,
an issuer in calculating the minimum payment repayment estimate may
apply the promotional minimum payment until it expires and then
apply the minimum payment formula that applies after the
promotional minimum payment expires. In the above example, an
issuer could calculate the minimum payment repayment estimate
during the promotional period by applying the $10 promotional
minimum payment for the first six months and then applying the 2
percent or $20 (whichever is greater) minimum payment formula after
the promotional minimum payment expires. In calculating the minimum
payment repayment estimate during a promotional period, an issuer
may not assume that the promotional minimum payment will apply
until the outstanding balance is paid off by making only minimum
payments (assuming the repayment estimate is longer than the
promotional period). In the above example, the issuer may not
calculate the minimum payment repayment estimate during the
promotional period by assuming that the $10 promotional minimum
payment will apply beyond the six months until the outstanding
balance is repaid.
(2) Annual percentage rate. When calculating the minimum
payment repayment estimate, a card issuer must use the annual
percentage rates that apply to a cardholder's account, based on the
portion of the balance to which the rate applies. If any
promotional terms related to annual percentage rates apply to a
cardholder's account, other than deferred interest or similar
plans, a card issuer in calculating the minimum payment repayment
estimate during the promotional period must apply the promotional
annual percentage rate(s) until it expires and then must apply the
rate that applies after the promotional rate(s) expires. If the
rate that applies after the promotional rate(s) expires is a
variable rate, a card issuer must calculate that rate based on the
applicable index or formula. This variable rate is accurate if it
was in effect within the last 30 days before the minimum payment
repayment estimate is provided. For deferred interest plans or
similar plans, if minimum payments under the deferred interest or
similar plan will repay the balances or transactions in full prior
to the expiration of the specified period of time, a card issuer
must assume that the consumer will not be obligated to pay the
accrued interest. This means, in calculating the minimum payment
repayment estimate, the card issuer must apply a zero percent
annual percentage rate to the balance subject to the deferred
interest or similar plan. If, however, minimum payments under the
deferred interest plan or similar plan may not repay the balances
or transactions in full prior to the expiration of the specified
period of time, a card issuer must assume that a consumer will not
repay the balances or transactions in full prior to the expiration
of the specified period of time and thus the consumer will be
obligated to pay the accrued interest. This means, in calculating
the minimum payment repayment estimate, the card issuer must apply
the annual percentage rate at which interest is accruing to the
balance subject to the deferred interest or similar plan.
(3) Beginning balance. When calculating the minimum
payment repayment estimate, a card issuer must use as the beginning
balance the outstanding balance on a consumer's account as of the
closing date of the last billing cycle. When calculating the
minimum payment repayment estimate, a card issuer may round the
beginning balance as described above to the nearest whole
dollar.
(4) Assumptions. When calculating the minimum payment
repayment estimate, a card issuer for each of the terms below, may
either make the following assumption about that term, or use the
account term that applies to a consumer's account.
(i) Only minimum monthly payments are made each month. In
addition, minimum monthly payments are made each month - for
example, a debt cancellation or suspension agreement, or skip
payment feature does not apply to the account.
(ii) No additional extensions of credit are obtained, such as
new purchases, transactions, fees, charges or other activity. No
refunds or rebates are given.
(iii) The annual percentage rate or rates that apply to a
cardholder's account will not change, through either the operation
of a variable rate or the change to a rate, except as provided in
paragraph (b)(2) of this Appendix. For example, if a penalty annual
percentage rate currently applies to a consumer's account, a card
issuer may assume that the penalty annual percentage rate will
apply to the consumer's account indefinitely, even if the consumer
may potentially return to a non-penalty annual percentage rate in
the future under the account agreement.
(iv) There is no grace period.
(v) The final payment pays the account in full (i.e.,
there is no residual finance charge after the final month in a
series of payments).
(vi) The average daily balance method is used to calculate the
balance.
(vii) All months are the same length and leap year is ignored. A
monthly or daily periodic rate may be assumed. If a daily periodic
rate is assumed, the issuer may either assume (1) a year is 365
days long, and all months are 30.41667 days long, or (2) a year is
360 days long, and all months are 30 days long.
(viii) Payments are credited either on the last day of the month
or the last day of the billing cycle.
(ix) Payments are allocated to lower annual percentage rate
balances before higher annual percentage rate balances.
(x) The account is not past due and the account balance does not
exceed the credit limit.
(xi) When calculating the minimum payment repayment estimate,
the assumed payments, current balance and interest charges for each
month may be rounded to the nearest cent, as shown in Appendix M2
to this part.
(5) Tolerance. A minimum payment repayment estimate shall
be considered accurate if it is not more than 2 months above or
below the minimum payment repayment estimate determined in
accordance with the guidance in this Appendix (prior to rounding
described in § 226.7(b)(12)(i)(B) and without use of the
assumptions listed in paragraph (b)(4) of this Appendix to the
extent a card issuer chooses instead to use the account terms that
apply to a consumer's account). For example, assume the minimum
payment repayment estimate calculated using the guidance in this
Appendix is 28 months (2 years, 4 months), and the minimum payment
repayment estimate calculated by the issuer is 30 months (2 years,
6 months). The minimum payment repayment estimate should be
disclosed as 2 years, due to the rounding rule set forth in §
226.7(b)(12)(i)(B). Nonetheless, based on the 30-month estimate,
the issuer disclosed 3 years, based on that rounding rule. The
issuer would be in compliance with this guidance by disclosing 3
years, instead of 2 years, because the issuer's estimate is within
the 2 months' tolerance, prior to rounding. In addition, even if an
issuer's estimate is more than 2 months above or below the minimum
payment repayment estimate calculated using the guidance in this
Appendix, so long as the issuer discloses the correct number of
years to the consumer based on the rounding rule set forth in §
226.7(b)(12)(i)(B), the issuer would be in compliance with this
guidance. For example, assume the minimum payment repayment
estimate calculated using the guidance in this Appendix is 32
months (2 years, 8 months), and the minimum payment repayment
estimate calculated by the issuer is 38 months (3 years, 2 months).
Under the rounding rule set forth in § 226.7(b)(12)(i)(B), both of
these estimates would be rounded and disclosed to the consumer as 3
years. Thus, if the issuer disclosed 3 years to the consumer, the
issuer would be in compliance with this guidance even though the
minimum payment repayment estimate calculated by the issuer is
outside the 2 months' tolerance amount.
(c) Calculating the minimum payment total cost estimate.
When calculating the minimum payment total cost estimate, a card
issuer must total the dollar amount of the interest and principal
that the consumer would pay if he or she made minimum payments for
the length of time calculated as the minimum payment repayment
estimate under paragraph (b) of this Appendix. The minimum payment
total cost estimate is deemed to be accurate if it is based on a
minimum payment repayment estimate that is within the tolerance
guidance set forth in paragraph (b)(5) of this Appendix. For
example, assume the minimum payment repayment estimate calculated
using the guidance in this Appendix is 28 months (2 years, 4
months), and the minimum payment repayment estimate calculated by
the issuer is 30 months (2 years, 6 months). The minimum payment
total cost estimate will be deemed accurate even if it is based on
the 30 month estimate for length of repayment, because the issuer's
minimum payment repayment estimate is within the 2 months'
tolerance, prior to rounding. In addition, assume the minimum
payment repayment estimate calculated under this Appendix is 32
months (2 years, 8 months), and the minimum payment repayment
estimate calculated by the issuer is 38 months (3 years, 2 months).
Under the rounding rule set forth in § 226.7(b)(12)(i)(B), both of
these estimates would be rounded and disclosed to the consumer as 3
years. If the issuer based the minimum payment total cost estimate
on 38 months (or any other minimum payment repayment estimate that
would be rounded to 3 years), the minimum payment total cost
estimate would be deemed to be accurate.
(d) Calculating the estimated monthly payment for repayment
in 36 months. (1) In general. When calculating the
estimated monthly payment for repayment in 36 months, a card issuer
must calculate the estimated monthly payment amount that would be
required to pay off the outstanding balance shown on the statement
within 36 months, assuming the consumer paid the same amount each
month for 36 months.
(2) Weighted annual percentage rate. In calculating the
estimated monthly payment for repayment in 36 months, an issuer may
use a weighted annual percentage rate that is based on the annual
percentage rates that apply to a cardholder's account and the
portion of the balance to which the rate applies, as shown in
Appendix M2 to this part. If a card issuer uses a weighted annual
percentage rate and any promotional terms related to annual
percentage rates apply to a cardholder's account, other than
deferred interest plans or similar plans, in calculating the
weighted annual percentage rate, the issuer must calculate a
weighted average of the promotional rate and the rate that will
apply after the promotional rate expires based on the percentage of
36 months each rate will apply, as shown in Appendix M2 to this
part. For deferred interest plans or similar plans, if minimum
payments under the deferred interest or similar plan will repay the
balances or transactions in full prior to the expiration of the
specified period of time, if a card issuer uses a weighted annual
percentage rate, the card issuer must assume that the consumer will
not be obligated to pay the accrued interest. This means, in
calculating the weighted annual percentage rate, the card issuer
must apply a zero percent annual percentage rate to the balance
subject to the deferred interest or similar plan. If, however,
minimum payments under the deferred interest plan or similar plan
may not repay the balances or transactions in full prior to the
expiration of the specified period of time, a card issuer in
calculating the weighted annual percentage rate must assume that a
consumer will not repay the balances or transactions in full prior
to the expiration of the specified period of time and thus the
consumer will be obligated to pay the accrued interest. This means,
in calculating the weighted annual percentage rate, the card issuer
must apply the annual percentage rate at which interest is accruing
to the balance subject to the deferred interest or similar plan. A
card issuer may use a method of calculating the estimated monthly
payment for repayment in 36 months other than a weighted annual
percentage rate, so long as the calculation results in the same
payment amount each month and so long as the total of the payments
would pay off the outstanding balance shown on the periodic
statement within 36 months.
(3) Assumptions. In calculating the estimated monthly
payment for repayment in 36 months, a card issuer must use the same
terms described in paragraph (b) of this Appendix, as
appropriate.
(4) Tolerance. An estimated monthly payment for repayment
in 36 months shall be considered accurate if it is not more than 10
percent above or below the estimated monthly payment for repayment
in 36 months determined in accordance with the guidance in this
Appendix (after rounding described in §
226.7(b)(12)(i)(F)(1)(i)).
(e) Calculating the total cost estimate for repayment in 36
months. When calculating the total cost estimate for repayment
in 36 months, a card issuer must total the dollar amount of the
interest and principal that the consumer would pay if he or she
made the estimated monthly payment calculated under paragraph (d)
of this appendix each month for 36 months. The total cost estimate
for repayment in 36 months shall be considered accurate if it is
based on the estimated monthly payment for repayment in 36 months
that is calculated in accordance with paragraph (d) of this
appendix.
(f) Calculating the savings estimate for repayment in 36
months. When calculating the savings estimate for repayment in
36 months, if a card issuer chooses under § 226.7(b)(12)(i) to
round the disclosures to the nearest whole dollar when disclosing
them on the periodic statement, the card issuer must calculate the
savings estimate for repayment in 36 months by subtracting the
total cost estimate for repayment in 36 months calculated under
paragraph (e) of this appendix (rounded to the nearest whole
dollar) from the minimum payment total cost estimate calculated
under paragraph (c) of this appendix (rounded to the nearest whole
dollar). If a card issuer chooses under § 227.7(b)(12)(i), however,
to round the disclosures to the nearest cent when disclosing them
on the periodic statement, the card issuer must calculate the
savings estimate for repayment in 36 months by subtracting the
total cost estimate for repayment in 36 months calculated under
paragraph (e) of this appendix (rounded to the nearest cent) from
the minimum payment total cost estimate calculated under paragraph
(c) of this appendix (rounded to the nearest cent). The savings
estimate for repayment in 36 months shall be considered accurate if
it is based on the total cost estimate for repayment in 36 months
that is calculated in accordance with paragraph (e) of this
appendix and the minimum payment total cost estimate calculated
under paragraph (c) of this appendix.
[75 FR 7846, Feb. 22, 2010, as amended at 76 FR 23004, Apr. 25,
2011]