Interpretations of Regulation Z, Circular No. 76-32

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F e d e r a l R e s e r v e B a n k o f D a l l a s DALLAS. TEXAS 75222 C irc u la r No. 76-32 M arch 3, 1976 American Revolution Bicentennial INTERPRETATIONS OF REGULATION Z Modification of Sem iannual Statements P u rsu a n t to State Law; Timing a n d Modification of Semiannual Statements TO ALL BANKS, OTHER CREDITORS, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT:

Quoted below is the text of a statem ent issued F e b ru a ry 3, 1976, by the Board of G overnors of the Federal R eserv e System: T h e Board of G overnors of the Federal R eserv e System today issued two interpretations to the F air C redit Billing sec­ tion of its Regulation Z.

T he in terp reta tio n s relate to:

(1) T he timing of the sem iannual statement cre d ito rs must sen d to th e ir custom ers explaining the p ro c e d u re s for c o rre c t­ ing billing e r r o r s . T his in terp retatio n also perm its a cred ito r to omit any portion of the sem iannual notice that does not a p p ly to a p a rtic u la r c re d it plan.

(2) Modification of sem iannual statem ents sen t in states that have th eir own su b stan tially sim ilar Fair C redit Billing A cts.

Enclosed a re copies of the two in terp reta tio n s of Regulation Z . If you have any q u estio n s, p lease contact George H. McElroy of o u r R egula­ tions D e p a rtm e n ta l (214) 651-6169. A dditional copies of the interpretations will be fu rn ish e d upon re q u e st to the S e c re ta ry 's Office of this Bank. S incerely y o u rs , T . W. Plant F irst Vice P resid en t E nclosures (2) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library ([email protected])

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BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM TRUTH IN LENDING INTERPRETATION OF REGULATION Z Timing and Modification of Semiannual Statements Creditors are required by the Fair Credit Billing Act to disclose to their customers their rights and the creditor’s responsibilities under the Act. The Board in implementing the Act provided a com­ prehensive semiannual statement for this purpose and also provided for an alternate shorter state­ ment which would be sent with each periodic bill­ ing statement. Several questions have arisen with regard to these statements. This interpretation provides:

1. That the first semiannual statements (or shorter statement alternatives) must be mailed or delivered not later than seven months after Oc­ tober 28, 1975.

2. A method for determining when to mail or deliver such statements when a creditor switches from one optional statement to the other. 3. That the shorter statement alternative may be modified to omit any portions inapplicable to the credit plan for which it is sent and to change references in the statement to read “bank,” “com­ pany,” or the creditor’s name. SECTION 226.708 — TIM IN G AND M ODIFICATION OF SEM IANNUAL STATEM ENTS Sections 226.7(d)(1) through 226.7(d)(4) set out the method by which the statement required by § 226.7(a)(9) is to be provided to customers on a semiannual basis. Section 226.7(d)(5) pro­ vides for a shorter statement which, as an alterna­ tive to the provisions of § § 226.7(d) (1) through 226 .7 (d )(4 ), may, under certain conditions, be provided with each periodic statement. The question has arisen of when the first state­ ment, either the longer statement required by § 226.7(a)(9) or the alternate shorter statement under § 2 2 6 .7 (d )(5 ), must be provided under § 226.7(d). Creditors must mail or deliver one or the other of these statements, pursuant to § 226.7(d), not later than seven months after Oc­ tober 28, 1975. In determining when to send the first statement pursuant to § 226.7(d), the initial statements prescribed by § 226.7(a) (9) which are sent to customers with accounts in existence on October 28, 1975, pursuant to § 226.7 (i), may not be considered a statement sent for purposes of § 226.7(d).

A second question has arisen regarding the tim­ ing of disclosures should a creditor change prac­ tices and provide the statement under § 226.7(d) (5) instead of the longer statement prescribed in § 226.7(a) (9). The same question has arisen with respect to the opposite case, i.e., when a creditor first makes disclosure under § 226.7(d)(5) and subsequently decides to make disclosure of the statement prescribed by § 226.7(a)(9) semi­ annually. If a creditor first discloses the § 2 2 6 .7(a)(9) statement semiannually and sub­ sequently decides to use the § 226.7(d)(5) alter­ native, the first statement which must be provided pursuant to § 226.7(d)(5) must be mailed or delivered not later than the time that the next § 226.7(a)(9) statement would have been re­ quired had no change in the creditor’s practice occurred. If a creditor first chooses to make dis­ closure pursuant to § 226.7(d)(5) and subse­ quently decides to provide the longer statement prescribed in § 226.7(a)(9) semianually, the creditor must mail or deliver such longer statement to those customers receiving periodic statements (not later than the mailing or delivery of such periodic statements) pursuant to § 226.7(b) for the billing cycle immediately subsequent to the bill­ ing cycle for which the last statements were mailed or delivered pursuant to § 226.7(d) (5). The tim­ ing of mailing or delivery of § 226.7 (a) (9) state­ ments on a semiannual basis subsequent thereto is to be determined in accordance with §§ 2 2 6 .7 (d )(1 ), (2), (3 ), and (4). A further question has arisen whether a creditor may delete portions of the statement prescribed in § 226.7(d)(5) which are inapplicable to its particular credit plan as in the case of the state­ ment prescribed by § 22 6 .7 (a)(9 ). In line with the general policy of the Truth in Lending Act and Regulation Z which attempt to avoid disclo­ sures which might be confusing to consumers, any portions of the § 226.7(d)(5) statement which are inapplicable to a credit plan may be deleted from the § 226.7(d) (5) statement by the creditor of that plan.

The question has also arisen whether references to the “creditor” in the statement prescribed by § 226.7(d)(5) may be altered or modified as is permitted with regard to the statement prescribed by § 226.7(a) (9). Such alteration or modification is permissible; wherever the word “creditor” ap­ pears or is referred to in the statement prescribed by § 226.7(d) (5), the creditor may substitute ap­ propriate references, such as “company,” “bank,” “we,” or a specific name.

1-30-76

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BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM TRUTH IN LENDING INTERPRETATION OF REGULATION Z Modification of Semiannual Statements Pursuant to State Law This interpretation relates to situations in which a State adopts as law provisions identical to the Fair Credit Billing Amendments to Regulation Z published by the Board on September 19, 1975, (40 Federal Register 43199). The interpretation provides that in such cases it is permissible for creditors to alter or modify the statements pre­ scribed in §§ 226.7(a)(9) and 226.7(d)(5) to provide a reference to the State’s law and that a State law requiring or allowing such a modifica­ tion is not inconsistent with the Act or Regulation Z as contemplated in §226.6 (b ). The interpretation also sets out the manner in which such a reference must be made.

SECTION 226.606 — M ODIFICATION OF SEM IANNUAL STATEM ENTS PURSUANT TO STATE LAW (a) Sections 226.7(a)(9) and 226.7(d)(5) prescribe statements regarding customers’ rights and creditors’ responsibilities under certain sec­ tions of the Regulation. These statements contain specific references to the “Federal Truth in Lend­ ing Act,” “Federal Fair Credit Billing Act,” and the “Act.”

(b) Certain States have adopted, or intend to adopt, regulations or statutes identical to the amendments to Regulation Z adopted by the Board on September 15, 1975, for the purpose of imple­ menting the Fair Credit Billing Act. The question has arisen whether the statements prescribed by §§ 226.7(a)(9) and 226.7(d)(5) may be modi­ fied under these circumstances to include a refer­ ence to the State law immediately following the relevant reference to the Federal law, or whether separate statements are required under both the State law and Federal laws.

(c) In the circumstances described above, it is permissible for a creditor to modify the statements prescribed by §§ 2 2 6 .7(a)(9) and 226.7(d) (5) in the form of a reference to the relevant State law by name. Such a disclosure, if made immediately following the relevant reference to the titled Fed­ eral law in substantially the following manner: “and the [insert the name of the State and the State law involved],” is permissible under Regula­ tion Z and any State law requiring such a disclo­ sure is not inconsistent with the Act or Regulation within the meaning of § 226.6(b). It is similarly permissible to substitute “these Acts” for the words “the Act” where it appears in the statement required by § 226.7(a) (9).