Unofficial Redline of the Credit Card Penalty Fees Final Rule

UNOFFICIAL REDLINE OF THE CREDIT CARD PENALTY FEES FINAL RULE

1700 G Street NW, Washington, DC 20552

March 5, 2024

Unofficial Redline of the Credit Card Penalty

Fees Final Rule

On March 5, 2024, the Consumer Financial Protection Bureau (Bureau or CFPB) issued a final

rule (Credit Card Penalty Fees Final Rule) that amends Regulation Z, which implements the

Truth in Lending Act (TILA), to address late fees charged by card issuers that together with their

affiliates have one million or more open credit card accounts. The CFPB is releasing this

unofficial, informal redline to assist industry and other stakeholders in reviewing the changes to

Regulation Z’s regulatory text and commentary.

The underlying (unmarked) text in this document reflects the existing text of the relevant

provisions of Regulation Z and its commentary that are impacted by the final rule. The changes

that the final rule makes to Regulation Z and its commentary are marked in red.

This redline is not a substitute for reviewing Regulation Z, its commentary, or the final rule. If

any conflicts exist between this redline and the text of Regulation Z, its commentary, or the final

rule, the documents published in the Federal Register are the controlling documents. The

redline includes asterisks to indicate where it omits text from current Regulation Z or its

commentary that the final rule would not change.

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PART 1026—TRUTH IN LENDING (REGULATION Z)

* * * * *

Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit

Offered to College Students

* * * * *

§ 1026.52 Limitation on fees.

* * * * *

(b) Limitations on penalty fees. * * *

(1) General rule. * * *

(ii) Safe harbors. Except as provided in paragraph (b)(1)(ii)(E) of this section, a card

issuer may impose a fee for a late payment on an account if the dollar amount of the fee does not

exceed $8. A card issuer may impose a fee for other types of violations ofing the terms or other

requirements of an account if the dollar amount of the fee does not exceed, as applicable:

(A) $320;

(B) $431 if the card issuer previously imposed a fee pursuant to paragraph (b)(1)(ii)(A) of

this section for a violation of the same type that occurred during the same billing cycle or one of

the next six billing cycles; or

payment of outstanding balances in full at the end of each billing cycle if the card issuer has not

received the required payment for two or more consecutive billing cycles., notwithstanding the

limitation on the amount of a late payment fee in paragraph (b)(1)(ii) of this section.

(D) The amounts in paragraphs (b)(1)(ii)(A) and (b)(1)(ii)(B) of this section will be

adjusted annually by the Bureau to reflect changes in the Consumer Price Index.

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(E) A smaller card issuer, as defined in paragraph (b)(3) of this section, may impose a fee

for a late payment on an account if the dollar amount of the fee does not exceed the amount in

paragraph (b)(1)(ii)(A) or (b)(1)(ii)(B) of this section, as applicable, notwithstanding the

limitation on the amount of a late payment fee in paragraph (b)(1)(ii) of this section.

(2) Prohibited fees -* * *

(3) Smaller card issuer -

(i) Except as provided in paragraph (b)(3)(ii) of this section, a card issuer is a smaller

card issuer for purposes of paragraph (b)(1)(ii)(E) of this section if the card issuer together with

its affiliates had fewer than one million open credit card accounts, as defined in § 1026.58(b)(6),

for the entire preceding calendar year. For purposes of this definition, affiliate means any

company that controls, is controlled by, or is under common control with another company, as

set forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).

(ii) If a card issuer together with its affiliates had fewer than one million open credit card

accounts for the entire preceding calendar year but meets or exceeds that number of open credit

card accounts in the current calendar year, the card issuer will no longer be a smaller card issuer

for purposes of paragraph (b)(1)(ii)(E) of this section as of 60 days after meeting or exceeding

that number of open credit card accounts.

§ 1026.58 Internet posting of credit card agreements.

* * * * *

(b) Definitions — * * *

(6) Open accounts. For purposes of this section and § 1026.52, an account is an “open

account” or “open credit card account” if it is a credit card account under an open-end (not

home-secured) consumer credit plan and either:

(i) The cardholder can obtain extensions of credit on the account; or

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(ii) There is an outstanding balance on the account that has not been charged off. An

account that has been suspended temporarily (for example, due to a report by the cardholder of

unauthorized use of the card) is considered an “open account” or “open credit card account.”

* * * * *

APPENDIX G TO PART 1026—OPEN-END MODEL FORMS AND CLAUSES

* * * * *

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G-10(B) APPLICATIONS AND SOLICITATIONS SAMPLE (CREDIT CARDS)

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G-10(C) APPLICATIONS AND SOLICITATIONS SAMPLE (CREDIT CARDS)

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G-10(E) APPLICATIONS AND SOLICITATIONS SAMPLE (CHARGE CARDS)

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G-17(B) ACCOUNT-OPENING SAMPLE

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G-17(C) ACCOUNT-OPENING SAMPLE

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G-18(A) PERIODIC STATEMEMT TRANSACTIONS; INTEREST CHARGES; FEES

SAMPLE

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G-18(B) LATE PAYMENT FEE SAMPLE

G–18(B)—Late Payment Fee Sample

Late Payment Warning: If we do not receive your minimum payment by the date listed above,

you may have to pay a $35 late fee and your APRs may be increased up to the Penalty APR of

28.99%.

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G-18(D) PERIODIC STATEMENT NEW BALANCE, DUE DATE, LATE PAYMENT AND

MINIMUM PAYMENT SAMPLE (CREDIT CARDS)

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G-18(F) PERIODIC STATEMENT FORM

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G-18(G) PERIODIC STATEMENT FORM

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G-21 CHANGE-IN-TERMS SAMPLE (INCREASE IN FEES)

* * * *

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Supplement I to Part 1026—Official Interpretations

* * * * *

Section 1026.7 - Periodic Statement

* * * * *

7(b)(11) Due Date; Late Payment Costs

1. Informal periods affecting late payments. Although the terms of the account

agreement may provide that a card issuer may assess a late payment fee if a payment is not

received by a certain date, the card issuer may have an informal policy or practice that delays the

assessment of the late payment fee for payments received a brief period of time after the date

upon which a card issuer has the contractual right to impose the fee. A card issuer must disclose

the due date according to the legal obligation between the parties, and need not consider the end

of an informal “courtesy period” as the due date under § 1026.7(b)(11).

2. Assessment of late payment fees. Some stateState or other laws require that a certain

number of days must elapse following a due date before a late payment fee may be imposed. In

addition, a card issuer may be restricted by the terms of the account agreement from imposing a

late payment fee until a payment is late for a certain number of days following a due date. For

example, assume a payment is due on March 10 and the account agreement or stateState law

provides that a late payment fee cannot be assessed before March 21. A card issuer must

disclose the due date under the terms of the legal obligation (March 10 in this example), and not

a date different than the due date, such as when the card issuer is restricted by the account

agreement or stateState or other law from imposing a late payment fee unless a payment is late

for a certain number of days following the due date (March 21 in this example). Consumers’

rights under stateState law to avoid the imposition of late payment fees during a specified period

following a due date are unaffected by the disclosure requirement. In this example, the card

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issuer would disclose March 10 as the due date for purposes of § 1026.7(b)(11), but could not,

under stateState law, assess a late payment fee before March 21.

3. Fee or rate triggered by multiple events. If a late payment fee or penalty rate is

triggered after multiple events, such as two late payments in six months, the card issuer may,

but is not required to, disclose the late payment and penalty rate disclosure each month. The

disclosures must be included on any periodic statement for which a late payment could trigger

the late payment fee or penalty rate, such as after the consumer made one late payment in this

example. For example, if a cardholder has already made one late payment, the disclosure must

be on each statement for the following five billing cycles.

4. Range of late fees or penalty rates. A card issuer that imposes a range of late

payment fees or rates on a credit card account under an open-end (not home-secured) consumer

credit plan may state the highest fee or rate along with an indication lower fees or rates could be

imposed. For example, a phrase indicating the late payment fee could be “up to $298” complies

with this requirement.

5. Penalty rate in effect. If the highest penalty rate has previously been triggered on an

account, the card issuer may, but is not required to, delete the amount of the penalty rate and

the warning that the rate may be imposed for an untimely payment, as not applicable.

Alternatively, the card issuer may, but is not required to, modify the language to indicate that

the penalty rate has been increased due to previous late payments (if applicable).

6. Same day each month. The requirement that the due date be the same day each

month means that the due date must generally be the same numerical date. For example, a

consumer’s due date could be the 25th of every month. In contrast, a due date that is the same

relative date but not numerical date each month, such as the third Tuesday of the month,

generally would not comply with this requirement. However, a consumer’s due date may be the

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last day of each month, even though that date will not be the same numerical date. For example,

if a consumer’s due date is the last day of each month, it will fall on February 28th (or February

29th in a leap year) and on August 31st.

7. Change in due date. A creditor may adjust a consumer’s due date from time to time

provided that the new due date will be the same numerical date each month on an ongoing

basis. For example, a creditor may choose to honor a consumer’s request to change from a due

date that is the 20th of each month to the 5th of each month, or may choose to change a

consumer’s due date from time to time for operational reasons. See comment 2(a)(4)-3 for

guidance on transitional billing cycles.

8. Billing cycles longer than one month. The requirement that the due date be the same

day each month does not prohibit billing cycles that are two or three months, provided that the

due date for each billing cycle is on the same numerical date of the month. For example, a

creditor that establishes two-month billing cycles could send a consumer periodic statements

disclosing due dates of January 25, March 25, and May 25.

9. Payment due date when the creditor does not accept or receive payments by mail. If

the due date in a given month falls on a day on which the creditor does not receive or accept

payments by mail and the creditor is required to treat a payment received the next business day

as timely pursuant to § 1026.10(d), the creditor must disclose the due date according to the legal

obligation between the parties, not the date as of which the creditor is permitted to treat the

payment as late. For example, assume that the consumer’s due date is the 4th of every month,

and the creditor does not accept or receive payments by mail on Thursday, July 4. Pursuant to

§ 1026.10(d), the creditor may not treat a mailed payment received on the following business

day, Friday, July 5, as late for any purpose. The creditor must nonetheless disclose July 4 as the

due date on the periodic statement and may not disclose a July 5 due date.

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* * * * *

Section 1026.52—Limitations on Fees

52(a) Limitations during first year after account opening.

52(a)(1) General rule

1. Application. The 25 percent limit in § 1026.52(a)(1) applies to fees that the card issuer

charges to the account as well as to fees that the card issuer requires the consumer to pay with

respect to the account through other means (such as through a payment from the consumer’s

asset account, including a prepaid account as defined in § 1026.61, to the card issuer or from

another credit account provided by the card issuer). For example:

i. Assume that, under the terms of a credit card account, a consumer is required to pay

$120 in fees for the issuance or availability of credit at account opening. The consumer is also

required to pay a cash advance fee that is equal to five percent of the cash advance and a late

payment fee of $158 if the required minimum periodic payment is not received by the payment

due date (which is the twenty-fifth of the month). The card issuer is not a smaller card issuer as

defined in § 1026.52(b)(3). At account opening on January 1 of year one, the credit limit for the

account is $500. Section 1026.52(a)(1) permits the card issuer to charge to the account the $120

in fees for the issuance or availability of credit at account opening. On February 1 of year one,

the consumer uses the account for a $100 cash advance. Section 1026.52(a)(1) permits the card

issuer to charge a $5 cash-advance fee to the account. On March 26 of year one, the card issuer

has not received the consumer’s required minimum periodic payment. Section 1026.52(a)(2)

permits the card issuer to charge a $158 late payment fee to the account. On July 15 of year one,

the consumer uses the account for a $50 cash advance. Section 1026.52(a)(1) does not permit

the card issuer to charge a $2.50 cash advance fee to the account. Furthermore, § 1026.52(a)(1)

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prohibits the card issuer from collecting the $2.50 cash advance fee from the consumer by other

means.

ii. Assume that, under the terms of a credit card account, a consumer is required to pay

$125 in fees for the issuance or availability of credit during the first year after account opening.

At account opening on January 1 of year one, the credit limit for the account is $500. Section

1026.52(a)(1) permits the card issuer to charge the $125 in fees to the account. However,

§ 1026.52(a)(1) prohibits the card issuer from requiring the consumer to make payments to the

card issuer for additional non-exempt fees with respect to the account during the first year after

account opening. Section 1026.52(a)(1) also prohibits the card issuer from requiring the

consumer to open a separate credit account with the card issuer to fund the payment of

additional non-exempt fees during the first year after the credit card account is opened.

iii. Assume that a consumer opens a prepaid account accessed by a prepaid card on

January 1 of year one and opens a covered separate credit feature accessible by a hybrid prepaid-

credit card as defined by § 1026.61 that is a credit card account under an open-end (not home-

secured) consumer credit plan on March 1 of year one. Assume that, under the terms of the

covered separate credit feature accessible by the hybrid prepaid-credit card, a consumer is

required to pay $50 in fees for the issuance or availability of credit at account opening. At credit

account opening on March 1 of year one, the credit limit for the account is $200. Section

1026.52(a)(1) permits the card issuer to charge the $50 in fees to the credit account. However,

§ 1026.52(a)(1) prohibits the card issuer from requiring the consumer to make payments to the

card issuer for additional non-exempt fees with respect to the credit account during the first

year after account opening. Section 1026.52(a)(1) also prohibits the card issuer from requiring

the consumer to open an additional credit feature with the card issuer to fund the payment of

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additional non-exempt fees during the first year after the covered separate credit feature is

opened.

iv. Assume that a consumer opens a prepaid account accessed by a prepaid card on

January 1 of year one and opens a covered separate credit feature accessible by a hybrid prepaid-

credit card as defined in § 1026.61 that is a credit card account under an open-end (not home-

secured) consumer credit plan on March 1 of year one. Assume that, under the terms of the

covered separate credit feature accessible by the hybrid prepaid-credit card, a consumer is

required to pay $120 in fees for the issuance or availability of credit at account opening. The

consumer is also required to pay a cash advance fee that is equal to 5 percent of any cash

advance and a late payment fee of $158 if the required minimum periodic payment is not

received by the payment due date (which is the 25th of the month). The card issuer is not a

smaller card issuer as defined in § 1026.52(b)(3). At credit account opening on March 1 of year

one, the credit limit for the account is $500. Section 1026.52(a)(1) permits the card issuer to

charge to the account the $120 in fees for the issuance or availability of credit at account

opening. On April 1 of year one, the consumer uses the account for a $100 cash advance.

Section 1026.52(a)(1) permits the card issuer to charge a $5 cash advance fee to the account. On

April 26 of year one, the card issuer has not received the consumer’s required minimum periodic

payment. Section 1026.52(a)(2) permits the card issuer to charge a $158 late payment fee to the

account. On July 15 of year one, the consumer uses the account for a $50 cash advance. Section

1026.52(a)(1) does not permit the card issuer to charge a $2.50 cash advance fee to the account,

because the total amount of non-exempt fees reached the 25 percent limit with the $5 cash

advance fee on April 1 (the $158 late fee on April 26 is exempt pursuant to § 1026.52(a)(2)(i)).

Furthermore, § 1026.52(a)(1) prohibits the card issuer from collecting the $2.50 cash advance

fee from the consumer by other means.

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2. Fees that exceed 25 percent limit. A card issuer that charges a fee to a credit card

account that exceeds the 25 percent limit complies with § 1026.52(a)(1) if the card issuer waives

or removes the fee and any associated interest charges or credits the account for an amount

equal to the fee and any associated interest charges within a reasonable amount of time but no

later than the end of the billing cycle following the billing cycle during which the fee was

charged. For example, assuming the facts in the example in comment 52(a)(1)-1.i above, the

card issuer complies with § 1026.52(a)(1) if the card issuer charged the $2.50 cash advance fee

to the account on July 15 of year one but waived or removed the fee or credited the account for

$2.50 (plus any interest charges on that $2.50) at the end of the billing cycle.

3. Changes in credit limit during first year.

i. Increases in credit limit. If a card issuer increases the credit limit during the first year

after the account is opened, § 1026.52(a)(1) does not permit the card issuer to require the

consumer to pay additional fees that would otherwise be prohibited (such as a fee for increasing

the credit limit). For example, assume that, at account opening on January 1, the credit limit for

a credit card account is $400 and the consumer is required to pay $100 in fees for the issuance

or availability of credit. On July 1, the card issuer increases the credit limit for the account to

$600. Section 1026.52(a)(1) does not permit the card issuer to require the consumer to pay

additional fees based on the increased credit limit.

ii. Decreases in credit limit. If a card issuer decreases the credit limit during the first

year after the account is opened, § 1026.52(a)(1) requires the card issuer to waive or remove any

fees charged to the account that exceed 25 percent of the reduced credit limit or to credit the

account for an amount equal to any fees the consumer was required to pay with respect to the

account that exceed 25 percent of the reduced credit limit within a reasonable amount of time

but no later than the end of the billing cycle following the billing cycle during which the credit

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limit was reduced. For example, assume that, at account opening on January 1, the credit limit

for a credit card account is $1,000 and the consumer is required to pay $250 in fees for the

issuance or availability of credit. The billing cycles for the account begin on the first day of the

month and end on the last day of the month. On July 30, the card issuer decreases the credit

limit for the account to $600. Section 1026.52(a)(1) requires the card issuer to waive or remove

$100 in fees from the account or to credit the account for an amount equal to $100 within a

reasonable amount of time but no later than August 31.

4. Date on which account may first be used by consumer to engage in transactions.

i. Methods of compliance. For purposes of § 1026.52(a)(1), an account is considered

open no earlier than the date on which the account may first be used by the consumer to engage

in transactions. A card issuer may consider an account open for purposes of § 1026.52(a)(1) on

any of the following dates:

A. The date the account is first used by the consumer for a transaction (such as when an

account is established in connection with financing the purchase of goods or services).

B. The date the consumer complies with any reasonable activation procedures imposed

by the card issuer for preventing fraud or unauthorized use of a new account (such as requiring

the consumer to provide information that verifies his or her identity), provided that the account

may be used for transactions on that date.

C. The date that is seven days after the card issuer mails or delivers to the consumer

account-opening disclosures that comply with § 1026.6, provided that the consumer may use the

account for transactions after complying with any reasonable activation procedures imposed by

the card issuer for preventing fraud or unauthorized use of the new account (such as requiring

the consumer to provide information that verifies his or her identity). If a card issuer has

reasonable procedures designed to ensure that account-opening disclosures that comply with

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§ 1026.6 are mailed or delivered to consumers no later than a certain number of days after the

card issuer establishes the account, the card issuer may add that number of days to the seven-

day period for purposes of determining the date on which the account was opened.

ii. Examples. A. Assume that, on July 1 of year one, a credit card account under an open-

end (not home-secured) consumer credit plan is established in connection with financing the

purchase of goods or services and a $500 transaction is charged to the account by the consumer.

The card issuer may consider the account open on July 1 of year one for purposes of

§ 1026.52(a)(1). Accordingly, § 1026.52(a)(1) ceases to apply to the account on July 1 of year

two.

B. Assume that, on July 1 of year one, a card issuer approves a consumer’s application for

a credit card account under an open-end (not home-secured) consumer credit plan and

establishes the account on its internal systems. On July 5, the card issuer mails or delivers to

the consumer account-opening disclosures that comply with § 1026.6. If the consumer may use

the account for transactions on the date the consumer complies with any reasonable procedures

imposed by the card issuer for preventing fraud or unauthorized use, the card issuer may

consider the account open on July 12 of year one for purposes of § 1026.52(a)(1). Accordingly,

§ 1026.52(a)(1) ceases to apply to the account on July 12 of year two.

C. Same facts as in comment 52(a)(1)-4.ii.B paragraph B above except that the card

issuer has adopted reasonable procedures designed to ensure that account-opening disclosures

that comply with § 1026.6 are mailed or delivered to consumers no later than three days after an

account is established on its systems. If the consumer may use the account for transactions on

the date the consumer complies with any reasonable procedures imposed by the card issuer for

preventing fraud or unauthorized use, the card issuer may consider the account open on July 11

of year one for purposes of § 1026.52(a)(1). Accordingly, § 1026.52(a)(1) ceases to apply to the

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account on July 11 of year two. However, if the consumer uses the account for a transaction or

complies with the card issuer’s reasonable procedures for preventing fraud or unauthorized use

on July 8 of year one, the card issuer may, at its option, consider the account open on that date

for purposes of § 1026.52(a)(1) and § 1026.52(a)(1) therefore ceases to apply to the account on

July 8 of year two.

* * * * *

52(b) Limitations on Penalty Fees

1. Fees for violating the account terms or other requirements. For purposes of

§ 1026.52(b), a fee includes any charge imposed by a card issuer based on an act or omission

that violates the terms of the account or any other requirements imposed by the card issuer with

respect to the account, other than charges attributable to periodic interest rates. Accordingly,

for purposes of § 1026.52(b), a fee does not include charges attributable to an increase in an

annual percentage rate based on an act or omission that violates the terms or other

requirements of an account.

i. The following are examples of fees that are subject to the limitations in § 1026.52(b) or

are prohibited by § 1026.52(b):

A. Late payment fees and any other fees imposed by a card issuer if an account becomes

delinquent or if a payment is not received by a particular date. A late payment fee or late fee is

any fee imposed for a late payment. See § 1026.60(b)(9) and accompanying commentary.

B. Returned payment fees and any other fees imposed by a card issuer if a payment

received via check, automated clearing house, or other payment method is returned.

C. Any fee or charge for an over-the-limit transaction as defined in § 1026.56(a), to the

extent the imposition of such a fee or charge is permitted by § 1026.56.

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D. Any fee imposed by a card issuer if payment on a check that accesses a credit card

account is declined.

E. Any fee or charge for a transaction that the card issuer declines to authorize. See

§ 1026.52(b)(2)(i)(B).

F. Any fee imposed by a card issuer based on account inactivity (including the

consumer’s failure to use the account for a particular number or dollar amount of transactions

or a particular type of transaction). See § 1026.52(b)(2)(i)(B).

G. Any fee imposed by a card issuer based on the closure or termination of an account.

See § 1026.52(b)(2)(i)(B).

ii. The following are examples of fees to which § 1026.52(b) does not apply:

A. Balance transfer fees.

B. Cash advance fees.

C. Foreign transaction fees.

D. Annual fees and other fees for the issuance or availability of credit described in

§ 1026.60(b)(2), except to the extent that such fees are based on account inactivity. See

§ 1026.52(b)(2)(i)(B).

E. Fees for insurance described in § 1026.4(b)(7) or debt cancellation or debt suspension

coverage described in § 1026.4(b)(10) written in connection with a credit transaction, provided

that such fees are not imposed as a result of a violation of the account terms or other

requirements of an account.

F. Fees for making an expedited payment (to the extent permitted by § 1026.10(e)).

G. Fees for optional services (such as travel insurance).

H. Fees for reissuing a lost or stolen card.

48 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

2. Rounding to nearest whole dollar. A card issuer may round any fee that complies

with § 1026.52(b) to the nearest whole dollar. For example, if § 1026.52(b) permits a card issuer

to impose a late payment fee of $215.50, the card issuer may round that amount up to the

nearest whole dollar and impose a late payment fee of $226. However, if the late payment fee

permitted by § 1026.52(b) were $215.49, the card issuer would not be permitted to round that

amount up to $226, although the card issuer could round that amount down and impose a late

payment fee of $21. 5.

3. Fees in connection with covered separate credit features accessible by hybrid

prepaid-credit cards. With regard to a covered separate credit feature and an asset feature on a

prepaid account that are both accessible by a hybrid prepaid-credit card as defined in § 1026.61

where the credit feature is a credit card account under an open-end (not home-secured)

consumer credit plan, § 1026.52(b) applies to any fee for violating the terms or other

requirements of the credit feature, regardless of whether those fees are imposed on the credit

feature or on the asset feature of the prepaid account. For example, assume that a late fee will

be imposed by the card issuer if the covered separate credit feature becomes delinquent or if a

payment is not received by a particular date. This fee is subject to § 1026.52(b) regardless of

whether the fee is imposed on the asset feature of the prepaid account or on the separate credit

feature.

4. Fees imposed on the asset feature of a prepaid account that are not charges imposed

as part of the plan. Section 1026.52(b) does not apply to any fee or charge imposed on the asset

feature of the prepaid account that is not a charge imposed as part of the plan under

§ 1026.6(b)(3). See § 1026.6(b)(3)(iii)(D) and (E) and related commentary regarding fees

imposed on the asset feature prepaid account that are not charges imposed as part of the plan

under § 1026.6(b)(3) with respect to covered separate credit features accessible by hybrid

49 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

prepaid-credit cards and non-covered separate credit features as those terms are defined in

§ 1026.61.

5. Examples. Any dollar amount examples in the commentary to § 1026.52(b) relating to

the safe harbors in § 1026.52(b)(1) are based on the original historical safe-harbor thresholds of

$25 and $35 for penalty fees other than late fees, and on the threshold of $8 for late fees

applicable to card issuers other than smaller card issuers as defined in § 1026.52(b)(3).

52(b)(1) General Rule

1. Relationship between § 1026.52(b)(1)(i), (b)(1)(ii), and (b)(2).

i. Relationship between § 1026.52(b)(1)(i) and (b)(1)(ii). A card issuer may impose a fee

for violating the terms or other requirements of an account pursuant to either § 1026.52(b)(1)(i)

or (b)(1)(ii).

A. A card issuer that complies with the safe harbors in § 1026.52(b)(1)(ii) is not required

to determine that its fees represent a reasonable proportion of the total costs incurred by the

card issuer as a result of a type of violation under § 1026.52(b)(1)(i).

B. A card issuer may impose a fee for one type of violation pursuant to § 1026.52(b)(1)(i)

and may impose a fee for a different type of violation pursuant to § 1026.52(b)(1)(ii). For

example, a card issuer may impose a late payment fee of $309 based on a cost determination

pursuant to § 1026.52(b)(1)(i) but impose returned payment and over-the-limit fees of $25 or

$35 pursuant to the safe harbors in § 1026.52(b)(1)(ii).

C. A card issuer that previously based the amount of a penalty fee for a particular type of

violation on a cost determination pursuant to § 1026.52(b)(1)(i) may begin to impose a penalty

fee for that type of violation that is consistent with § 1026.52(b)(1)(ii) at any time (subject to the

notice requirements in § 1026.9), provided that the first fee imposed pursuant to

§ 1026.52(b)(1)(ii) is consistent with § 1026.52(b)(1)(ii)(A). For example, assume that

50 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

consistent with § 1026.56, a late consumer has affirmatively consented to the payment of

transactions that exceed the credit limit. A transaction occurs on January 15 that causes the

account balance to exceed the credit limit and that, based on a cost determination pursuant to

§ 1026.52(b)(1)(i), the card issuer imposes a $30 lateover-the-limit fee. The consumer’s next

monthly payment fee. Another late payment occurs onbrings the account balance below the

credit limit. On July 15., another transaction causes the account balance to exceed the credit

limit. The card issuer may impose another $30 late paymentover-the-limit fee pursuant to

§ 1026.52(b)(1)(i) or may impose a $25 late paymentover-the-limit fee pursuant to

§ 1026.52(b)(1)(ii)(A). However, the card issuer may not impose a $35 late paymentover-the-

limit fee pursuant to § 1026.52(b)(1)(ii)(B). If the card issuer imposes a $25 fee pursuant to

§ 1026.52(b)(1)(ii)(A) for the July 15 late paymentover-the-limit transaction and another late

payment occurs on September 15 another transaction causes the account balance to exceed the

credit limit, the card issuer may impose a $35 fee for the September 15 late paymentover-the-

limit transaction pursuant to § 1026.52(b)(1)(ii)(B).

ii. Relationship between § 1026.52(b)(1) and (b)(2). Section 1026.52(b)(1) does not

permit a card issuer to impose a fee that is inconsistent with the prohibitions in § 1026.52(b)(2).

For example, if § 1026.52(b)(2)(i) prohibits the card issuer from imposing a late payment fee

that exceeds $157, § 1026.52(b)(1)(ii) does not permit the card issuer to impose a higher late

payment fee.

52(b)(1)(i) Fees Based on Costs

1. Costs incurred as a result of violations. Section 1026.52(b)(1)(i) does not require a

card issuer to base a fee on the costs incurred as a result of a specific violation of the terms or

other requirements of an account. Instead, for purposes of § 1026.52(b)(1)(i), a card issuer must

have determined that a fee for violating the terms or other requirements of an account

51 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

represents a reasonable proportion of the costs incurred by the card issuer as a result of that

type of violation. A card issuer may make a single determination for all of its credit card

portfolios or may make separate determinations for each portfolio. The factors relevant to this

determination include:

i. The number of violations of a particular type experienced by the card issuer during a

prior period of reasonable length (for example, a period of twelve months).

ii. The costs incurred by the card issuer during that period as a result of those violations.

iii. At the card issuer’s option, the number of fees imposed by the card issuer as a result

of those violations during that period that the card issuer reasonably estimates it will be unable

to collect. See comment 52(b)(1)(i)-5.

iv. At the card issuer’s option, reasonable estimates for an upcoming period of changes in

the number of violations of that type, the resulting costs, and the number of fees that the card

issuer will be unable to collect. See illustrative examples in comments 52(b)(1)(i)-6 through -9.

2. Amounts excluded from cost analysis. The following amounts are not costs incurred

by a card issuer as a result of violations of the terms or other requirements of an account for

purposes of § 1026.52(b)(1)(i):

i. Losses and associated costs (including the cost of holding reserves against potential

losses and, the cost of funding delinquent accounts, and any collection costs that are incurred

after an account is charged off in accordance with loan-loss provisions).

ii. Costs associated with evaluating whether consumers who have not violated the terms

or other requirements of an account are likely to do so in the future (such as the costs associated

with underwriting new accounts). However, once a violation of the terms or other requirements

of an account has occurred, the costs associated with preventing additional violations for a

52 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

reasonable period of time are costs incurred by a card issuer as a result of violations of the terms

or other requirements of an account for purposes of § 1026.52(b)(1)(i).

3. Third -party charges. As a general matter, amounts charged to the card issuer by a

third party as a result of a violation of the terms or other requirements of an account are costs

incurred by the card issuer for purposes of § 1026.52(b)(1)(i). For example, if a card issuer is

charged a specific amount by a third party for each returned payment, that amount is a cost

incurred by the card issuer as a result of returned payments. However, if the amount is charged

to the card issuer by an affiliate or subsidiary of the card issuer, the card issuer must have

determined that the charge represents a reasonable proportion of the costs incurred by the

affiliate or subsidiary as a result of the type of violation. For example, if an affiliate of a card

issuer provides collection services to the card issuer on delinquent accounts, the card issuer

must have determined that the amounts charged to the card issuer by the affiliate for such

services represent a reasonable proportion of the costs incurred by the affiliate as a result of late

payments.

4. Amounts charged by other card issuers. The fact that a card issuer’s fees for violating

the terms or other requirements of an account are comparable to fees assessed by other card

issuers does not satisfy the requirements of § 1026.52(b)(1)(i).

5. Uncollected fees. For purposes of § 1026.52(b)(1)(i), a card issuer may consider fees

that it is unable to collect when determining the appropriate fee amount. Fees that the card

issuer is unable to collect include fees imposed on accounts that have been charged off by the

card issuer, fees that have been discharged in bankruptcy, and fees that the card issuer is

required to waive in order to comply with a legal requirement (such as a requirement imposed

by 12 CFR Partpart 1026 or 50 U.S.C. app. 527). However, fees that the card issuer chooses not

to impose or chooses not to collect (such as fees the card issuer chooses to waive at the request

53 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

of the consumer or under a workout or temporary hardship arrangement) are not relevant for

purposes of this determination. See illustrative examples in comments 52(b)(2)(i)-6 through -9.

6. Late payment fees.

i. Costs incurred as a result of late payments. For purposes of § 1026.52(b)(1)(i), the

costs incurred by a card issuer as a result of late payments include the costs associated with the

collection of late payments, such as the costs associated with notifying consumers of

delinquencies and resolving delinquencies (including the establishment of workout and

temporary hardship arrangements).

ii. Examples. A. Late payment fee based on past delinquencies and costs. Assume that,

during year one, a card issuer experienced 1 million delinquencies and incurred $26 million in

costs as a result of those delinquencies. For purposes of § 1026.52(b)(1)(i), a $26 late payment

fee would represent a reasonable proportion of the total costs incurred by the card issuer as a

result of late payments during year two.

B. Adjustment based on fees card issuer is unable to collect. Same facts as in comment

52(b)(1)(i)-6.ii.A above except that the card issuer imposed a late payment fee for each of the 1

million delinquencies experienced during year one but was unable to collect 25% of those fees

(in other words, the card issuer was unable to collect 250,000 fees, leaving a total of 750,000

late payments for which the card issuer did collect or could have collected a fee). For purposes

of § 1026.52(b)(2)(i), a late payment fee of $35 would represent a reasonable proportion of the

total costs incurred by the card issuer as a result of late payments during year two.

C. Adjustment based on reasonable estimate of future changes. Same facts as in

comments 52(b)(1)(i)-6.ii.A and B paragraphs A and B above except the card issuer reasonably

estimates that - —based on past delinquency rates and other factors relevant to potential

delinquency rates for year two - —it will experience a 2% decrease in delinquencies during year

54 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

two (in other words, 20,000 fewer delinquencies for a total of 980,000). The card issuer also

reasonably estimates that it will be unable to collect the same percentage of fees (25%) during

year two as during year one (in other words, the card issuer will be unable to collect 245,000

fees, leaving a total of 735,000 late payments for which the card issuer will be able to collect a

fee). The card issuer also reasonably estimates that - —based on past changes in costs incurred

as a result of delinquencies and other factors relevant to potential costs for year two - —it will

experience a 5% increase in costs during year two (in other words, $1.3 million in additional

costs for a total of $27.3 million). For purposes of § 1026.52(b)(1)(i), a $37 late payment fee

would represent a reasonable proportion of the total costs incurred by the card issuer as a result

of late payments during year two.

7. Returned payment fees.

i. Costs incurred as a result of returned payments. For purposes of § 1026.52(b)(1)(i),

the costs incurred by a card issuer as a result of returned payments include:

A. Costs associated with processing returned payments and reconciling the card issuer’s

systems and accounts to reflect returned payments;

B. Costs associated with investigating potential fraud with respect to returned payments;

and

C. Costs associated with notifying the consumer of the returned payment and arranging

for a new payment.

ii. Examples. A. Returned payment fee based on past returns and costs. Assume that,

during year one, a card issuer experienced 150,000 returned payments and incurred $3.1

million in costs as a result of those returned payments. For purposes of § 1026.52(b)(1)(i), a $21

returned payment fee would represent a reasonable proportion of the total costs incurred by the

card issuer as a result of returned payments during year two.

55 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

B. Adjustment based on fees card issuer is unable to collect. Same facts as in comment

52(b)(1)(i)-7.ii.Aabove except that the card issuer imposed a returned payment fee for each of

the 150,000 returned payments experienced during year one but was unable to collect 15% of

those fees (in other words, the card issuer was unable to collect 22,500 fees, leaving a total of

127,500 returned payments for which the card issuer did collect or could have collected a fee).

For purposes of § 1026.52(b)(2)(i), a returned payment fee of $24 would represent a reasonable

proportion of the total costs incurred by the card issuer as a result of returned payments during

year two.

C. Adjustment based on reasonable estimate of future changes. Same facts as in

comments 52(b)(1)(i)-7.ii.A and B paragraphs A and B above except the card issuer reasonably

estimates that - —based on past returned payment rates and other factors relevant to potential

returned payment rates for year two - —it will experience a 2% increase in returned payments

during year two (in other words, 3,000 additional returned payments for a total of 153,000).

The card issuer also reasonably estimates that it will be unable to collect 25% of returned

payment fees during year two (in other words, the card issuer will be unable to collect 38,250

fees, leaving a total of 114,750 returned payments for which the card issuer will be able to collect

a fee). The card issuer also reasonably estimates that - —based on past changes in costs incurred

as a result of returned payments and other factors relevant to potential costs for year two - —it

will experience a 1% decrease in costs during year two (in other words, a $31,000 reduction in

costs for a total of $3.069 million). For purposes of § 1026.52(b)(1)(i), a $27 returned payment

fee would represent a reasonable proportion of the total costs incurred by the card issuer as a

result of returned payments during year two.

8. Over-the-limit fees.

56 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

i. Costs incurred as a result of over-the-limit transactions. For purposes of

§ 1026.52(b)(1)(i), the costs incurred by a card issuer as a result of over-the-limit transactions

include:

A. Costs associated with determining whether to authorize over-the-limit transactions;

and

B. Costs associated with notifying the consumer that the credit limit has been exceeded

and arranging for payments to reduce the balance below the credit limit.

ii. Costs not incurred as a result of over-the-limit transactions. For purposes of

§ 1026.52(b)(1)(i), costs associated with obtaining the affirmative consent of consumers to the

card issuer’s payment of transactions that exceed the credit limit consistent with § 1026.56 are

not costs incurred by a card issuer as a result of over-the-limit transactions.

iii. Examples. A. Over-the-limit fee based on past fees and costs. Assume that, during

year one, a card issuer authorized 600,000 over-the-limit transactions and incurred $4.5

million in costs as a result of those over-the-limit transactions. However, because of the

affirmative consent requirements in § 1026.56, the card issuer was only permitted to impose

200,000 over-the-limit fees during year one. For purposes of § 1026.52(b)(1)(i), a $23 over-the-

limit fee would represent a reasonable proportion of the total costs incurred by the card issuer as

a result of over-the-limit transactions during year two.

B. Adjustment based on fees card issuer is unable to collect. Same facts as in comment

52(b)(1)(i)-8.iii.A above except that the card issuer was unable to collect 30% of the 200,000

over-the-limit fees imposed during year one (in other words, the card issuer was unable to

collect 60,000 fees, leaving a total of 140,000 over-the-limit transactions for which the card

issuer did collect or could have collected a fee). For purposes of § 1026.52(b)(2)(i), an over-the-

57 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

limit fee of $32 would represent a reasonable proportion of the total costs incurred by the card

issuer as a result of over-the-limit transactions during year two.

C. Adjustment based on reasonable estimate of future changes. Same facts as in

comments 52(b)(1)(i)-8.iii.A and B paragraphs A and B above except the card issuer reasonably

estimates that - —based on past over-the-limit transaction rates, the percentages of over-the-

limit transactions that resulted in an over-the-limit fee in the past (consistent with § 1026.56),

and factors relevant to potential changes in those rates and percentages for year two - —it will

authorize approximately the same number of over-the-limit transactions during year two

(600,000) and impose approximately the same number of over-the-limit fees (200,000). The

card issuer also reasonably estimates that it will be unable to collect the same percentage of fees

(30%) during year two as during year one (in other words, the card issuer was unable to collect

60,000 fees, leaving a total of 140,000 over-the-limit transactions for which the card issuer will

be able to collect a fee). The card issuer also reasonably estimates that - —based on past changes

in costs incurred as a result of over-the-limit transactions and other factors relevant to potential

costs for year two - —it will experience a 6% decrease in costs during year two (in other words, a

$270,000 reduction in costs for a total of $4.23 million). For purposes of § 1026.52(b)(1)(i), a

$30 over-the-limit fee would represent a reasonable proportion of the total costs incurred by the

card issuer as a result of over-the-limit transactions during year two.

9. Declined access check fees.

i. Costs incurred as a result of declined access checks. For purposes of

§ 1026.52(b)(1)(i), the costs incurred by a card issuer as a result of declining payment on a check

that accesses a credit card account include:

A. Costs associated with determining whether to decline payment on access checks;

58 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

B. Costs associated with processing declined access checks and reconciling the card

issuer’s systems and accounts to reflect declined access checks;

C. Costs associated with investigating potential fraud with respect to declined access

checks; and

D. Costs associated with notifying the consumer and the merchant or other party that

accepted the access check that payment on the check has been declined.

ii. Example. Assume that, during year one, a card issuer declined 100,000 access checks

and incurred $2 million in costs as a result of those declined checks. The card issuer imposed a

fee for each declined access check but was unable to collect 10% of those fees (in other words,

the card issuer was unable to collect 10,000 fees, leaving a total of 90,000 declined access

checks for which the card issuer did collect or could have collected a fee). For purposes of

§ 1026.52(b)(1)(i), a $22 declined access check fee would represent a reasonable proportion of

the total costs incurred by the card issuer as a result of declined access checks during year two.

52(b)(1)(ii) Safe Harbors

1. Multiple violations of same type.

i. Same billing cycle or next six billing cycles. A card issuer other than a smaller card

issuer as defined in § 1026.52(b)(3) cannot impose a late fee in excess of $8 pursuant to

§ 1026.52(b)(1)(ii), regardless of whether the card issuer has imposed a late fee within the six

previous billing cycles. For all other penalty fees, a card issuer cannot impose a fee for a

violation pursuant to § 1026.52(b)(1)(ii)(B) unless a fee has previously been imposed for the

same type of violation pursuant to § 1026.52(b)(1)(ii)(A). Once a fee has been imposed for a

violation pursuant to § 1026.52(b)(1)(ii)(A), the card issuer may impose a fee pursuant to

§ 1026.52(b)(1)(ii)(B) for any subsequent violation of the same type until that type of violation

59 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

has not occurred for a period of six consecutive complete billing cycles. A fee has been imposed

for purposes of § 1026.52(b)(1)(ii) even if the card issuer waives or rebates all or part of the fee.

A. Late payments. For purposes of § 1026.52(b)(1)(ii), a late payment occurs during the

billing cycle in which the payment may first be treated as late consistent with the requirements

of this part and the terms or other requirements of the account.

B. Returned payments. For purposes of § 1026.52(b)(1)(ii), a returned payment occurs

during the billing cycle in which the payment is returned to the card issuer.

C. Transactions that exceed the credit limit. For purposes of § 1026.52(b)(1)(ii), a

transaction that exceeds the credit limit for an account occurs during the billing cycle in which

the transaction occurs or is authorized by the card issuer.

D. Declined access checks. For purposes of § 1026.52(b)(1)(ii), a check that accesses a

credit card account is declined during the billing cycle in which the card issuer declines payment

on the check.

ii. Relationship to §§ 1026.52(b)(2)(ii) and 1026.56(j)(1). If multiple violations are based

on the same event or transaction such that § 1026.52(b)(2)(ii) prohibits the card issuer from

imposing more than one fee, the event or transaction constitutes a single violation for purposes

of § 1026.52(b)(1)(ii). Furthermore, consistent with § 1026.56(j)(1)(i), no more than one

violation for exceeding an account’s credit limit can occur during a single billing cycle for

purposes of § 1026.52(b)(1)(ii). However, § 1026.52(b)(2)(ii) does not prohibit a card issuer

from imposing fees for exceeding the credit limit in consecutive billing cycles based on the same

over-the-limit transaction to the extent permitted by § 1026.56(j)(1). In these circumstances,

the second and third over-the-limit fees permitted by § 1026.56(j)(1) may be imposed pursuant

to § 1026.52(b)(1)(ii)(B). See comment 52(b)(2)(ii)-1.

60 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

iii. Examples. The following examples illustrate the application of § 1026.52(b)(1)(ii),

(b)(1)(ii)(A)), and (b)(1)(ii)(B) with respect to credit card accounts under an open-end (not

home-secured) consumer credit plan that are not charge card accounts. For purposes of these

examples, assume that the card issuer is not a smaller card issuer as defined in § 1026.52(b)(3).

Also assume that the billing cycles for the account begin on the first day of the month and end

on the last day of the month and that the payment due date for the account is the twenty-fifth

day of the month.

A. Violations of same type (late payments). A required minimum periodicover the

credit limit). Consistent with § 1026.56, the consumer has affirmatively consented to the

payment of $50 is due on March 25.transactions that exceed the credit limit. On March 2620, a

late payment has occurred because no payment has been received. Accordingly,

consistenttransaction causes the account balance to increase to $1,150, which exceeds the

account’s $1,000 credit limit. Consistent with § 1026.52(b)(1)(ii)(A), the card issuer imposes a

$25 late paymentover-the-limit fee on March 26.for the March billing cycle. The card issuer

receives a $300 payment on March 25, bringing the account below the credit limit. In order for

the card issuer to impose a $35 late paymentover-the-limit fee pursuant to

§ 1026.52(b)(1)(ii)(B), a second late paymentover-the-limit transaction must occur during the

April, May, June, July, August, or September billing cycles.

1. The card issuer does not receive any payment during the March billing cycle. A

required minimum periodic payment of $100 is due on April 25. Same facts as in the lead-in

paragraph to comment 52(b)(1)(ii)-1.iii.A. On April 20, a transaction causes the account balance

to increase to $1,200, which exceeds the card issuer receives a $50 payment. No further

payment is received during the April billing cycle. Accordingly, consistentaccount’s $1,000

credit limit. Consistent with § 1026.52(b)(1)(ii)(B), the card issuer may impose a $35 late

61 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

paymentover-the-limit fee onfor the April 26billing cycle. Furthermore, the card issuer may

impose a $35 lateover-the-limit payment fee for any late paymentover-the-limit transaction or

event that triggers an over-the-limit fee that occurs during the May, June, July, August,

September, or October billing cycles., subject to the limitations in § 1026.56(j)(1).

2. Same facts as in the lead-in paragraph to comment 52(b)(1)(ii)-1.iii.Aparagraph A

above. On March 30, the card issuer receives a $50 payment and the required minimum

periodic payments for the April, May, June, July, August, and September billing cycles are

received on or before the payment due date. A required minimum periodic payment of $60 is

due on October 25. On October 26, a late payment has occurred because the required minimum

periodic payment due on October 25 has not been received. However, because this late

paymentThe account remains below the limit from March 25 until October 20, when a

transaction causes the account balance to exceed the credit limit. However, because this over-

the-limit transaction did not occur during the six billing cycles following the March billing cycle,

§ 1026.52(b)(1)(ii) only permits the card issuer to impose a late paymentan over-the-limit fee of

$25.

B. Violations of different types (late payment and over the credit limit). The credit limit

for an account is $1,000. Consistent with § 1026.56, the consumer has affirmatively consented

to the payment of transactions that exceed the credit limit. A required minimum periodic

payment of $3035 is due on August 25. On August 26, a late payment has occurred because no

payment has been received. Accordingly, consistent with § 1026.52(b)(1)(ii)(A), the card issuer

imposes a $258 late payment fee on August 26. On August 30, the card issuer receives a $3035

payment. On September 10, a transaction causes the account balance to increase to $1,150,

which exceeds the account's $1,000 credit limit. On September 11, a second transaction

increases the account balance to $1,350. On September 23, the card issuer receives the $50

62 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

required minimum periodic payment due on September 25, which reduces the account balance

to $1,300. On September 30, the card issuer imposes a $25 over-the-limit fee, consistent with

§ 1026.52(b)(1)(ii)(A). On October 26, a late payment has occurred because the $60 required

minimum periodic payment due on October 25 has not been received. Accordingly, consistent

with § 1026.52(b)(1)(ii)(B),) the card issuer imposes a $358 late payment fee on October 26.

C. Violations of different types (late payment and returned payment). A required

minimum periodic payment of $5040 is due on July 25. On July 26, a late payment has

occurred because no payment has been received. Accordingly, consistent with

§ 1026.52(b)(1)(ii)(A), the card issuer imposes a $258 late payment fee on July 26. On July 30,

the card issuer receives a $5060 payment. A required minimum periodic payment of $5040 is

due on August 25. On August 24, a $5040 payment is received. On August 27, the $5040

payment is returned to the card issuer for insufficient funds. In these circumstances,

§ 1026.52(b)(2)(ii) permits the card issuer to impose either a late payment fee or a returned

payment fee but not both, because the late payment and the returned payment result from the

same event or transaction. Accordingly, for purposes of § 1026.52(b)(1)(ii), the event or

transaction constitutes a single violation. However, if the card issuer imposes a late payment

fee, § 1026.52(b)(1)(ii)(B) permits the issuer to impose a fee of $35 because the late payment

occurred during the six billing cycles following the July billing cycle. In contrast, if8. If the card

issuer imposes a returned payment fee, the amount of the fee may be no more than $25

pursuant to § 1026.52(b)(1)(ii)(A).

2. Adjustments based on Consumer Price Index. for penalty fees imposed pursuant to

§ 1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B)other than late fees. For purposes of

§ 1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B), the Bureau shall calculate each year price level adjusted

amounts using the Consumer Price Index in effect on June 1 of that year. When the cumulative

63 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

change in the adjusted minimum value derived from applying the annual Consumer Price level

to the current amounts in § 1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B) has risen by a whole dollar,

those amounts will be increased by $1.00. Similarly, when the cumulative change in the

adjusted minimum value derived from applying the annual Consumer Price level to the current

amounts in § 1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B) has decreased by a whole dollar, those

amounts will be decreased by $1.00. The Bureau will publish adjustments to the amounts in

§ 1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B).

i. Historical thresholds.

A. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $25 under § 1026.52(b)(1)(ii)(A) and $35 under § 1026.52(b)(1)(ii)(B),

through December 31, 2013.

B. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $26 under § 1026.52(b)(1)(ii)(A) and $37 under § 1026.52(b)(1)(ii)(B),

through December 31, 2014.

C. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A) and $38 under § 1026.52(b)(1)(ii)(B),

through December 31, 2015.

D. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A), through December 31, 2016. Card

issuers were permitted to impose a fee for violating the terms of an agreement if the fee did not

exceed $37 under § 1026.52(b)(1)(ii)(B), through June 26, 2016, and $38 under

§ 1026.52(b)(1)(ii)(B) from June 27, 2016, through December 31, 2016.

64 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

E. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A) and $38 under § 1026.52(b)(1)(ii)(B),

through December 31, 2017.

F. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A) and $38 under § 1026.52(b)(1)(ii)(B),

through December 31, 2018.

G. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $28 under § 1026.52(b)(1)(ii)(A) and $39 under § 1026.52(b)(1)(ii)(B),

through December 31, 2019.

H. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $29 under § 1026.52(b)(1)(ii)(A) and $40 under § 1026.52(b)(1)(ii)(B),

through December 31, 2020.

I. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $29 under § 1026.52(b)(1)(ii)(A) and $40 under § 1026.52(b)(1)(ii)(B),

through December 31, 2021.

J. Card issuers were permitted to impose a fee for violating the terms of an agreement if

the fee did not exceed $30 under § 1026.52(b)(1)(ii)(A) and $41 under § 1026.52(b)(1)(ii)(B),

through [INSERT DATE 59 DAYS AFTER DATE OF PUBLICATION IN THE

FEDERAL REGISTER].

3. Delinquent balance for charge card accounts. Section 1026.52(b)(1)(ii)(C) provides

that, when a charge card issuer that requires payment of outstanding balances in full at the end

of each billing cycle has not received the required payment for two or more consecutive billing

cycles, the card issuer may impose a late payment fee that does not exceed three percent of the

delinquent balance. For purposes of § 1026.52(b)(1)(ii)(C), the delinquent balance is any

65 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

previously billed amount that remains unpaid at the time the late payment fee is imposed

pursuant to § 1026.52(b)(1)(ii)(C). Consistent with § 1026.52(b)(2)(ii), a charge card issuer that

imposes a fee pursuant to § 1026.52(b)(1)(ii)(C) with respect to a late payment may not impose a

fee pursuant to § 1026.52(b)(1)(ii)(B) with respect to the same late payment. The following

examples illustrate the application of § 1026.52(b)(1)(ii)(C):

i. Assume that a charge card issuer requires payment of outstanding balances in full at

the end of each billing cycle and that the billing cycles for the account begin on the first day of

the month and end on the last day of the month. Also assume that the card issuer is not a

smaller card issuer as defined in § 1026.52(b)(3). At the end of the June billing cycle, the

account has a balance of $1,000. On July 5, the card issuer provides a periodic statement

disclosing the $1,000 balance consistent with § 1026.7. During the July billing cycle, the

account is used for $300292 in transactions, increasing the balance to $1,292300. At the end of

the July billing cycle, no payment has been received and the card issuer imposes a $258 late

payment fee consistent with § 1026.52(b)(1)(ii)(A). On August 5, the card issuer provides a

periodic statement disclosing the $1,325300 balance consistent with § 1026.7. During the

August billing cycle, the account is used for $200 in transactions, increasing the balance to

$1,525500. At the end of the August billing cycle, no payment has been received. Consistent

with § 1026.52(b)(1)(ii)(C), the card issuer may impose a late payment fee of $4039, which is 3%

of the $1,325300 balance that was due at the end of the August billing cycle. Section

1026.52(b)(1)(ii)(C) does not permit the card issuer to include the $200 in transactions that

occurred during the August billing cycle.

ii. Same facts as in comment 52(b)(1)(ii)-3.i above except that, on August 25, a $100

payment is received. Consistent with § 1026.52(b)(1)(ii)(C), the card issuer may impose a late

66 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

payment fee of $367, which is 3% of the unpaid portion of the $1,30025 balance that was due at

the end of the August billing cycle ($1,20025).

iii. Same facts as in paragraph A above comment 52(b)(1)(ii)-3.i except that, on August

25, a $200 payment is received. Consistent with § 1026.52(b)(1)(ii)(C), the card issuer may

impose a late payment fee of $3433, which is 3% of the unpaid portion of the $1,325300 balance

that was due at the end of the August billing cycle ($1,225100). In the alternative, the card

issuer may impose a late payment fee of $358 consistent with § 1026.52(b)(1)(ii)(B). However,

§ 1026.52(b)(2)(ii) prohibits the card issuer from imposing both fees.

4. Smaller card issuers. Section 1026.52(b)(1)(ii)(E) provides that a card issuer meeting

the definition of smaller card issuer in § 1026.52(b)(3) may impose a fee for a late payment on

an account if the dollar amount of the fee does not exceed the amount in § 1026.52(b)(1)(ii)(A)

or (b)(1)(ii)(B), as applicable, notwithstanding the $8 limit on the amount of a late fee in

§ 1026.52(b)(1)(ii). Thus, assuming that the original historical safe harbor threshold amounts

apply, a smaller card issuer may impose a late fee of $25 for a first late payment violation and a

late fee of $35 for a late payment violation that occurs during the same billing cycle or one of the

next six billing cycles, provided that those amounts are consistent with § 1026.52(b)(2).

52(b)(2) Prohibited fees

1. Relationship to § 1026.52(b)(1). A card issuer does not comply with § 1026.52(b) if it

imposes a fee that is inconsistent with the prohibitions in § 1026.52(b)(2). Thus, the

prohibitions in § 1026.52(b)(2) apply even if a fee is consistent with § 1026.52(b)(1)(i) or

(b)(1)(ii). For example, even if a card issuer has determined for purposes of § 1026.52(b)(1)(i)

that a $27 fee represents a reasonable proportion of the total costs incurred by the card issuer as

a result of a particular type of violation, § 1026.52(b)(2)(i) prohibits the card issuer from

imposing that fee if the dollar amount associated with the violation is less than $27. Similarly,

67 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

even if § 1026.52(b)(1)(ii) permits a card issuer to impose a $25 fee, § 1026.52(b)(2)(i) prohibits

the card issuer from imposing that fee if the dollar amount associated with the violation is less

than $25.

52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation

1. Late payment fees. For purposes of § 1026.52(b)(2)(i), the dollar amount associated

with a late payment is the amount of the required minimum periodic payment due immediately

prior to assessment of the late payment fee. Thus, § 1026.52(b)(2)(i)(A) prohibits a card issuer

from imposing a late payment fee that exceeds the amount of that required minimum periodic

payment. For example:

i. Assume that a $15 required minimum periodic payment is due on September 25. The

card issuer does not receive any payment on or before September 25. On September 26, the

card issuer imposes a late payment fee. For purposes of § 1026.52(b)(2)(i), the dollar amount

associated with the late payment is the amount of the required minimum periodic payment due

on September 25 ($15). Thus, under § 1026.52(b)(2)(i)(A), the amount of that fee cannot exceed

$15 (even if a higher fee would be permitted under § 1026.52(b)(1)).

ii. Same facts as in comment 52(b)(2)(i)-1.i above except that, on September 25, the card

issuer receives a $10 payment. No further payments are received. On September 26, the card

issuer imposes a late payment fee. For purposes of § 1026.52(b)(2)(i), the dollar amount

associated with the late payment is the full amount of the required minimum periodic payment

due on September 25 ($15), rather than the unpaid portion of that payment ($5). Thus, under

§ 1026.52(b)(2)(i)(A), the amount of the late payment fee cannot exceed $15 (even if a higher fee

would be permitted under § 1026.52(b)(1)).

iii. Assume that a $15 required minimum periodic payment is due on October 28 and the

billing cycle for the account closes on October 31. The card issuer does not receive any payment

68 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

on or before November 3. On November 3, the card issuer determines that the required

minimum periodic payment due on November 28 is $50. On November 5, the card issuer

imposes a late payment fee. For purposes of § 1026.52(b)(2)(i), the dollar amount associated

with the late payment is the amount of the required minimum periodic payment due on October

28 ($15), rather than the amount of the required minimum periodic payment due on November

28 ($50). Thus, under § 1026.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even if a

higher fee would be permitted under § 1026.52(b)(1)).

2. Returned payment fees. For purposes of § 1026.52(b)(2)(i), the dollar amount

associated with a returned payment is the amount of the required minimum periodic payment

due immediately prior to the date on which the payment is returned to the card issuer. Thus,

§ 1026.52(b)(2)(i)(A) prohibits a card issuer from imposing a returned payment fee that exceeds

the amount of that required minimum periodic payment. However, if a payment has been

returned and is submitted again for payment by the card issuer, there is no additional dollar

amount associated with a subsequent return of that payment and § 1026.52(b)(2)(i)(B) prohibits

the card issuer from imposing an additional returned payment fee. For example:

i. Assume that the billing cycles for an account begin on the first day of the month and

end on the last day of the month and that the payment due date is the twenty-fifth day of the

month. A minimum payment of $15 is due on March 25. The card issuer receives a check for

$100 on March 23, which is returned to the card issuer for insufficient funds on March 26. For

purposes of § 1026.52(b)(2)(i), the dollar amount associated with the returned payment is the

amount of the required minimum periodic payment due on March 25 ($15). Thus,

§ 1026.52(b)(2)(i)(A) prohibits the card issuer from imposing a returned payment fee that

exceeds $15 (even if a higher fee would be permitted under § 1026.52(b)(1)). Furthermore,

69 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

§ 1026.52(b)(2)(ii) prohibits the card issuer from assessing both a late payment fee and a

returned payment fee in these circumstances. See comment 52(b)(2)(ii)-1.

ii. Same facts as in comment 52(b)(2)(i)-2.iabove except that the card issuer receives the

$100 check on March 31 and the check is returned for insufficient funds on April 2. The

minimum payment due on April 25 is $30. For purposes of § 1026.52(b)(2)(i), the dollar

amount associated with the returned payment is the amount of the required minimum periodic

payment due on March 25 ($15), rather than the amount of the required minimum periodic

payment due on April 25 ($30). Thus, § 1026.52(b)(2)(i)(A) prohibits the card issuer from

imposing a returned payment fee that exceeds $15 (even if a higher fee would be permitted

under § 1026.52(b)(1)). Furthermore, § 1026.52(b)(2)(ii) prohibits the card issuer from

assessing both a late payment fee and a returned payment fee in these circumstances. See

comment 52(b)(2)(ii)-1.

iii. Same facts as in comment 52(b)(2)(i)-2.i paragraph i above except that, on March 28,

the card issuer presents the $100 check for payment a second time. On April 1, the check is

again returned for insufficient funds. Section 1026.52(b)(2)(i)(B) prohibits the card issuer from

imposing a returned payment fee based on the return of the payment on April 1.

iv. Assume that the billing cycles for an account begin on the first day of the month and

end on the last day of the month and that the payment due date is the twenty-fifth day of the

month. A minimum payment of $15 is due on August 25. The card issuer receives a check for

$15 on August 23, which is not returned. The card issuer receives a check for $50 on September

5, which is returned to the card issuer for insufficient funds on September 7. Section

1026.52(b)(2)(i)(B) does not prohibit the card issuer from imposing a returned payment fee in

these circumstances. Instead, for purposes of § 1026.52(b)(2)(i), the dollar amount associated

with the returned payment is the amount of the required minimum periodic payment due on

70 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

August 25 ($15). Thus, § 1026.52(b)(2)(i)(A) prohibits the card issuer from imposing a returned

payment fee that exceeds $15 (even if a higher fee would be permitted under § 1026.52(b)(1)).

3. Over-the-limit fees. For purposes of § 1026.52(b)(2)(i), the dollar amount associated

with extensions of credit in excess of the credit limit for an account is the total amount of credit

extended by the card issuer in excess of the credit limit during the billing cycle in which the

over-the-limit fee is imposed. Thus, § 1026.52(b)(2)(i)(A) prohibits a card issuer from imposing

an over-the-limit fee that exceeds that amount. Nothing in § 1026.52(b) permits a card issuer to

impose an over-the-limit fee if imposition of the fee is inconsistent with § 1026.56. The

following examples illustrate the application of § 1026.52(b)(2)(i)(A) to over-the-limit fees:

i. Assume that the billing cycles for a credit card account with a credit limit of $5,000

begin on the first day of the month and end on the last day of the month. Assume also that,

consistent with § 1026.56, the consumer has affirmatively consented to the payment of

transactions that exceed the credit limit. On March 1, the account has a $4,950 balance. On

March 6, a $60 transaction is charged to the account, increasing the balance to $5,010. On

March 25, a $5 transaction is charged to the account, increasing the balance to $5,015. On the

last day of the billing cycle (March 31), the card issuer imposes an over-the-limit fee. For

purposes of § 1026.52(b)(2)(i), the dollar amount associated with the extensions of credit in

excess of the credit limit is the total amount of credit extended by the card issuer in excess of the

credit limit during the March billing cycle ($15). Thus, § 1026.52(b)(2)(i)(A) prohibits the card

issuer from imposing an over-the-limit fee that exceeds $15 (even if a higher fee would be

permitted under § 1026.52(b)(1)).

ii. Same facts as in comment 52(b)(2)(i)-3.i above except that, on March 26, the card

issuer receives a payment of $20, reducing the balance below the credit limit to $4,995.

Nevertheless, for purposes of § 1026.52(b)(2)(i), the dollar amount associated with the

71 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

extensions of credit in excess of the credit limit is the total amount of credit extended by the card

issuer in excess of the credit limit during the March billing cycle ($15). Thus, consistent with

§ 1026.52(b)(2)(i)(A), the card issuer may impose an over-the-limit fee of $15.

4. Declined access check fees. For purposes of § 1026.52(b)(2)(i), the dollar amount

associated with declining payment on a check that accesses a credit card account is the amount

of the check. Thus, when a check that accesses a credit card account is declined,

§ 1026.52(b)(2)(i)(A) prohibits a card issuer from imposing a fee that exceeds the amount of

that check. For example, assume that a check that accesses a credit card account is used as

payment for a $50 transaction, but payment on the check is declined by the card issuer because

the transaction would have exceeded the credit limit for the account. For purposes of

§ 1026.52(b)(2)(i), the dollar amount associated with the declined check is the amount of the

check ($50). Thus, § 1026.52(b)(2)(i)(A) prohibits the card issuer from imposing a fee that

exceeds $50. However, the amount of this fee must also comply with § 1026.52(b)(1)(i) or

(b)(1)(ii).

5. Inactivity fees. Section 1026.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a

fee with respect to a credit card account under an open-end (not home-secured) consumer credit

plan based on inactivity on that account (including the consumer’s failure to use the account for

a particular number or dollar amount of transactions or a particular type of transaction). For

example, § 1026.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50 fee when a credit

card account under an open-end (not home-secured) consumer credit plan is not used for at

least $2,000 in purchases over the course of a year. Similarly, § 1026.52(b)(2)(i)(B)(2) prohibits

a card issuer from imposing a $50 annual fee on all accounts of a particular type but waiving the

fee on any account that is used for at least $2,000 in purchases over the course of a year if the

card issuer promotes the waiver or rebate of the annual fee for purposes of § 1026.55(e).

72 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

However, if the card issuer does not promote the waiver or rebate of the annual fee for purposes

of § 1026.55(e), § 1026.52(b)(2)(i)(B)(2) does not prohibit a card issuer from considering

account activity along with other factors when deciding whether to waive or rebate annual fees

on individual accounts (such as in response to a consumer’s request).

6. Closed account fees. Section 1026.52(b)(2)(i)(B)(3) prohibits a card issuer from

imposing a fee based on the closure or termination of an account. For example,

§ 1026.52(b)(2)(i)(B)(3) prohibits a card issuer from:

i. Imposing a one-time fee to consumers who close their accounts.

ii. Imposing a periodic fee (such as an annual fee, a monthly maintenance fee, or a closed

account fee) after an account is closed or terminated if that fee was not imposed prior to closure

or termination. This prohibition applies even if the fee was disclosed prior to closure or

termination. See also comment 55(d)-1.

iii. Increasing a periodic fee (such as an annual fee or a monthly maintenance fee) after

an account is closed or terminated. However, a card issuer is not prohibited from continuing to

impose a periodic fee that was imposed before the account was closed or terminated.

7. Declined transaction fees. Section 1026.52(b)(2)(i)(B)(1) states that card issuers must

not impose a fee when there is no dollar amount associated with the violation, such as for

transactions that the card issuer declines to authorize. With regard to a covered separate credit

feature and an asset feature on a prepaid account that are both accessible by a hybrid prepaid-

credit card as defined in § 1026.61 where the credit feature is a credit card account under an

open-end (not home-secured) consumer credit plan, § 1026.52(b)(2)(i)(B)(1) prohibits a card

issuer from imposing declined transaction fees in connection with the credit feature, regardless

of whether the declined transaction fee is imposed on the credit feature or on the asset feature of

the prepaid account. For example, if the prepaid card attempts to access credit from the covered

73 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

separate credit feature accessible by the hybrid prepaid-credit card and the transaction is

declined, § 1026.52(b)(2)(i)(B)(1) prohibits the card issuer from imposing a declined transaction

fee, regardless of whether the fee is imposed on the credit feature or on the asset feature of the

prepaid account. Fees imposed for declining a transaction that would have only accessed the

asset feature of the prepaid account and would not have accessed the covered separate credit

feature accessible by the hybrid prepaid-credit are not covered by § 1026.52(b)(2)(i)(B)(1).

52(b)(2)(ii) Multiple Fees Based on a Single Event or Transaction

1. Single event or transaction. Section 1026.52(b)(2)(ii) prohibits a card issuer from

imposing more than one fee for violating the terms or other requirements of an account based

on a single event or transaction. If § 1026.56(j)(1) permits a card issuer to impose fees for

exceeding the credit limit in consecutive billing cycles based on the same over-the-limit

transaction, those fees are not based on a single event or transaction for purposes of

§ 1026.52(b)(2)(ii). The following examples illustrate the application of § 1026.52(b)(2)(ii).

Assume for purposes of these examples that the billing cycles for a credit card account begin on

the first day of the month and end on the last day of the month and that the payment due date

for the account is the twenty-fifth day of the month.

i. Assume that the required minimum periodic payment due on March 25 is $20 and the

card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). On March 26, the card

issuer has not received any payment and imposes a late payment fee. Consistent with

§§§ 1026.52(b)(1)(ii)(A) and (b)(2)(i), the card issuer may impose a $20an $8 late payment fee

on March 26. However, § 1026.52(b)(2)(ii) prohibits the card issuer from imposing an

additional late payment fee if the $20 minimum payment has not been received by a subsequent

date (such as March 31).

74 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

A. On April 3, the card issuer provides a periodic statement disclosing that a $70

required minimum periodic payment is due on April 25. This minimum payment includes the

$20 minimum payment due on March 25 and the $208 late payment fee imposed on March 26.

On April 20, the card issuer receives a $20 payment. No additional payments are received

during the April billing cycle. Section 1026.52(b)(2)(ii) does not prohibit the card issuer from

imposing a late payment fee based on the consumer’s failure to make the $70 required

minimum periodic payment on or before April 25. Accordingly, consistent with

§ 1026.52(b)(1)(ii)(B))) and (b)(2)(i), the card issuer may impose a $35an $8 late payment fee

on April 26.

B. On April 3, the card issuer provides a periodic statement disclosing that a $20

required minimum periodic payment is due on April 25. This minimum payment does not

include the $20 minimum payment due on March 25 or the $208 late payment fee imposed on

March 26. On April 20, the card issuer receives a $20 payment. No additional payments are

received during the April billing cycle. Because the card issuer has received the required

minimum periodic payment due on April 25 and because § 1026.52(b)(2)(ii) prohibits the card

issuer from imposing a second late payment fee based on the consumer’s failure to make the

$20 minimum payment due on March 25, the card issuer cannot impose a late payment fee in

these circumstances.

ii. Assume that the required minimum periodic payment due on March 25 is $30 and the

card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3).

A. On March 25, the card issuer receives a check for $50, but the check is returned for

insufficient funds on March 27. Consistent with §§§ 1026.52(b)(1)(ii), (b)(1)(ii)(A) and

(b)(2)(i)(A), the card issuer may impose a late payment fee of $258 or a returned payment fee of

75 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

$25. However, § 1026.52(b)(2)(ii) prohibits the card issuer from imposing both fees because

those fees would be based on a single event or transaction.

B. Same facts as in comment 52(b)(2)(ii)-1.ii.Aparagraph ii.A above except that that card

issuer receives the $50 check on March 27 and the check is returned for insufficient funds on

March 29. Consistent with §§§ 1026.52(b)(1)(ii), (b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer

may impose a late payment fee of $258 or a returned payment fee of $25. However,

§ 1026.52(b)(2)(ii) prohibits the card issuer from imposing both fees because those fees would

be based on a single event or transaction. If no payment is received on or before the next

payment due date (April 25), § 1026.52(b)(2)(ii) does not prohibit the card issuer from imposing

a late payment fee.

iii. Assume that the required minimum periodic payment due on July 25 is $30 and the

card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). On July 10, the card issuer

receives a $50 payment, which is not returned. On July 20, the card issuer receives a $100

payment, which is returned for insufficient funds on July 24. Consistent with

§ 1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a returned payment fee of

$25. Nothing in § 1026.52(b)(2)(ii) prohibits the imposition of this fee.

iv. Assume that the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3)

and the credit limit for an account is $1,000 and that, consistent with § 1026.56, the consumer

has affirmatively consented to the payment of transactions that exceed the credit limit. On

March 31, the balance on the account is $970 and the card issuer has not received the $35

required minimum periodic payment due on March 25. On that same date (March 31), a $70

transaction is charged to the account, which increases the balance to $1,040. Consistent with

§ 1026.52(b)(1)(ii), (b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late payment fee

of $258 and an over-the-limit fee of $25. Section 1026.52(b)(2)(ii) does not prohibit the

76 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

imposition of both fees because those fees are based on different events or transactions. No

additional transactions are charged to the account during the March, April, or May billing

cycles. If the account balance remains more than $35 above the credit limit on April 26, the

card issuer may impose an over-the-limit fee of $35 pursuant to § 1026.52(b)(1)(ii)(B), to the

extent consistent with § 1026.56(j)(1). Furthermore, if the account balance remains more than

$35 above the credit limit on May 26, the card issuer may again impose an over-the-limit fee of

$35 pursuant to § 1026.52(b)(1)(ii)(B), to the extent consistent with § 1026.56(j)(1). Thereafter,

§ 1026.56(j)(1) does not permit the card issuer to impose additional over-the-limit fees unless

another over-the-limit transaction occurs. However, if an over-the-limit transaction occurs

during the six billing cycles following the May billing cycle, the card issuer may impose an over-

the-limit fee of $35 pursuant to § 1026.52(b)(1)(ii)(B).

v. Assume that the credit limit for an account is $5,000 and that, consistent with

§ 1026.56, the consumer has affirmatively consented to the payment of transactions that exceed

the credit limit. On July 23, the balance on the account is $4,950. On July 24, the card issuer

receives the $100 required minimum periodic payment due on July 25, reducing the balance to

$4,850. On July 26, a $75 transaction is charged to the account, which increases the balance to

$4,925. On July 27, the $100 payment is returned for insufficient funds, increasing the balance

to $5,025. Consistent with §§§ 1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose

a returned payment fee of $25 or an over-the-limit fee of $25. However, § 1026.52(b)(2)(ii)

prohibits the card issuer from imposing both fees because those fees would be based on a single

event or transaction.

vi. Assume that the required minimum periodic payment due on March 25 is $50 and

the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). On March 20, the card

issuer receives a check for $50, but the check is returned for insufficient funds on March 22.

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Consistent with §§§ 1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a returned

payment fee of $25. On March 25, the card issuer receives a second check for $50, but the check

is returned for insufficient funds on March 27. Consistent with §§§ 1026.52(b)(1)(ii),

(b)(1)(ii)(A), (b)(1)(ii)(B), and (b)(2)(i)(A), the card issuer may impose a late payment fee of

$258 or a returned payment fee of $35. However, § 1026.52(b)(2)(ii) prohibits the card issuer

from imposing both fees because those fees would be based on a single event or transaction.

vii. Assume that the required minimum periodic payment due on February 25 is $100

and the card issuer is not a smaller card issuer pursuant to § 1026.52(b)(3). On February 25, the

card issuer receives a check for $100. On March 3, the card issuer provides a periodic statement

disclosing that a $120 required minimum periodic payment is due on March 25. On March 4,

the $100 check is returned to the card issuer for insufficient funds. Consistent with

§§§ 1026.52(b)(1)(ii), (b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late payment

fee of $258 or a returned payment fee of $25 with respect to the $100 payment. However,

§ 1026.52(b)(2)(ii) prohibits the card issuer from imposing both fees because those fees would

be based on a single event or transaction. On March 20, the card issuer receives a $120 check,

which is not returned. No additional payments are received during the March billing cycle.

Because the card issuer has received the required minimum periodic payment due on March 25

and because § 1026.52(b)(2)(ii) prohibits the card issuer from imposing a second fee based on

the $100 payment that was returned for insufficient funds, the card issuer cannot impose a late

payment fee in these circumstances.

52(b)(3) Smaller card issuer

523(b)(3)(i)

1. Entire calendar year. To meet the definition of smaller card issuer, a card issuer

together with its affiliates must have fewer than one million open credit accounts for the entire

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preceding calendar year. Thus, for example, if a card issuer together with its affiliates had more

than one million open credit card accounts from January through October of the preceding

calendar year but had fewer than that threshold number in November and December, the card

issuer is not a smaller card issuer in the next calendar year. Further, the card issuer is not a

smaller card issuer until such time that the card issuer’s number of open credit card accounts,

together with those of its affiliates, remains below one million for an entire preceding calendar

year.

52(b)(3)(ii)

1. Meeting or exceeding threshold in current calendar year. If a card issuer together

with its affiliates had fewer than one million open credit card accounts for the entire preceding

calendar year but meets or exceeds that number of open credit card accounts in the current

calendar year, then the card issuer will no longer meets the definition of smaller card issuer and

therefore may not impose a late fee pursuant to § 1026.52(b)(ii)(E) as of 60 days after meeting

or exceeding the threshold number of open credit card accounts. For purposes of imposing a

late fee pursuant to the safe harbor provisions, the card issuer may impose a late fee of no more

than $8 pursuant to § 1026.52(b)(1)(ii) as of the 60

day.

* * * * *

Section 1026.60 - Credit and Charge Card Applications and Solicitations

* * * * *

60(a)(2) Form of Disclosures; Tabular Format

1. Location of table.

i. General. Except for disclosures given electronically, disclosures in § 1026.60(b) that

are required to be provided in a table must be prominently located on or with the application or

solicitation. Disclosures are deemed to be prominently located, for example, if the disclosures

79 UNOFFICIAL REDLINE OF CREDIT CARD PENALTY FEES FINAL RULE

are on the same page as an application or solicitation reply form. If the disclosures appear

elsewhere, they are deemed to be prominently located if the application or solicitation reply

form contains a clear and conspicuous reference to the location of the disclosures and indicates

that they contain rate, fee, and other cost information, as applicable.

ii. Electronic disclosures. If the table is provided electronically, the table must be

provided in close proximity to the application or solicitation. Card issuers have flexibility in

satisfying this requirement. Methods card issuers could use to satisfy the requirement include,

but are not limited to, the following examples (whatever method is used, a card issuer need not

confirm that the consumer has read the disclosures):

A. The disclosures could automatically appear on the screen when the application or

reply form appears;

B. The disclosures could be located on the same Web page as the application or reply

form (whether or not they appear on the initial screen), if the application or reply form contains

a clear and conspicuous reference to the location of the disclosures and indicates that the

disclosures contain rate, fee, and other cost information, as applicable;

C. Card issuers could provide a link to the electronic disclosures on or with the

application (or reply form) as long as consumers cannot bypass the disclosures before

submitting the application or reply form. The link would take the consumer to the disclosures,

but the consumer need not be required to scroll completely through the disclosures; or

D. The disclosures could be located on the same Web page as the application or reply

form without necessarily appearing on the initial screen, immediately preceding the button that

the consumer will click to submit the application or reply.

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2. Multiple accounts. If a tabular format is required to be used, card issuers offering

several types of accounts may disclose the various terms for the accounts in a single table or may

provide a separate table for each account.

3. Information permitted in the table. See the commentary to § 1026.60(b), (d), and

(e)(1) for guidance on additional information permitted in the table.

4. Deletion of inapplicable disclosures. Generally, disclosures need only be given as

applicable. Card issuers may, therefore, omit inapplicable headings and their corresponding

boxes in the table. For example, if no foreign transaction fee is imposed on the account, the

heading Foreign transaction and disclosure may be deleted from the table, or the disclosure

form may contain the heading Foreign transaction and a disclosure showing none. There is an

exception for the grace period disclosure; even if no grace period exists, that fact must be stated.

5. Highlighting of annual percentage rates and fee amounts.

i. In general. See Samples G-10(B) and G-10(C) for guidance on providing the

disclosures described in § 1026.60(a)(2)(iv) in bold text. Other annual percentage rates or fee

amounts disclosed in the table may not be in bold text. Samples G-10(B) and G-10(C) also

provide guidance to issuers on how to disclose the rates and fees described in

§ 1026.60(a)(2)(iv) in a clear and conspicuous manner, by including these rates and fees

generally as the first text in the applicable rows of the table so that the highlighted rates and fees

generally are aligned vertically in the table.

ii. Maximum limits on fees. Section 1026.60(a)(2)(iv) provides that any maximum limits

on fee amounts must be disclosed in bold text. For example, assume that a card issuer is not a

smaller card issuer as defined in § 1026.52(b)(3) and, consistent with § 1026.52(b)(1)(ii), thea

card issuer’s late payment fee will not exceed $358. The maximum limit of $358 for the late

payment fee must be highlighted in bold. Similarly, assume an issuer will charge a cash advance

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fee of $5 or 3 percent of the cash advance transaction amount, whichever is greater, but the fee

will not exceed $100. The maximum limit of $100 for the cash advance fee must be highlighted

in bold.

iii. Periodic fees. Section 1026.60(a)(2)(iv) provides that any periodic fee disclosed

pursuant to § 1026.60(b)(2) that is not an annualized amount must not be disclosed in bold.

For example, if an issuer imposes a $10 monthly maintenance fee for a card account, the issuer

must disclose in the table that there is a $10 monthly maintenance fee, and that the fee is $120

on an annual basis. In this example, the $10 fee disclosure would not be disclosed in bold, but

the $120 annualized amount must be disclosed in bold. In addition, if an issuer must disclose

any annual fee in the table, the amount of the annual fee must be disclosed in bold.

6. Form of disclosures. Whether disclosures must be in electronic form depends upon

the following:

i. If a consumer accesses a credit card application or solicitation electronically (other

than as described under comment 60(a)(2)-6.iiii. below), such as online at a home computer,

the card issuer must provide the disclosures in electronic form (such as with the application or

solicitation on its Web site) in order to meet the requirement to provide disclosures in a timely

manner on or with the application or solicitation. If the issuer instead mailed paper disclosures

to the consumer, this requirement would not be met.

ii. In contrast, if a consumer is physically present in the card issuer’s office, and accesses

a credit card application or solicitation electronically, such as via a terminal or kiosk (or if the

consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has

arranged with the card issuer to provide applications or solicitations to consumers), the issuer

may provide disclosures in either electronic or paper form, provided the issuer complies with

the timing and delivery (“on or with”) requirements of the regulation.

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7. Terminology. Section 1026.60(a)(2)(i) generally requires that the headings, content,

and format of the tabular disclosures be substantially similar, but need not be identical, to the

applicable tables in appendix G-10 to part 1026; but see § 1026.5(a)(2) for terminology

requirements applicable to § 1026.60 disclosures.

* * * * *