12 CFR 1026.59 – Reevaluation of rate increases
(a) General rule—(1) Evaluation of increased rate. If a card issuer increases an annual percentage rate that applies to a credit card account under an open-end (not home-secured) consumer credit plan, based on the credit risk of the consumer, market conditions, or other factors, or increased such a rate on or after January 1, 2009, and 45 days’ advance notice of the rate increase is required pursuant to § 1026.9(c)(2) or (g), the card issuer must:
Terms Used In 12 CFR 1026.59
- Annual percentage rate: The cost of credit at a yearly rate. It is calculated in a standard way, taking the average compound interest rate over the term of the loan so borrowers can compare loans. Lenders are required by law to disclose a card account's APR. Source: FDIC
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Variable Rate: Having a "variable" rate means that the APR changes from time to time based on fluctuations in an external rate, normally the Prime Rate. This external rate is known as the "index." If the index changes, the variable rate normally changes. Also see Fixed Rate.
(i) Evaluate the factors described in paragraph (d) of this section; and
(ii) Based on its review of such factors, reduce the annual percentage rate applicable to the consumer’s account, as appropriate.
(2) Rate reductions—(i) Timing. If a card issuer is required to reduce the rate applicable to an account pursuant to paragraph (a)(1) of this section, the card issuer must reduce the rate not later than 45 days after completion of the evaluation described in paragraph (a)(1).
(ii) Applicability of rate reduction. Any reduction in an annual percentage rate required pursuant to paragraph (a)(1) of this section shall apply to:
(A) Any outstanding balances to which the increased rate described in paragraph (a)(1) of this section has been applied; and
(B) New transactions that occur after the effective date of the rate reduction that would otherwise have been subject to the increased rate.
(b) Policies and procedures. A card issuer must have reasonable written policies and procedures in place to conduct the review described in paragraph (a) of this section.
(c) Timing. A card issuer that is subject to paragraph (a) of this section must conduct the review described in paragraph (a)(1) of this section not less frequently than once every six months after the rate increase.
(d) Factors—(1) In general. Except as provided in paragraph (d)(2) of this section, a card issuer must review either:
(i) The factors on which the increase in an annual percentage rate was originally based; or
(ii) The factors that the card issuer currently considers when determining the annual percentage rates applicable to similar new credit card accounts under an open-end (not home-secured) consumer credit plan.
(2) Rate increases imposed between January 1, 2009 and February 21, 2010. For rate increases imposed between January 1, 2009 and February 21, 2010, an issuer must consider the factors described in paragraph (d)(1)(ii) when conducting the first two reviews required under paragraph (a) of this section, unless the rate increase subject to paragraph (a) of this section was based solely upon factors specific to the consumer, such as a decline in the consumer’s credit risk, the consumer’s delinquency or default, or a violation of the terms of the account.
(e) Rate increases due to delinquency. If an issuer increases a rate applicable to a consumer’s account pursuant to § 1026.55(b)(4) based on the card issuer not receiving the consumer’s required minimum periodic payment within 60 days after the due date, the issuer is not required to perform the review described in paragraph (a) of this section prior to the sixth payment due date after the effective date of the increase. However, if the annual percentage rate applicable to the consumer’s account is not reduced pursuant to § 1026.55(b)(4)(ii), the card issuer must perform the review described in paragraph (a) of this section. The first such review must occur no later than six months after the sixth payment due following the effective date of the rate increase.
(f) Termination of obligation to review factors. The obligation to review factors described in paragraph (a) and (d) of this section ceases to apply:
(1) If the issuer reduces the annual percentage rate applicable to a credit card account under an open-end (not home-secured) consumer credit plan to the rate applicable immediately prior to the increase, or, if the rate applicable immediately prior to the increase was a variable rate, to a variable rate determined by the same formula (index and margin) that was used to calculate the rate applicable immediately prior to the increase; or
(2) If the issuer reduces the annual percentage rate to a rate that is lower than the rate described in paragraph (f)(1) of this section.
(3) Effective April 1, 2022, in the case where the rate applicable immediately prior to the increase was a variable rate with a formula based on a LIBOR index, the card issuer reduces the annual percentage rate to a rate determined by a replacement formula that is derived from a replacement index value on October 18, 2021, plus replacement margin that is equal to the LIBOR index value on October 18, 2021, plus the margin used to calculate the rate immediately prior to the increase (previous formula). A card issuer must satisfy the conditions set forth in § 1026.55(b)(7)(ii) for selecting a replacement index. If the replacement index is not published on October 18, 2021, the card issuer generally must use the values of the indices on the next calendar day for which both the LIBOR index and the replacement index are published as the index values to use to determine the replacement formula. The one exception is that if the replacement index is the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, must use the index value on the first date that index is published, as the index values to use to determine the replacement formula.
(g) Acquired accounts—(1) General. Except as provided in paragraph (g)(2) of this section, this section applies to credit card accounts that have been acquired by the card issuer from another card issuer. A card issuer that complies with this section by reviewing the factors described in paragraph (d)(1)(i) must review the factors considered by the card issuer from which it acquired the accounts in connection with the rate increase.
(2) Review of acquired portfolio. If, not later than six months after the acquisition of such accounts, a card issuer reviews all of the credit card accounts it acquires in accordance with the factors that it currently considers in determining the rates applicable to its similar new credit card accounts:
(i) Except as provided in paragraph (g)(2)(iii), the card issuer is required to conduct reviews described in paragraph (a) of this section only for rate increases that are imposed as a result of its review under this paragraph. See §§ 1026.9 and 1026.55 for additional requirements regarding rate increases on acquired accounts.
(ii) Except as provided in paragraph (g)(2)(iii) of this section, the card issuer is not required to conduct reviews in accordance with paragraph (a) of this section for any rate increases made prior to the card issuer’s acquisition of such accounts.
(iii) If as a result of the card issuer’s review, an account is subject to, or continues to be subject to, an increased rate as a penalty, or due to the consumer’s delinquency or default, the requirements of paragraph (a) of this section apply.
(h) Exceptions—(1) Servicemembers Civil Relief Act exception. The requirements of this section do not apply to increases in an annual percentage rate that was previously decreased pursuant to 50 U.S.C. app. 527, provided that such a rate increase is made in accordance with § 1026.55(b)(6).
(2) Charged off accounts. The requirements of this section do not apply to accounts that the card issuer has charged off in accordance with loan-loss provisions.
(3) Transition from LIBOR. The requirements of this section do not apply to increases in an annual percentage rate that occur as a result of the transition from the use of a LIBOR index as the index in setting a variable rate to the use of a replacement index in setting a variable rate if the change from the use of the LIBOR index to a replacement index occurs in accordance with § 1026.55(b)(7)(i) or (ii).